The Biden administration is considering restocking the Strategic Petroleum Reserve, supporting oil prices that had dropped as low as $85 per barrel on bearish inflation data.
Furthermore, in its September report, the International Energy Agency (IEA) said that it expects widespread switching from gas to oil which could partially offset demand slowdown. World oil demand is forecast to rise by 2 mb/d in 2022 and 2.1 mb/d in 2023.
JPMorgan energy strategist Christyan Malek expects oil prices to head toward $150 per barrel as supply growth continues to lag.
Given this backdrop, it could be wise to invest in fundamentally strong oil stocks Valero Energy Corporation (VLO), Marathon Oil Corporation (MRO), and APA Corporation (APA) before the bull market returns.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products globally. The company operates through three segments: Refining; Renewable Diesel; and Ethanol.
On July 21, VLO declared a regular quarterly cash dividend on its common stock of $0.98 per share. The dividend was payable to shareholders on September 1. This reflects upon the cash generation ability of the company.
VLO’s revenue increased 86.1% year-over-year to $51.64 billion in the second quarter that ended June 30. Its operating income grew 1,121.8% from the year-ago value to $6.22 billion, while adjusted net income attributable to VLO stockholders improved 1,672.7% year-over-year to $4.61 billion. The company’s adjusted earnings per common share rose 1,703.2% from its year-ago value to $11.36.
The consensus EPS estimate of $7.55 for the fiscal third quarter ending September 2022 indicates a 518.6% improvement year-over-year. The consensus revenue is expected to increase 53.1% from the same period last year to $45.21 billion. Additionally, VLO has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 69.4% over the past year and 45.9% year-to-date to close its last trading session at $109.59.
VLO’s POWR Ratings reflect this promising outlook. The company's overall A rating translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VLO is rated an A in Growth and Momentum and a B in Value and Quality. Within the B-rated Energy – Oil & Gas industry, it is ranked #2 out of 95 stocks. To see additional POWR Ratings for Stability and Sentiment for VLO, click here.
Marathon Oil Corporation (MRO)
MRO is an independent exploration and production company operating internationally. The company explores, produces, and sells crude oil, condensate, natural gas liquids, and natural gas. It also produces liquefied natural gas and methanol.
On July 27, MRO’s board of directors declared a dividend of eight cents per share on its common stock. The dividend was payable to stockholders on September 12. This reflects upon the company’s ability in shareholder returns.
MRO’s total revenues and other income came in at $2.30 billion for the second quarter ended June 30, representing a 101.4% year-over-year growth. Its income from operations grew 1,132.4% from the prior-year quarter to $1.29 billion, while its adjusted net income rose 439.9% from the same period last year to $934 million. Adjusted net income per share increased 500% from the prior-year period to $1.32.
Analysts expect MRO’s revenue for the third quarter ending September 2022 to be $2.19 billion, indicating a 50.6% year-over-year growth. The company’s EPS for the same quarter is expected to increase 230.1% from the prior-year quarter to $1.29. Additionally, MRO has an impressive record of topping its consensus EPS estimates in each of the trailing four quarters.
MRO has gained 133.3% over the past year and 66.6% year-to-date to close its last trading session at $27.36.
It’s no surprise that the company has an overall rating of B, which translates to Buy in our proprietary rating system. MRO has an A grade for Momentum and Quality and a B grade in Growth. It is ranked #35 in the Energy - Oil & Gas industry.
Beyond what we’ve stated above, we have also given MRO grades for Value, Stability, and Sentiment. Get all MRO ratings here.
APA Corporation (APA)
APA explores, develops, and produces oil and gas properties. It has operations in the United States, Egypt, and the United Kingdom, as well as exploration activities in offshore Suriname.
On September 14, APA announced an increase in the company’s dividend on common shares from an annualized rate of 50 cents per share to $1.00 per share. The next quarterly dividend on common shares is payable on November 22 at a rate of 25 cents per share on its common stock.
On the same day, APA’s board of directors also approved a further 40 million shares of additional share repurchase authorization. This reflects upon its shareholder return ability.
APA’s total revenue and other came in at $3.05 billion for the second quarter of 2022 ended June 30, representing a 71.3% year-over-year growth. Its adjusted EBITDAX rose 93.6% year-over-year to $1.96 billion, while adjusted earnings grew 204.9% from the prior-year quarter to $811 million. The company’s adjusted EPS increased 238.6% from the prior-year period to $2.37.
Street expects APA’s revenue for the quarter ending September 2022 to be $2.59 billion, indicating a 56.8% year-over-year growth. The company’s EPS for the same quarter is expected to increase 146.9% from the prior-year quarter to $2.42.
APA has gained 115.7% over the past year and 55.2% year-to-date to close its last trading session at $41.74.
The company has an overall B rating, which translates to Buy in our proprietary rating system. It is rated an A in Momentum and Quality and a B in Growth and Value. Within the same industry, it is ranked #8.
In addition to the POWR Ratings grades highlighted, you can see the APA grades for Stability and Sentiment here.
VLO shares were unchanged in after-hours trading Thursday. Year-to-date, VLO has gained 44.02%, versus a -17.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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