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5 Oil Stocks Hovering Around 52-Week High With More Upside

·7 min read

U.S. stocks have seen a free fall since the beginning of this year due to extreme volatility. Record-high inflation, an ultra-hawkish Fed with a higher interest rate regime and the threat of a recession have unnerved market participants confidence. Global agencies like the World Bank and IMF have significantly lowered their global and U.S. GDP growth projections for 2022.

However, one sector that is sailing against the wind and has flourished year to date is Energy. Companies engaged either in upstream, midstream or downstream activities of crude oil and gas have gained in particular.
Most of the stocks in this sector have popped this year and are currently

hovering around their 52-week highs. We have selected five such with a favorable Zacks Rank. These are —  Marathon Petroleum Corp. MPC, Valero Energy Corp. VLO, Continental Resources Inc. CLR, Coterra Energy Inc. (CTRA) and Enterprise Products Partners L.P. EPD.

Crude Oil Sector Flourishing in 2022

Despite severe volatility, the oil and energy sector has flourished so far this year. This sector suffered a bloody blow during the pandemic as the global outbreak of coronavirus forced the whole world to impose lockdowns especially travel restrictions. As a result, oil prices plunged to historic low levels.

The situation started taking a positive turn once the global economies, especially the United States, started reopening. The decision by OPEC to maintain the production quota also resulted in a demand-supply imbalance resulting in the northbound movement of oil price.

Finally, the prolonged geopolitical conflict between Russia and Ukraine pushed oil prices to a 2-year high. Both the U.S. benchmark — the West Texas Intermediate Crude (WTI) and the global benchmark — Brent crude — are currently trading over $120 per barrel.

The space continues to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity. The Biden administration’s ban on the import of Russian crude and energy products contributed to oil’s rapid price increase.

Despite very high prices, global demand for crude oil remains robust. As China is limping back from its COVID-19 restrictions and relaxing nationwide lockdowns, oil demand is likely to get a new impetus.

Consequently, the Energy Select Sector SPDR XLE — an assortment of the largest U.S. companies thronging the space — has soared 66.3% year to date against a 13.7% decline for the broader S&P 500 benchmark.

Our Top Picks

We have narrowed our search to five oil stocks that are currently trading nearing their 52-week highs. These companies have strong potential for the rest of 2022. Moreover, these stocks have seen positive earnings estimate revisions in the last 7 days indicating that the market is expecting these companies to do solid business in the near future.

These companies are regular dividend payers, which will act as an income stream to investors. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past three months.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Valero Energy is the largest independent refiner and marketer of petroleum products in the United States. VLO offers the most diversified refinery base with a capacity of 3.2 million barrels per day in its 15 refineries throughout the United States, Canada and the Caribbean.

The majority of Valero Energy’s refining plants are situated in the Gulf coast area from where there is easy access to the export facilities. VLO’s Gulf coast presence helped it to expand export volumes over the past years and gain from high distillate margins.

Moreover, Valero Energy intends to quadruple renewable diesel production capacity by 2023. With low-carbon fuel policies being adopted by economies around the globe, demand for renewable fuel is expected to rise in the coming days. Also, VLO is expected to capitalize on the increasing demand for distillate fuel.

Zacks Rank #1 Valero Energy has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 16.6% over the last 7 days. VLO has a current dividend of 2.70%.

Marathon Petroleum is poised for further price gains based on a slew of positives. MPC’s $21 billion sales of its Speedway retail business provided it with a much-needed cash infusion. The deal also comes with a 15-year fuel supply agreement under which Marathon Petroleum will supply 7.7 billion gallons of gasoline per year to 7-Eleven, thus ensuring a steady revenue stream.

MPC’s exposure to more stable cash flows from the logistics segment diversifies the earnings stream and offers a buffer against the volatile refining business. Consequently, Marathon Petroleum is primed for significant capital appreciation and is viewed as a preferred downstream operator to own now.

Zacks Rank #1 Marathon Petroleum has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 2.4% over the last 7 days. MPC has a current dividend yield of 2.04%.

Enterprise Products Partners boasts an extensive network of pipelines that spreads more than 50,000 miles and connects to every major U.S. shale play. EPD has a massive storage capacity of 260 million barrels of liquids and 14 billion cubic feet of natural gas.

Almost 80% of its pipeline contracts with shippers have been extended for 15-20 years, which will help generate steady cash flow for unitholders. Enterprise Products Partners is well-positioned to generate additional cash flow from under-construction growth capital projects worth $4.6 billion.

Zacks Rank #1 Enterprise Products Partners has an expected earnings growth rate of 14.3% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.4% over the last 7 days. EPD has a current dividend yield of 6.53%.

Continental Resources  has a premier position in the Bakken region, which is one of the largest onshore oilfields in the United States. CLR’s operations in the SCOOP and STACK plays of Oklahoma generate huge profits.

Continental Resources acquired Delaware Basin assets from Pioneer Natural Resources, marking its entry into the prolific Permian Basin. This will significantly boost its free cash flows. Also, CLR revised its average oil production upward to 200,000-210,000 bbls/d for the year.

Zacks Rank #2 Continental Resources has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 3.5% over the last 7 days. CLR has a current dividend yield of 1.54%.

Coterra Energy is engaged in the development, exploration and production of oil, natural gas, and natural gas liquids in the United States. CTRA primarily focuses on the Marcellus Shale with approximately 177,000 net acres in the dry gas window of the play located in Susquehanna County, PA.

Coterra Energy also holds Permian Basin properties with approximately 306,000 net acres; and Anadarko Basin properties located in Oklahoma with approximately 182,000 net acres. In addition, CTRA operates natural gas and saltwater disposal gathering systems in Texas.

Zacks Rank #2 Coterra Energy has an expected earnings growth rate of 85.3% for the current year. The Zacks Consensus Estimate for current-year earnings improved 2% over the last 7 days. CTRA has a current dividend yield of 1.66%.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
 
Valero Energy Corporation (VLO) : Free Stock Analysis Report
 
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
 
Continental Resources, Inc. (CLR) : Free Stock Analysis Report
 
Energy Select Sector SPDR ETF (XLE): ETF Research Reports
 
Coterra Energy Inc. (CTRA) : Free Stock Analysis Report
 
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