The tech sector has garnered a lot of Wall Street’s attention this week (including mine), but today I want us to turn our focus to a different area of the market: oil.
This week, the U.S. Energy Information Administration (EIA) released a very positive short-term outlook on energy:
Although crude oil prices have fallen recently, we continue to expect crude oil prices will rise in the second half of 2024 (2H24). The Brent crude oil spot price ended July at $81 per barrel (b), compared with an average for the month of $85/b. We expect the Brent price will return to between $85/b and $90/b by the end of the year.
We are already starting to see oil prices begin this rebound. West Texas Intermediate (WTI) rose nearly 3% on Tuesday and ended the day around $75 a barrel. Brent crude oil rose about 2.7% to $78 a barrel. Although oil prices pulled back from their highs, they are still up for the week.
Now, I’m not surprised by the rise in oil prices. The Middle East remains a tinder box in the wake of Israel’s attack on the Hamas leader. As a result, crude oil prices have surged on the news that Iran plans to retaliate. And prices will remain high as long as Iran and its proxies continue to threaten Israel.
I should also add that Russian crude oil shipments have dropped to the lowest level in 19 months. In July, Russian crude oil shipments declined by 586,000 barrels per day. Officially, Russia is saying that these cuts are related to reducing crude oil production according to OPEC+ guidelines.
But what is fascinating is that their liquified natural gas (LNG) exports are still rising. Recent heatwaves in Europe have increased the demand for natural gas to generate electricity for air-conditioned demand. Clearly, Europe remains addicted to Russian LNG exports.
So, while this may be shocking, it shows that when the world needs energy, it needs it regardless of where it comes from.
Personally, I like to hold energy stocks because of the disruptions that could happen if the Russian crude oil pipelines are hit. All bets would be off, and oil would be up considerably.
Energy stocks are also a great way to hedge your portfolio. They tend to “zig” when other stocks “zag”, so they can actually lower the risk of your overall portfolio.
So, in today’s Market 360, I’ll share three energy companies that rallied higher on their strong earnings results and are good buys in Portfolio Grader right now. Then I will reveal where you can find the best energy stocks to round out your portfolio.
Three Energy Stocks to Buy
Energy Stock No. 1: Sunoco LP (SUN)
Sunoco LP (SUN) is a household energy name here in the U.S., as the company is one of the biggest fuel distribution companies in the nation. The company distributes more than eight billion gallons of fuel per year to more than 33 states, as well as distributes its fuel to more than 7,300 retail locations and to more than 2,500 commercial customers.
On Wednesday morning, Sunoco released its second-quarter earnings results… which smashed analysts’ expectations. Second-quarter earnings soared 475.9% year-over-year to a record $501.0 million, up from $87.0 million in the same quarter a year ago. Second-quarter earnings per share surged 393.6% year-over-year to $3.85, versus $0.78 per share in the second quarter of 2023. Analysts expected earnings of $1.23 per share, so Sunoco posted a whopping 213% earnings surprise.
SUN jumped nearly 4% at the open. It pulled back on profit-taking later in the afternoon, ending the day up 0.2%. However, the stock still outperformed the S&P 500, Dow and NASDAQ, which were all back in negative territory by the close.
Portfolio Grader Rating: B (Buy)
Energy Stock No. 2: VAALCO Energy, Inc. (EGY)
VAALCO Energy, Inc. (EGY) is a Texas-based crude oil and natural gas exploration company. While the company’s headquarters are in the U.S., its operations are in West and North Africa and Western Canada. Its oil and natural gas properties are primarily in offshore Gabon and Equatorial Guinea, onshore Egypt and the Western Canadian Sedimentary Basin in Alberta.
The company posted a stunning quarterly earnings beat Wednesday evening. Second-quarter adjusted earnings increased 70.2% year-over-year to $22.58 million, or $0.22 per share, up from $13.27 million, or $0.12 per share, in the same quarter a year ago. The consensus estimate called for adjusted earnings of $0.12 per share, so VAALCO Energy posted an 83.3% earnings surprise.
VAALCO Energy also noted that it focused on enhancing production in the first six months of the year, and that was apparent in the company’s strong operational results. The company reported production of 20,588 net revenue interest (NRI) barrels of oil equivalent per day (boepd) in the quarter. VAALCO Energy also had NRI sales of 1.76 million barrels of oil equivalent, or 19,386 boepd.
Company management commented, “We are excited about the future and plan to continue to generate strong operational cash flow to fund our impressive organic opportunities moving forward, while continuing to return capital to our shareholders through the quarterly dividend.”
Shares of EGY surged more than 8% on Thursday, outperforming the S&P 500’s 2.3% increase, the Dow’s 1.8% rise and the NASDAQ’s 2.9% gain.
Portfolio Grader Rating: A (Strong Buy)
Energy Stock No. 3: Viper Energy, Inc. (VNOM)
Viper Energy, Inc. (VNOM) is a limited partnership that handles mineral and royalty interests in oil and natural gas properties in the Permian Basin, as well as the Eagle Ford Shale in Texas. The company’s proved reserves total around 179,249 million barrels of oil equivalent (mboe).
Viper Energy reported second-quarter results that topped expectations Monday afternoon. Second-quarter production rose 3.7% year-over-year to 26,352 barrels of oil per day (bopd). Earnings soared 86.3% year-over-year to $56.9 million, or $0.62 per share, up from $30.55 million, or $0.42 per share, in the same quarter a year ago. The consensus estimate called for earnings of $0.56 per share, so Viper Energy beat estimates by 10.7%.
VNOM rallied more than 9% on Tuesday and then hit a new 52-week high on Thursday. Not only did VNOM top the S&P 500’s, Dow’s and NASDAQ’s rebounds on Tuesday, but it has also outperformed the major indices for the month so far. VNOM is up just over 6%, while the S&P 500, Dow and NASDAQ are down 3.2%, 3.3% and 4.9%, respectively.
Portfolio Grader Rating: A (Strong Buy)
The Bottom Line
The bottom line is, there are opportunities for profits even in a volatile market. And energy stocks should benefit in the second half of the year as crude oil prices rise – especially if there are any unexpected escalations or geopolitical shocks.
For that reason, I think just about every portfolio should have some exposure to energy stocks.
Of course, you don’t want to invest in any energy stock… your best bet for profits remains in fundamentally superior energy stocks, like the ones we discussed today.
But if you’re not sure where to find them, then consider Growth Investor.
I recently released a brand-new list of my top Growth Investor Elite Dividend Payer stocks – all of which are energy plays – and recommended a new shipping company that will benefit from the rise in energy prices.
Click here to learn how to access this list and my newest stock recommendations.
(Already a Growth Investor subscriber? Click here to log in to the members-only website now.)
Sincerely,
Louis Navellier
Editor, Market 360
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
