The Zacks Analyst Blog Highlights ConocoPhillips, Occidental Petroleum, Marathon Oil, Marathon Petroleum and APA Corp
For Immediate Release
Chicago, IL – February 24, 2022 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: ConocoPhillips COP, Occidental Petroleum Corp. OXY, Marathon Oil Corp. MRO, Marathon Petroleum Corp. MPC and APA Corp. APA.
Here are highlights from Wednesday’s Analyst Blog:
Top 5 Oil Stocks Flying High, Defying Wall Street Mayhem
Wall Street has been suffering from one after another setback since the beginning of this year, which has pushed the two major indexes in correction territory. This is in contrast to the astonishing returns that the U.S. stock markets provided in the pandemic-ridden 2020 and 2021. Severe volatility and day-to-day market fluctuations may continue in the near future.
However, one sector, namely the oil-energy sector, has proven immune to market volatility so far. It will be prudent to invest in stocks from this sector that are flying high year to date and carry a favorable Zacks Rank. Five of them are ConocoPhillips, Occidental Petroleum Corp., Marathon Oil Corp., Marathon Petroleum Corp. and APA Corp.
Wall Street Reeling Under Pressure
Since the beginning of 2022, Wall Street has been facing massive volatility. Soaring inflation, which stands at a nearly four-decade high has compelled the Fed to decide on terminating the quantitative easing program and raising the benchmark interest rate in March, for the first time in three years. Several economists and financial experts are concerned that the Fed may hike rates by 50 basis points four times this year or 25 basis points seven or eight times this year.
Furthermore, the situation became worse in the last two weeks when the geopolitical conflicts between Russia and Ukraine heightened. On Feb 21, Russia declared the independence of two rabble-controlled parts of Ukraine and its troops have entered those territories. This forced the U.K and the United States to impose some financial sanctions on Russian banks and financial institutions. Germany stopped commissioning a crucial natural gas pipeline project.
Consequently, on Feb 22, the Dow dropped 482.57 points, or 1.4%, to close at 33,596.61, its lowest finish since Jun 18. The S&P 500 slid 1% to end at 4,304.76, its lowest closing since Oct. 4. The Nasdaq Composite shed 166.55 points or 1.2%, to finish at 13,381.52.
The Nasdaq Composite entered correction territory in late January. On Feb 22, the S&P 500 entered into the correction zone for the first time in 2 years. Year to date, the Dow, the S&P 500 and the Nasdaq Composite – have tumbled 7.5%, 9.7% and 14.5%, respectively.
Oil-Energy Sector is Flourishing
Despite severe volatility, the oil sector has been able to flourish so far. This sector suffered a bloody blow in 2020 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.
However, the situation started taking a positive turn once the global economies, especially the United States, started reopening. Nationwide deployment of COVID-19 vaccines resulted in a faster-than-expected reopening. Strong demand for crude oil as travel restrictions were removed, resulted in soaring oil prices.
The decision by OPEC to maintain production quota also resulted in a demand-supply imbalance resulting in the northbound movement of oil price. Moreover, the recent conflict between Russia and Ukraine pushed oil price to its 2-year high.
The Energy Select Sector SPDR (XLK), one of the 11 broad sectors of the benchmark S&P 500 Index, has surged 20.6% year over year and is the only one sector trading in green so far in 2022. In 2021, XLE had jumped 53.3% and became the best performer on the S&P 500 Index.
Our Top Picks
We have narrowed our search to five oil stocks that have popped year to date. These stocks have strong growth ;potential for 2022 and have seen positive earnings estimate revisions in the last 30 days. Finally, each of our picks sports a Zacks Rank #1 (Strong Buy). You can seethe complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
ConocoPhillips holds a bulk of acres in the three big unconventional plays, namely Eagle Ford shale, Delaware basin and Bakken shale, which are rich in oil. COP also has a foothold in Canada’s oil sand resources and exposure to developments related to liquefied natural gas.
ConocoPhillips announced an agreement to purchase all of Royal Dutch Shell’s assets in the prolific Permian. The deal reflects COP’s aim of broadening its Permian presence. The transaction is highly accretive and involves the acquisition of roughly 225,000 net acres in the heart of the core Delaware basin.
ConocoPhillips has an expected earnings growth rate of 62.1% for the current year. The Zacks Consensus Estimate for current-year earnings improved 13.4% over the last 30 days. The stock price of COP has surged 21.7% year to date.
Occidental Petroleum continues to increase hydrocarbon production volumes from its high-quality asset holdings and lower outstanding debts through the proceeds from non-core assets sale. The acquisition of Anadarko, investments to strengthen infrastructure and its Permian Basin exposure continue to boost the performance of OXY.
Occidental Petroleum has achieved the $10-billion divestiture goal through non-core assets sale. Its cost-management initiatives will boost margins going forward. OXY is also working to lower emission and aims for net-zero emissions by 2050.
Occidental Petroleum has an expected earnings growth rate of 81.3% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.5% over the last 7 days. The stock price of OXY has jumped 32.2% year to date.
Marathon Oil is a leading oil and natural gas exploration and production company with operations in the United States and Africa. MRO’s robust operational metrics suggest strong long-term cash flows that should support a higher price for its shares. The wells drilled by Marathon Oil have extremely low oil price breakeven costs and need oil prices of just $35 a barrel to be profitable.
MRO continues to cut down costs substantially and is striving to achieve a 30% decline in production and G&A costs in 2021 compared to the 2019 levels. Furthermore, Marathon Oil’s significant debt maturities will mostly fall after 2025 and there does not appear much risk here.
Marathon Oil has an expected earnings growth rate of 75.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 4.9% over the last 7 days. The stock price of MRO has climbed 31.5% year to date.
Marathon Petroleum is poised for further price gains based on a slew of tailwinds. MPC’s $21 billion sale of its Speedway retail business provided the company with a much-needed cash infusion. The deal also comes with a 15-year fuel supply agreement per 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 the 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.
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 5.5% over the last 30 days. The stock price of MPC has appreciated 18.2% year to date.
APA has a geographically diversified reserve base and high-quality drilling inventory. The company’s increased focus on the Permian basin, known for its high internal rates of return, is the real driver. APA’ slew of discoveries in offshore Suriname, through its joint venture with TotalEnergies, is another positive catalyst for the company.
Over time, Suriname is expected to become one of APA’s major assets with significant cash flow potential. APA’s strong free cash flow generating capacity, together with aggressive cost management initiatives, should help it in its debt reduction goal and achieve its leverage target of less than 1.5 times debt-to-EBITDA.
APA has an expected earnings growth rate of 64.3% for the current year. The Zacks Consensus Estimate for current-year earnings improved 20.4% over the last 30 days. The stock price of APA has advanced 15.4% year to date.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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