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5 Oil Stocks That Outperformed the Commodity in February

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Nilanjan Choudhury
·6 min read
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For the energy sector, the year 2020 turned out to be one of pain, intense volatility and unprecedented turmoil caused by the COVID-19 pandemic. While most businesses were hit hard by the coronavirus-induced lockdowns, demand destruction and price plunge associated with energy was like no other. However, the commodity has recovered strongly from those depths to more than $60 a barrel.

In fact, it was the energy space that topped the S&P standings in February with a gain of more than 18%. One of the major themes of the month was rising oil prices on the back of vaccine-related optimism, which had a direct bearing on energy stocks. It then came as no surprise that shares of oil-related companies were some of the biggest beneficiaries.

In February, WTI oil saw a gain of nearly 18% and on Thursday, the U.S. benchmark hit a nearly 22-month high settlement of $63.53 a barrel. The commodity’s upward momentum was supported by the OPEC+ cuts, easing of the lockdown, an earlier-than-expected pickup in the commodity’s demand on the back of vaccine rollouts and temporary production shut-ins due to frigid temperatures.

As a proof of the revival, the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — has risen nearly 34% over the past three months. The renewed enthusiasm can also be gauged from the fact that the Zacks Oil/Energy sector has gained 15.1% in this period, handily outperforming the S&P 500 Index’s 4.2% appreciation.

Why the Northbound Journey Is Likely to Continue

Apart from vaccine breakthroughs, much of the positive argument is simply a bet on stronger economic growth in America and the subsequent improvement in consumer spending. Following the epic 31.4% contraction in the April-June period, the U.S. GDP rebounded by a record 33.4% in the third quarter and ended 2020 on a positive note, growing 4.1% in the fourth quarter. December’s $900 billion economic stimulus plus the recently passed $1.9 trillion coronavirus relief package should further bolster the economy. Amid this positive economic backdrop, end-user fuel usage is expected to improve.

How to Identify the Future Outperformers?

Last month’s crude rally meant that energy investors had a lot to cheer with most stocks rising handsomely. But not all of them would continue to outperform. With a wide range of oil firms thronging the investment space, it is by no means an easy task to arrive at stocks that have more upside left in the near term.

Further, while all oil-focused stocks stand to benefit from rising commodity prices, the upward revision of earnings per share (EPS) estimate for 2021 is a crucial indicator in identifying potential winners in the space. This simply means the market is expecting the company to do good business this year. In particular, market participants are likely to be interested in those stocks that have witnessed positive EPS estimate revisions in the past seven to 60 days.

We have narrowed down our search to five stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have climbed more than 20% in the past month. Moreover, these energy stocks have witnessed robust earnings revisions in the past 30 days and have strong growth potential.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Our Top Picks

Ovintiv OVV: An upstream operator, Ovintiv (formerly known as Encana) holds principal assets in the Anadarko Basin, located in the western and central parts of Oklahoma; the Permian Basin located in the western Texas and south eastern New Mexico; the Midland Basin in Texas and the Montney Basin in western Canada. The company’s cost-saving initiatives remain on track with the excess cash flow set to go toward lowering of debt over the next few quarters.

The company has an expected earnings growth rate of 620% for the current year. Over the past 30 days, Ovintiv has seen the Zacks Consensus Estimate for its 2021 earnings surge 95.3%. The energy explorer carries a Zacks Rank #1.

Pioneer Natural Resources Company PXD: Pioneer Natural Resources is an explorer and producer of oil, natural gas and natural gas liquid. This leading upstream energy firm primarily has operations in the Permian, the most prolific basin in the United States. The company has identified more than 20,000 drilling sites that are likely to provide the company with decades of crude production.

Pioneer Natural Resources has an expected earnings growth rate of 364.63% for the current year. Over the past 60 days, the company has seen the Zacks Consensus Estimate for its 2021 earnings improve 14.2%. The oil and gas firm carries a Zacks Rank #1.

Apache APA: One of the largest oil producers in Permian, Apache has over 1.8 million net acres in the region. The company’s Suriname portfolio is exciting too, where it continues to achieve drilling success. Further, Apache’s returns-focused strategy and aggressive cost management should lead to incremental cash flows.

Apache has an expected earnings growth rate of 191.67% for the current year. Over the past 30 days, the company has seen the Zacks Consensus Estimate for its 2021 earnings improve 26.9%. Apache carries a Zacks Rank #2.

Vermilion Energy VET: Vermilion Energy is an oil and gas explorer with producing properties in Europe, North America and Australia. The company’s diversification across different continents provides it with certain advantages relative to the other upstream players. The energy explorer is currently focused on cost reductions and positive free cash flow generation.

Vermilion Energy has an expected earnings growth rate of 100.45% for the current year. Over the past 30 days, the company has seen the Zacks Consensus Estimate for its 2021 bottom line improve 1,150%. This Canada-based player carries a Zacks Rank #2.

Crescent Point Energy CPG: This Calgary-based company’s operations are primarily concentrated in southwest and southeast Saskatchewan. Crescent Point, which recently acquired Royal Dutch Shell’s RDS.A Alberta assets for C$900 million, counts operational excellence and prudent cost management as its strength.

Crescent Point has an expected earnings growth rate of 120% for the current year. Over the past 30 days, the company has seen the Zacks Consensus Estimate for its 2021 earnings surge 205.55%. The firm carries a Zacks Rank #2.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?

Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

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Royal Dutch Shell PLC (RDS.A) : Free Stock Analysis Report
 
Crescent Point Energy Corporation (CPG) : Free Stock Analysis Report
 
Vermilion Energy Inc. (VET) : Free Stock Analysis Report
 
Ovintiv Inc. (OVV) : Free Stock Analysis Report
 
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