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3 Oil Stocks That Have More Room to Run Higher and 1 That Doesn’t

With the EU embargo expected to kick in soon, Russian crude production could drop significantly, squeezing the market and raising oil prices. Amid this, quality oil stocks Marathon Petroleum (MPC), APA Corp (APA), and Birchcliff Energy (BIREF) might soar in the near term. However, the fundamentally weak oil stock Tellurian (TELL) does not seem poised for gains anytime soon. Read on…

Oil markets have faced significant volatility this year due to the Russia-Ukraine war. While tight supply due to the OPEC+ output cuts and the EU embargo on Russian crude imports is favoring the energy markets currently, China’s strict COVID rules adversely affect demand.

However, hedge funds are turning increasingly bullish on crude oil due to the tightening supply ahead of winter. Reuters reported that hedge funds and other money managers purchased the equivalent of 35 million barrels in the six most important petroleum futures and options contracts in the week ending November 1.

Russia’s oil production is projected to fall to as low as 9 million barrels per day (BPD) in December as the EU embargo kicks in, which is expected to spike international oil prices. This could squeeze the market and send oil prices above $100 a barrel again.

The industry tailwinds should help fundamentally strong oil stocks Marathon Petroleum Corporation (MPC), APA Corporation (APA), and Birchcliff Energy Ltd. (BIREF) to soar higher in the near term. However, given Tellurian Inc.’s (TELL) weak fundamentals, it might not be able to register gains anytime soon.

Stocks to Buy:

Marathon Petroleum Corporation (MPC)

MPC is an integrated downstream energy company that operates through its Refining & Marketing and Midstream segments. The company refines crude oil and other feedstock and transports, stores, and markets crude oil and refined products.

On November 1, MPC’s board of directors declared a dividend of $0.75 per share on the common stock, reflecting an increase of approximately 30% over its previous dividend, underscoring the company’s cash generation ability. The dividend is payable to shareholders on December 12, 2022.

In September, MPC announced closing its joint venture with Neste for the Martinez renewables project. “We expect the partnership to improve the overall economics of the project through the improved procurement of advantaged feedstock,” said President and Chief Executive Officer Michael J. Hennigan. 

Total revenues and other income came in at $47.24 billion for the third quarter ended September 30, up 44.8% year-over-year. Adjusted net income attributable to MPC rose 731.3% from the prior-year quarter to $3.86 billion. Its adjusted income per share stood at $7.81, up 969.9% from the prior-year period.

For the fiscal year ending December 2022, the consensus EPS estimate of $25.81 indicates a 953.6% improvement year-over-year. For the same year, analysts expect revenue to come in at $175.23 billion, representing a 44.9% year-over-year growth. MPC has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

MPC has gained 81.1% year-to-date to close its last trading session at $115.86. The stock has gained 24.1% over three months.

MPC’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

MPC is also rated an A for Quality and Momentum and a B for Growth and Value. Within the B-rated Energy – Oil & Gas industry, it is ranked #2 of 94 stocks.

To see additional POWR Ratings for Sentiment and Stability for MPC, click here.

APA Corporation (APA)

APA explores, develops, and produces crude oil and gas properties. The company operates in the United States, Egypt, and the United Kingdom and carries out exploration activities offshore in Suriname.

Recently, APA announced a multi-year partnership with the Clean Cooking Alliance (CCA) to improve health, reduce climate and environmental impacts, empower women, and improve overall livelihoods. This reflects the company’s commitment to sustainability.

In September, APA announced an increase in its common shares dividend to an annualized rate of $1.00 per share. The next quarterly dividend is payable on November 22. Moreover, the company approved 40 million shares of additional share repurchase authorization. This reflects on its shareholder return ability.

In the fiscal third quarter that ended September 30, APA’s revenues and other increased 74% year-over-year to $2.87 billion. Adjusted earnings after tax and adjusted EPS came in at $651 million and $1.97, up 75% and 101% from their respective year-ago values.

