Geopolitical factors, including unrest in Libya and production cuts from Iraq and Russia, are tightening oil supply, potentially increasing prices and profit margins for oil companies. Although the industry is shifting toward cleaner fuels, oil remains a vital energy source, and varying forecasts on this transition create near-term investment opportunities.
Amid this backdrop, it could be wise to consider buying strong oil and gas stocks such as APA Corporation (APA), Adams Resources & Energy, Inc. (AE), and VAALCO Energy, Inc. (EGY), which remain undervalued in 2024.
Despite economic shifts, OPEC projects global oil demand to rise by 1.93 million barrels per day (bpd) in 2024, indicating steady consumption. The report also highlights potential production increases in the fourth quarter, with demand anticipated at 43.7 million bpd. Notably, stimulus measures in China are expected to further boost oil demand during this period.
Additionally, according to Statista, primary energy consumption is projected to reach approximately 364 million barrels of oil equivalent per day by 2045. Oil and gas are expected to lead this growth, contributing 110 and 90 million barrels of oil equivalent per day, respectively. Furthermore, advancements in exploration, and production, enhance market prospects, fostering an optimistic outlook for the industry.
Considering these favorable trends and strong demand, let’s now explore the fundamentals of the three featured Energy - Oil & Gas stocks, starting with number three.
Stock #3: APA Corporation (APA)
APA is an independent energy company that explores, develops, and produces natural gas, crude oil, and natural gas liquids. It has oil and gas operations in the United States, Egypt, and the North Sea. The company also conducts exploration and appraisal activities in Suriname and holds interests in projects located internationally.
On October 1, 2024, APA announced a final investment decision for the first oil development offshore Suriname, a joint venture with TotalEnergies. The project, expected to start production in 2028, aims to produce 220,000 barrels of oil per day using technologies to minimize greenhouse gas emissions.
In terms of forward non-GAAP P/E, APA’s 6.31x is 47.8% lower than the 12.09x industry average. Its 1.85x forward EV/Sales is 5.6% lower than the 1.96x industry average. Similarly, its 1x forward Price/Sales is 32.9% lower than the 1.50x industry average.
In the second quarter, which ended on June 30, APA’s total revenue increased 41.6% year-over-year to $2.54 billion. The company’s adjusted earnings were $434 million, or $1.17 per share, up 64.4% and 37.6% from the prior year’s quarter, respectively. Additionally, its adjusted EBITDAX increased 29.5% year-over-year to $1.58 billion.
For the quarter ending December 31, 2024, APA’s EPS is expected to increase 20.4% year-over-year to $2.28 billion. Its revenue for the quarter ending March 31, 2025, is expected to increase 32.9% year-over-year to $1.04. APA’s stock has gained 1.5% over the past month to close the last trading session at $24.80.
APA’s POWR Ratings reflect this positive outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Energy - Oil & Gas industry, it is ranked #25 out of 77 stocks. It has a B grade for Value and Quality. To see the other ratings of APA for Growth, Momentum, Stability, and Sentiment, click here.
Stock #2: Adams Resources & Energy, Inc. (AE)
AE primarily engages in the marketing, transportation, terminalling, and storage of crude oil and other related products in the United States. The company operates through four segments: Crude Oil Marketing, Transportation, Pipeline and Storage, and Logistics and Repurposing.
In terms of forward EV/EBITDA, AE’s 3.31x is 44.6% lower than the 5.98x industry average. Its 0.02x forward Price/Sales is 98.3% lower than the 1.50x industry average. Moreover, its 0.03x forward EV/Sales is 98.7% lower than the 1.96x industry average.
AE’s total revenue for the second quarter, which ended on June 30, 2024, increased by 15% year-over-year to $718.49 million. Its cash inflow from operating activities amounted to $8.32 million, compared to an outflow of $27.32 million in the prior-year quarter.
For the same period, the company’s adjusted EBITDA stood at $4.20 million. Additionally, as of June 30, 2024, its cash and cash equivalents were $38.51 million, compared to $33.26 million as of December 31, 2023.
AE surpassed the Street revenue estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 10.2% to close the last trading session at $26.51.
AE’s POWR Ratings reflect its solid fundamentals. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It is ranked #10 in the same industry. It has a B grade for Value. Click here to see the additional grades of AE for Growth, Momentum, Stability, Sentiment, and Quality.
Stock #1: VAALCO Energy, Inc. (EGY)
EGY is an independent energy company that engages in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in Gabon, Egypt, Equatorial Guinea, and Canada.
In terms of forward EV/Sales, EGY’s 1.32x is 32.9% lower than the 1.96x industry average. Its 1.27x forward Price/Sales is 15.3% lower than the 1.50x industry average. In addition, its 7.14x forward non-GAAP P/E is 40.9% lower than the 12.09x industry average.
For the second quarter that ended on June 30, 2024, EGY’s total net revenue increased 6.9% year-over-year to $116.78 million. Similarly, its income before income taxes grew 104.2% from the year-ago value to $37.45 million. Moreover, the company’s net income came in at $28.15 million and $0.27 per share, up 316.9% and 350% year-over-year, respectively.
Analysts expect EGY’s EPS and revenue for the quarter ended September 30, 2024, to increase 200% and 25.5% year-over-year to $0.18 and $145.89 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 37.9% to close the last trading session at $5.93.
EGY’s POWR Ratings reflect its bright prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. Within the Energy - Oil & Gas industry, it is ranked #6. To access EGY’s additional grades for Growth, Momentum, and Stability, click here.
What To Do Next?
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APA shares were trading at $24.90 per share on Thursday afternoon, up $0.10 (+0.40%). Year-to-date, APA has declined -28.93%, versus a 23.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
3 Oil & Gas Stocks That Are Still Undervalued in 2024 StockNews.com
