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These Are the Best Performing S&P 500 Energy Stocks of Q1

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Last quarter was a good one for U.S. equities. The S&P 500 was up 5.8%, while the Dow and the Nasdaq gained about 7.8% and 2.8%, respectively. In particular, the S&P 500 — regarded as one of the finest reflections of the stock market as a whole — not only rose for the fourth time in as many quarters but also notched all-time closing highs on a few occasions.

Energy Was the Preferred Sector

On the sectoral front, it was energy that topped the S&P standings for the three months ended in March with a gain of more than 29%. One of the major themes of the quarter was rising oil prices on the back of vaccine-related optimism, which had a direct bearing on the energy stocks. It then came as no surprise that shares of oil-related companies were some of the biggest beneficiaries.

Of late, crude has found strong support at around $60-a-barrel, with the U.S. benchmark hitting a nearly two-year high above $66 in March. Apart from successful vaccine rollouts, the commodity’s upward momentum was supported by the OPEC+ cuts, easing coronavirus infections, signs of robust demand in the world’s second-largest oil consumer, China, and the passage of the $1.9 trillion stimulus bill.

While most energy investors had a lot to cheer in the January-March period, some stocks certainly performed better than the others. The biggest winners were Marathon Oil MRO, Diamondback Energy FANG, Occidental Petroleum OXY, EOG Resources EOG and Devon Energy DVN.

Here's a brief summary of the five best-performing S&P 500 energy stocks of last quarter:

Marathon Oil: The upstream energy company’s oil and gas operations are mainly concentrated in the United States (including Oklahoma, Eagle Ford, Bakken and Northern Delaware) and Equatorial Guinea.

In the last reported quarter, Marathon reported adjusted net loss per share of 12 cents, narrower than the Zacks Consensus Estimate of a loss of 20 cents. The company’s bottom line was favorably impacted by a tight leash on costs and better-than-expected contribution from its U.S. and international segments. On a further positive note, Marathon recently redeemed $500 million senior notes to ease its debt load.

The Zacks Rank #3 (Hold) stock outperformed the other energy companies and was up 62.56% during the period, ranking second on the S&P 500 list behind L Brands LB. However, it remains to be seen if Marathon could gain similar traction in the near-to-medium term. While the company looks poised for strong free cash flow generation through the next few years, volatile commodity prices and the way it trades in the future could have a significant impact on the business of Marathon.

Diamondback Energy: Diamondback Energy focuses on growth through a combination of acquisitions and active drilling in the Permian Basin. Diamondback's leading position in the unconventional play got another leg up with the recently completed takeover of QEP Resources.

Diamondback’s fourth-quarter bottom line came in above expectations, led by better-than-expected production. Precisely, overall volumes were 299 thousand barrels of oil equivalent per day (MBOE/d), beating the Zacks Consensus Estimate of 291 MBOE/d.

This Zacks Rank #1 (Strong Buy) stock jumped 56.36% in the first quarter. Diamondback appears well positioned with its low-cost structure and investment grade balance sheet, which should allow it to thrive in the ongoing commodity upcycle.

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

Occidental Petroleum: Founded in 1920, Houston, TX-based Occidental Petroleum is an integrated oil and gas company, with significant exploration and production exposure. The company is also a producer of a variety of basic chemicals, petrochemicals, polymers and specialty chemicals.

Occidental reported fourth-quarter 2020 loss of 78 cents per share, wider than the Zacks Consensus Estimate of a loss of 53 cents. Lower commodity prices led to the underperformance.

The Zacks Rank #3 stock was the third-best sector performer in the S&P 500 Index, with shares appreciating 54.41% in the first quarter. Occidental’s continued focus on the Permian Basin, efficient cost management and impressive asset profile are the major positives. However, the company’s struggles with a massive long-term debt of nearly $36 billion and repercussions from the cancellation of the African asset divestment deal could limit share price gains.

EOG Resources: EOG Resources is a top-tier U.S. shale play. The United States accounts for more than 92% of the total production volumes, with the Eagle Ford and Delaware Basin being the primary contributors. Internationally, the company has operations in China and Trinidad.

EOG Resources delivered better-than-expected fourth-quarter 2020 bottom line due to a decline in lease and well expenses, offset partially by lower oil equivalent production volumes. The company also declared a quarterly dividend of 41.25 cents per share, representing an increase of 10% from the prior dividend.

The upstream operator, carrying a Zacks Rank #1, saw its stock surge 49.02% last quarter. Its shares will likely trend higher on the back of EOG Resources’ attractive growth profile, a huge inventory of drilling opportunities, upper quartile returns and a disciplined management team.

Devon Energy: Devon is an independent energy company whose oil and gas operations are mainly concentrated in the onshore areas of North America, primarily in the United States. The company’s assets are spread across the key oil assets of Delaware Basin, Eagle Ford, Anadarko Basin and Powder River Basin.

In the last reported quarter, Devon Energy reported break-even adjusted earnings versus the Zacks Consensus Estimate of 5 cents per share. The underperformance reflects lower commodity prices. Meanwhile, total net production for fourth-quarter 2020 touched 333MBOE/d, which was near the higher end of the guided range and up 2.1% sequentially.

Devon, carrying a Zacks Rank #1, rallied 43.83% in the first quarter. Devon Energy’s recent merger with WPX Energy has strengthened its operations in the prolific Permian Basin. The company’s cost management, divestiture of Canadian assets, and completion of the Barnett Shale gas assets sale will allow it to focus on its holdings in four high-quality, oil-rich U.S. basins as well as utilize divestiture proceeds to lower debt levels. Therefore, the stock still has some room for upside.

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Marathon Oil Corporation (MRO) : Free Stock Analysis Report
 
EOG Resources, Inc. (EOG) : Free Stock Analysis Report
 
Devon Energy Corporation (DVN) : Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
 
L Brands, Inc. (LB) : Free Stock Analysis Report
 
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