7 Oil Stocks to Buy as the Winter Chill Beckons
A few weeks ago, the U.S. Energy Information Administration noted that households across the nation will likely spend more on energy this winter compared to prior cold seasons, thus potentially boosting oil stocks to buy. To be clear, the focus of the aforementioned report centered on natural gas and heating-related solutions. Still, the crude oil industry will certainly note this development.
For one thing, it’s not the first time that Wall Street analysts banked on oil stocks to buy as natural gas prices spiked. Second and more fundamentally, both natural gas and crude oil represent fossil fuels. Both are made up of hydrocarbons; therefore, demand fluctuations in one can sometimes (though not always) affect the other.
Finally, the debate around post-pandemic workforce paradigms may pivot back toward normalization. One report indicates that 90% of companies will require employees to return to the office for at least part of the week. If so, this will boost collective mileage, in turn lifting fuel demand. Therefore, oil stocks to buy are still very much relevant.
Based in Norway, Equinor (NYSE:EQNR) makes for an intriguing idea among oil stocks to buy. First, the company is massive, featuring a market capitalization of almost $116.7 billion. As well, it enjoys a mixture of hydrocarbon output along with heavy investments in renewable energy. Therefore, it has one foot in the present reality and the other looking ahead. On a year-to-date basis, shares gained nearly 38% of equity value.
On a financial note, investors will likely view Equinor’s balance sheet favorably. At the moment, its cash-to-debt ratio stands at 1.4 times. In contrast, the sector median is only 0.5 times. As well, Equinor’s Altman Z-Score is 3.34, which is on the lower end of the safe zone (in terms of bankruptcy risk). On the income statement, Equinor’s three-year revenue growth rate stands at 6.4%, beating out nearly 69% of its peers. Also, its net margin is 16.7%, above 69% of the industry.
Global Partners (GLP)
An energy supply firm, Global Partners (NYSE:GLP) focuses on the importing of petroleum products and marketing them in North America. Undoubtedly, one of the attractive attributes of Global Partners centers on passive income. Per Dividend.com, GLP offers a forward yield of 7.91%. That’s well above the energy sector’s average yield of 4.24%. And while the payout ratio is high at 78%, it’s not absurdly so.
Now, the major caveat to all this is that Global Partners is structured as a master limited partnership. Therefore, shareholders must file a Schedule K-1 regarding their GLP holdings. For those that hate extra paperwork, this could be a drag. Therefore, you should think carefully about your individual situation before pulling the trigger.
Still, if you decide to move ahead, you should also note that Global Partners features a return on equity of nearly 54%, reflecting an extremely high-quality business. As well, the market prices GLP at only 3.5-times trailing-12-month (TTM) earnings compared to the sector median of 8.7 times. Therefore, it’s worth consideration as one of the oil stocks to buy.
Continuing on this list of lesser-known oil stocks to buy, GeoPark (NYSE:GPRK) is a name that flies under the radar. Still, astute investors may want to give this enterprise a closer look. Founded in 2002, GeoPark is a Latin American oil and gas explorer, operator, and consolidator with assets and growth platforms in Colombia, Ecuador, Chile, and Brazil.
Currently, the company commands a market cap of just under $810 million. Since the start of the year, GPRK gained 21% of market value, which is somewhat modest compared to the hottest oil stocks to buy. At the same time, this circumstance may technically give GRPK more room to climb. In addition, GeoPark may benefit from geopolitics given Latin America’s relatively friendly posture to the U.S. (as opposed to Russia).
Regarding the financials, GeoPark brings a balanced profile. Backed by decent stability (though not great), GeoPark features above sector median levels for revenue growth and profit margins. In addition, Wall Street prices GPRK at only 2.5 times forward earnings, which is significantly undervalued.
VAALCO Energy (EGY)
Headquartered in Houston, Texas, VAALCO Energy (NYSE:EGY) engages in hydrocarbon exploration. Per its public profile, VAALCO features operations in Etame Marin block, off the shore of Gabon. Also, the company owns an undeveloped portion of a block offshore Equatorial Guinea. Presently, Vaalco carries a market cap of just under $552 million. Since the beginning of the year, EGY gained 55%.
Still, shares are down about 39% from the peak of this year, suggesting further upside potential. For investors looking for oil stocks to buy, VAALCO will likely draw in traders because of its financials. Specifically, the company features a strong cash-to-debt ratio of 21 times, reflecting resiliency against economic storms.
On the income statement, VAALCO features a three-year revenue growth rate of 24.7%, beating out over 88% of the competition. Also, its net margin is 19%, above nearly 72% of the industry. Finally, the market prices EGY at only 2.9-time forward earnings. In contrast, the sector median is 6.9 times.
Marathon Oil (MRO)
Also headquartered in Houston, Marathon Oil (NYSE:MRO) primarily focuses on hydrocarbon exploration. For history buffs, Marathon represents a direct descendent of Standard Oil. Currently, the company commands a market cap of $19.3 billion. Since the January opener, MRO gained a blistering 80% of market value. While some folks don’t always like buying into strength, MRO gives you a lot for the premium.
Fundamentally, Marathon offers a solid balance sheet. Its Altman Z-Score pings at 3.72, reflecting a business generally safe from bankruptcy risk. As well, the company’s equity-to-asset ratio stands at 0.63 times, beating out the industry median of 0.47 times.
To be fair, Marathon’s three-year growth rate slipped into a rather middling position, though it ranks better than average. However, its net margin is a staggering 48.7%, exceeding over 91% of the competition. Finally, an argument exists that MRO is undervalued, with shares priced at 5.8 times TTM earnings. This ranks lower than nearly 65% of its rivals.
Phillips 66 (PSX)
A multinational energy firm, Phillips 66 (NYSE:PSX) primarily specializes in the downstream component of the hydrocarbon industry, particularly refining and marketing. As well, the company offers exposure to the midstream segment, which centers on activities such as storage and transportation. Currently, Phillips 66 commands a market cap of $51.6 billion. Since the start of the year, PSX gained over 46% of its equity value.
Though PSX represents one of the top-performing oil stocks to buy, it can still move higher. Fundamentally, the aforementioned normalization of the workplace could spark greater demand for fuel. While such a dynamic would bode well for the broader hydrocarbon space, the downstream component would accrue the most benefits.
To be fair, on a financial level, PSX represents a greater risk profile among oil stocks to buy. For instance, both its revenue growth rate and net margin run slightly above the middle of the road. That said, Phillips 66 features a relatively stable balance sheet. As well, PSX’s PE ratio is a little over 5 times, whereas the sector median is 8.7 times.
Epsilon Energy (EPSN)
A North American onshore independent oil and natural gas company, Epsilon Energy (NASDAQ:EPSN) focuses on the acquisition, development, gathering, and production of oil and gas reserves. Presently, Epsilon features a market cap of $166.25 million, making it one of the smaller oil stocks to buy. While this enhances the risk profile, EPSN could also rise dramatically higher.
Since the Jan. opener, shares gained over 29% of market value. In the near term, Epsilon is on the move, rising 1.6% in the trailing five days and 7% in the trailing month. With the combination of mobility catalysts (i.e. workers possibly commuting back to the office) and increased demand for heating boosting natural gas prices, Epsilon may be positioned ideally.
Certainly, what investors should pay attention to is that the underlying company features zero debt. This gives the company greater flexibility against possible economic turmoil. In addition, Epsilon enjoys strong growth and profit metrics. Finally, EPSN trades for 5.2 times trailing earnings, which is modestly undervalued.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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