Analysts expect revenue and EPS for the fiscal fourth quarter (ending December 2022) to come in at $2.60 billion and $2.03, reflecting 8.3% and 57.7% year-over-year improvements, respectively.

APA’s stock has gained 69.4% year-to-date. It has gained 39.4% over the past three months to close its last trading session at $45.55.

APA’s strong fundamentals are reflected in its POWR Ratings. APA's overall B rating equates to a Buy in our POWR Ratings system. The stock has an A grade for Quality and Momentum and a B for Value. It is ranked #12 in the Energy – Oil & Gas industry.

Click here to see the additional POWR Ratings for Stability, Growth, and Sentiment for APA.

Birchcliff Energy Ltd. (BIREF)

Headquartered in Calgary, Canada, BIREF operates as an intermediate oil and natural gas company. It acquires, explores, develops, and produces natural gas, light oil, condensate, and natural gas liquids in Western Canada. 

On October 13, BIREF announced a special dividend of C$0.20 per common share. The company expects to retire approximately C$840 million ($623.85 million) of total debt and preferred shares from June 30, 2020, nearing its goal of zero total debt.

In August, BIREF declared a quarterly dividend of C$0.02 per common share for the quarter ending September 30, 2022. The dividend was payable on October 3.

BIREF’s revenue increased 41.4% year-over-year to C$454.21 million ($337.33 million) in the fiscal third quarter ended September 30. Its net income and comprehensive income improved 76.2% from the prior-year quarter to C$245.64 million ($182.43 million). Net income per common share came in at C$0.89, up 78% year-over-year.

For the fiscal fourth quarter (ending December 2022), Street revenue estimate of $312.25 million reflects a rise of 36.5% year-over-year. For the fiscal year ending December 2022, analysts expect BIREF’s revenue to come in at $1.06 billion, indicating a 43.4% year-over-year increase.

Over the past year, the stock has gained 29.3%. It has gained 45.5% year-to-date to close its last trading session at $7.42.

It’s no surprise that BIREF has an overall A rating, which translates to a Strong Buy in our POWR Ratings system. The stock also has an A grade for Momentum and a B for Quality and Growth. In the same industry, it is ranked #3.

In addition to the POWR Rating grades we’ve stated above, click here to see BIREF ratings for Stability, Value, and Sentiment, 

Stock to Avoid:

Tellurian Inc. (TELL)

TELL, operating as a natural gas business worldwide, also engages in developing natural gas production, liquefied natural gas (LNG) marketing, and infrastructure asset portfolios.

On September 19, TELL announced that it had withdrawn its proposed public offering of units, consisting of 11.25% senior secure notes due 2027 and warrants to purchase shares of its common stock, due to uncertain conditions in the high-yield market,

In the same month, TELL lost two of its biggest potential customers - Shell plc (SHEL) and Vitol SA. TELL has scrapped energy deals with both companies after withdrawing the high-yield bond sale that would have funded the initial construction of its proposed multi-billion-dollar Driftwood LNG plants in Louisiana.

The total current liabilities of TELL came in at $330.56 million as of September 30, 2022, compared to $88.80 million as of December 31, 2021. For the nine months ended September 30, net cash used in operating activities increased 67.8% year-over-year to $65.72 million. Net cash used in investing activities grew significantly from the prior-year period to $386.13 million.

TELL’s EPS for the fiscal first quarter of 2023 (ending March 2023) is expected to come at negative $0.20, down 42.9% year-over-year. For the same period, its revenue is estimated to be $135.26 million, indicating an 8% year-over-year decline.

The stock has lost 42% over the past year and 33.6% over the past six months to close the last trading session at $2.61.

TELL’s POWR Ratings reflect a bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. TELL is also rated an F for Quality, Stability, Sentiment, and Value. In the Energy – Oil & Gas industry, TELL is ranked #93.

To see additional POWR Ratings for Growth and Momentum for TELL, click here.

MPC shares were trading at $117.67 per share on Thursday afternoon, up $1.81 (+1.56%). Year-to-date, MPC has gained 87.50%, versus a -16.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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