Oil and gas prices surged significantly last year, driven by high demand and supply chain disruptions aggravated by the Russia-Ukraine war. As per the CPI report for December, the energy index rose 7.3% over the past 12 months. Over the same period, the index for fuel oil jumped 41.5%, while the natural gas index grew 19.3%.
Moreover, the energy sector massively outperformed the broader market for most of 2022. Over the past year, the Energy Select Sector SPDR Fund (XLE) has gained 43.6%, whereas the broader S&P 500 index declined 7.7%.
With the full reopening of the Chinese economy, the International Energy Agency (IEA) increased its global demand forecast. IEA has stated that the lifting of China's COVID-19 restrictions could cause the world's oil demand to reach its highest level ever, rising by 1.9 mb/d this year, to a record 101.7 mb/d.
With demand recovering in China and emerging markets overall, energy prices should continue to climb in 2023. According to hedge fund manager Pierre Andurand, oil prices are expected to reach over $140 per barrel this year.
Against this backdrop, it could be wise to add quality energy stocks Valero Energy Corporation (VLO), APA Corporation (APA), and Berry Corporation (BRY) to your portfolio this year. These stocks have exhibited significant momentum recently and could explode this year.
Valero Energy Corporation (VLO)
VLO is a global manufacturer and distributor of transportation fuels and petrochemical products. The company operates through three segments, Refining; Renewable Diesel; and Ethanol. It produces asphalt, blendstocks, jet fuel, diesel, and other refined petroleum products.
On September 26, 2022, VLO decreased its debt by roughly $1.25 billion through previously announced tender offers for various series of VLO's senior notes, which the business funded with cash on hand. These deals lowered VLO's debt by almost $3.60 billion, combined with debt reduction and refinancing agreements concluded in the second half of 2021 and the first half of 2022.
In terms of forward non-GAAP P/E, the stock is trading at 5.07x, which is 37.5% lower than the industry average of 8.11x. Also, the stock’s forward EV/EBITDA multiple of 3.68 is 32.8% lower than the 5.48 industry average.
For the fiscal third quarter that ended September 30, 2022, VLO’s revenue grew 50.6% year-over-year to $44.45 billion, and its operating income rose 447.2% from the prior year’s period to $3.79 billion. The company’s net income stood at $2.91 billion, up 473.2% year-over-year, while its EPS rose 536.3% year-over-year to $2.25.
VLO pays a $3.92 per share dividend annually, which translates to a 2.74% yield on the current price level. The company’s dividend payments have grown at a 7% CAGR over the past five years, and its four-year average dividend yield is 5.04%.
The consensus revenue estimate of $177.31 billion for the fiscal year that ended December 2022 indicates a 55.6% year-over-year improvement. The consensus EPS estimate of $28.82 for the same year reflects a rise of 904.1% from the prior year. Furthermore, VLO surpassed its consensus EPS in all four trailing quarters, which is impressive.
Shares of VLO have gained 32.7% over the past six months and 84.5% over the past year to close the last trading session at $145.03. The stock is currently trading above its 50-day and 200-day moving averages of $129.26 and $119.21, respectively, indicating an uptrend.
VLO’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Momentum and a B for Growth, Value, and Quality. In the 92-stock B-rated Energy - Oil & Gas industry, VLO is ranked #3.
Beyond what we stated above, we also have VLO’s ratings for Stability and Sentiment. Get all VLO ratings here.
APA Corporation (APA)
APA explores, develops, and produces oil and gas properties. It conducts business in the United States, Egypt, the United Kingdom, and offshore Suriname. The company owns four Permian-to-Gulf Coast pipelines and also runs collection, processing, and transmission facilities in West Texas.
APA’s forward non-GAAP P/E is trading at 5.71x, which is 29.6% lower than the industry average of 8.11x. Moreover, the stock’s forward EV/EBITDA multiple of 3.16 is 42.2% lower than the 5.48 industry average.
The company’s revenue grew 40.2% year-over-year to $2.89 billion in the fiscal third quarter that ended September 30, 2022. Its adjusted EBITDAX rose 45.9% from the prior year’s period to $1.69 billion. APA’s adjusted earnings after tax came in at $651 million, up 75% year-over-year, while its adjusted EPS increased 101% from the year-ago value to $1.97.
APA pays a $1 per share dividend annually, which translates to a 2.20% yield on the current price level. Its four-year average dividend yield is 2.77%.
The consensus revenue and EPS estimate of $10.55 billion and $7.90 for the fiscal year that ended December 2022 indicate 33.1% and 102.4% year-over-year improvements, respectively.
The stock has gained 28% over the past six months and 44.3% over the past year to close the last trading session at $44.06. It is currently trading above its 200-day moving average of $41.16.
APA’s promising fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
APA has an A grade for Momentum and Quality. Within the Energy - Oil & Gas industry, it is ranked #26 of 92 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see APA ratings for Growth, Value, Sentiment, and Stability here.
Berry Corporation (BRY)
BRY is an independent upstream energy business focused on developing and producing oil reserves in the western United States. Its segments include Development and Production; and Well Servicing and Abandonment.
BRY’s forward non-GAAP P/E is currently trading at 4.77x, which is 41.2% lower than the industry average of 8.11x. Likewise, the stock’s forward EV/Sales multiple of 1.32 is 30.1% lower than the 1.89 industry average.
For the fiscal third quarter that ended September 30, BRY’s total revenues and other increased 162.5% year-over-year to $376.45 million, and its adjusted EBITDA rose 63.5% year-over-year to $96.98 million. Moreover, the company’s adjusted net income and EPS came in at $45.52 million and $0.55, up 294.5% and 292.9% year-over-year, respectively.
The company pays a $0.24 per share dividend annually, translating to a 2.59% yield on the current price level. Its four-year average dividend yield is 6.17%.
Analysts expect BRY’s revenue to increase 49.5% year-over-year to $814.77 million for the fiscal year that ended December 2022. The company’s EPS for the same year is expected to rise 674.4% from the previous year to $1.94.
Shares of BRY have gained 14.2% over the past month and 31.8% over the past six months to close the last trading session at $9.16. The stock is currently trading above its 50-day and 200-day moving averages of $8.35 and $9.10, respectively.
BRY’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has an A grade for Value and Momentum and a B for Growth. Within the same industry, it is ranked #4 of 92 stocks.
To see additional POWR Ratings for Stability, Quality, and Sentiment for BRY, click here.
VLO shares were trading at $142.80 per share on Wednesday morning, down $2.23 (-1.54%). Year-to-date, VLO has gained 12.57%, versus a 3.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
3 Potentially Explosive Energy Stocks to Buy in 2023 StockNews.com
