The stock market’s recent rally has relieved investors of the consistent sell-offs. Last week, the Dow notched its best three-week stretch since November 2020.
While the mood is upbeat on the third-quarter corporate earnings releases and hopes of the Fed going easy with future interest rate hikes, this optimism may fizzle out soon.
With inflation repeatedly beating estimates and coming in above 8% for the seventh consecutive month, businesses’ profit margins continue to feel pressure. Moreover, persistently high inflation might push the Fed to proceed with the anticipated fourth consecutive 75-bps interest rate hike next month. Chris Senyek, Chief Investment Strategist at Wolfe Research, has also cautioned, “a Fed pause is a long way off.”
Given this backdrop, it could be wise to invest in BP p.l.c. (BP), APA Corporation (APA), and Unit Corporation (UNTC), which have gained momentum lately and are well-positioned to maintain the same.
BP p.l.c. (BP)
BP is a global energy company headquartered in London, United Kingdom. The company operates through four segments: Gas & Low Carbon Energy; Oil Production & Operations; Customers & Products; and Rosneft.
On October 17, it was disclosed that Archaea Energy Inc. (LFG) is set to be acquired by BP for a total enterprise value of approximately $4.1 billion, including $800 million of net debt. This acquisition is expected to advance the company’s strategic focus on bioenergy.
For the second quarter of the fiscal year 2022 ended June 30, BP’s sales and other operating revenues increased 86.1% year-over-year to $67.87 billion. Profit attributed to BP shareholders rose 197.1% year-over-year to $9.26 billion, translating to $0.47 per ordinary share, up 208.4% year-over-year.
BP’s financial discipline has seen its net debt fall for the ninth consecutive quarter to reach $22.8 billion at the end of the second quarter. BP’s strong financial performance and increasing intrinsic value were demonstrated by share buybacks of $2.3 billion and a 10% increase in its quarterly dividend to 6.006 cents ($0.06) per ordinary share during the quarter.
Analysts expect BP’s revenue and EPS for the current fiscal year (ending December 2022) to increase 49% and 120% year-over-year to $235.08 billion and $8.40, respectively. The company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 13.5% over the past month and 16.2% year-to-date to close the last trading session at $31.80. BP is currently trading above its 50-day and 200-day moving averages of $30.83 and $30.35, respectively.
BP’s solid fundamentals and steady prospects are reflected in its overall rating of B, which translates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
BP also has a grade of A for Momentum and Growth. It is ranked #18 among 42 stocks in the A-rated Foreign Oil & Gas industry.
Click here for additional POWR Ratings on Value, Sentiment, Stability, and Quality for BP.
APA Corporation (APA)
As an independent energy company, APA explores, develops, and produces natural gas, crude oil, and natural gas liquids (NGLs). The company operates in the United States, Egypt, and the offshore United Kingdom in the North Sea, Suriname, and other international locations.
On September 14, APA announced an increase in annual dividend from $0.50 per common share to $1.00 per common share, yielding 2.32% at the current price, compared to a 4-year average dividend yield of 2.87%. The next quarterly dividend of $0.25 per share will be paid out on November 22, 2022.
In August, APA announced an oil discovery offshore Suriname at Baja-1 in Block 53, drilled to a depth of 5,290 meters, and encountered 34 meters of net oil pay in a single interval within the Campanian. The company is currently progressing through the formalization of the election of the first one-year extension, for which all work commitments are complete.
For the second quarter of fiscal 2022 ended June 30, 2022, APA’s total revenues came in at $3.05 billion, up 71.3% year-over-year. During the same period, APA’s net income attributable to common stock increased 193% year-over-year to $926 million, while its net income per share increased 230.5% year-over-year to $2.71.
Analysts expect APA’s revenue and EPS for the current fiscal year (ending December 31, 2022) to increase 34.5% and 112.8% year-over-year to $10.66 billion and $8.30, respectively.
The stock is currently trading above its 50-day and 200-day moving averages of $38.45 and $38.07, respectively. It has gained 32.1% over the past month and 56% year-to-date to close the last trading session at $43.76.
APA’s excellent prospects have earned it an overall POWR Rating of B, which translates to a Buy in our proprietary rating system. The stock has grade A for Momentum and Quality and B for Growth and Value.
APA is ranked #13 of 94 stocks in the B-rated Energy – Oil & Gas industry.
Click here to learn the additional POWR Ratings for Stability and Sentiment for APA.
Unit Corporation (UNTC)
UNTC explores, acquires, develops, and operates oil and natural gas properties in the United States. The company operates through its three broad segments: Oil and Natural Gas; Contract Drilling; and Mid-Stream.
UNTC’s cash balance accounts for more than $115 million by the end of the second quarter, augmented by proceeds received in July from the sale of its Gulf Coast oil and gas properties for $56 million. With zero long-term debt, and an attractive inventory of upstream development opportunities, the company is poised to further create and return substantial value to its shareholders.
For the second quarter of the fiscal year 2022 ended June 30, UNTC’s total revenues increased marginally year-over-year to $134.55 million. Income from operations rose 79.8% from the prior-year quarter to $70.16 million. Net income attributable to UNTC came in at $80.09 million and $7.82 per share, compared to a net loss of $12.99 million and $1.09 per share in the prior-year quarter.
Shares of UNTC have gained 64.4% year-to-date to close the last trading session at $54.00, marginally below its 50-day and 200-day moving averages of $57.30 and $55.80, respectively.
UNTC’s overall POWR Rating of A, translating to Strong Buy, reflects its promising outlook. It also has a grade A for Momentum, Value, and Quality.
The stock is ranked #5 among 94 stocks in the Energy - Oil & Gas industry. Click here for additional ratings on Growth, Stability, and Sentiment for UNTC.
BP shares were trading at $32.04 per share on Tuesday afternoon, up $0.24 (+0.75%). Year-to-date, BP has gained 24.27%, versus a -18.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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