U.S. markets closed
  • S&P 500

    4,471.37
    +33.11 (+0.75%)
     
  • Dow 30

    35,294.76
    +382.20 (+1.09%)
     
  • Nasdaq

    14,897.34
    +73.91 (+0.50%)
     
  • Russell 2000

    2,265.65
    -8.52 (-0.37%)
     
  • Crude Oil

    82.66
    +1.35 (+1.66%)
     
  • Gold

    1,768.10
    -29.80 (-1.66%)
     
  • Silver

    23.35
    -0.13 (-0.54%)
     
  • EUR/USD

    1.1606
    +0.0005 (+0.05%)
     
  • 10-Yr Bond

    1.5760
    +0.0570 (+3.75%)
     
  • GBP/USD

    1.3751
    +0.0074 (+0.54%)
     
  • USD/JPY

    114.2000
    +0.5230 (+0.46%)
     
  • BTC-USD

    61,898.91
    +2,236.76 (+3.75%)
     
  • CMC Crypto 200

    1,464.06
    +57.32 (+4.07%)
     
  • FTSE 100

    7,234.03
    +26.32 (+0.37%)
     
  • Nikkei 225

    29,068.63
    +517.70 (+1.81%)
     

Bet on 4 Oil Stocks Poised to Beat Earnings Estimates in Q2

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·5 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Analysts expect oil energy companies to swing back to profits for the June quarter from the prior-year comparable period. Thus, a big part of the earnings growth story is easy year-over-year comparisons to the second quarter of 2020 that signified the bottom of the coronavirus pandemic earnings impact.

The event that primarily signaled the earnings growth is surging oil prices, which in turn drove drilling activities in the domestic oil resources.

Oil Price Surges in Q2

The price of West Texas Intermediate crude improved more than 20% in the June quarter of this year. In comparison with the year-ago quarter, the commodity price has improved drastically. The scale of the improvement can be represented as a price surge from the pandemic-hit low mark – when oil was in the negative territory – in April 2020, to breaking the psychological barrier of $70 per barrel.

The significant improvement in the commodity pricing scenario was backed by the optimism that fuel demand will recover considerably this year, thanks to the rolling out of coronavirus vaccines at a massive scale.

Rise in US Rig Tally

A favorable crude pricing environment convinced explorers and producers to return to shale plays although drilling activities have slowed down as upstream players are focusing mainly on stockholder returns rather than boosting output.

Per data from Baker Hughes Company BKR, the tally for oil drilling rigs in the United States for the week through Jun 25 was 372, improving from 337 for the week through Apr 1. In comparison to the June quarter of 2020, the market witnessed a steady decline in the count. From the tally of 562 for the week through Apr 3, 2020, the count of oil drilling rigs plummeted to 188 for the week through Jun 26, 2020.

Quarterly Earnings to Turnaround

On the backdrop of increased oil prices and higher drilling activities, energy companies are likely to have generated handsome earnings in the second quarter of this year. Per the latest Zacks Earnings Trends report, the energy sector is likely to have generated earnings of $15 billion in the June-end quarter of this year, turning around from a loss of $9.6 billion in the prior-year quarter.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Thus, it will be ideal for investors to invest in energy companies with an earnings beat potential. This is because a stock generally surges on an earnings beat.

How to Identify Potential Outperformers?

With a wide range of energy firms flooding the investment space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver better-than-expected earnings. While it is impossible to be sure about such outperformers, our proprietary methodology makes it fairly simple.

Our research shows that for stocks with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP is our proprietary methodology for determining stocks, which have the best chances to surprise with their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

4 Stocks in the Spotlight

Headquartered in Midland, TX, Diamondback Energy, Inc. FANG is primarily engaged in exploration and production (E&P) activities in oil-rich Permian – the most prolific basin in the United States. The company, with an Earnings ESP of +1.29% and a Zacks Rank #1, is scheduled to release earnings on Aug 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Marathon Oil Corporation MRO has a strong footprint in unconventional prolific resource plays like Eagle Ford, Bakken, STACK/SCOOP and Permian. The company has a Zacks Rank #2 and an Earnings ESP of +24.71%. Based in Houston, the independent E&P company is scheduled to release earnings on Aug 4.

Continental Resources, Inc. CLR is among the top 10 leading oil producers in the United States. The stock has a Zacks Rank #1 and an Earnings ESP of +10.61%. Continental, a leader in energy renaissance in the United States, is set to release results on Aug 2.

ConocoPhillips COP is a leading oil producer, with a strong presence in Lower 48 major acreage areas that comprise prolific shale plays like Permian basin, Bakken and Eagle Ford. The company has a Zacks Rank #1 and an Earnings ESP of +13.36%. Headquartered in Houston, TX, the upstream energy company is scheduled to release earnings on Aug 3.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


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

ConocoPhillips (COP) : Free Stock Analysis Report

Marathon Oil Corporation (MRO) : Free Stock Analysis Report

Continental Resources, Inc. (CLR) : Free Stock Analysis Report

Baker Hughes Company (BKR) : Free Stock Analysis Report

Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research