Despite the Energy Select Sector SPDR ETF (XLE) losing 3% year to date, versus the Russell 1000’s 4% gain, names in the energy sector have rallied even in this tough macroeconomic environment.
Tanker companies like TORM PLC (TRMD) and Teekay Tankers Ltd. (TNK), up 12% and 52% this year, respectively, have performed especially well, thanks to some of the highest tanker rates ever recorded. Moreover, companies like PBF Energy (PBF) are up 13% YTD, as it exits the first quarter with a far healthier balance sheet thanks to last year’s oil price rally.
We look below at top energy stocks in three categories: best value, the fastest-growing, and those showing the most momentum in terms of 12-month return. All data is as of March 27, 2023.
Best Value Energy Stocks
These are the energy stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. A low P/E ratio shows that you’re paying less for each dollar of profit generated. Profit can be returned to shareholders in the form of dividends and share buybacks.
| Best Value Energy Stocks | |||
|---|---|---|---|
| Price ($) | Market Capitalization ($B) | 12-Month Trailing P/E Ratio | |
| Obsidian Energy Ltd (OBE) | 6.39 | 0.5 | 0.9 |
| Seadrill Ltd (SDRL) | 39.74 | 1.9 | 1.0 |
| PBF Energy (PBF) | 42.52 | 5.5 | 1.8 |
Source: YCharts
- Obsidian Energy Ltd.: Obsidian, formerly known as Penn West Petroleum Ltd., is a Canadian energy company exploring, producing, and developing oil and natural gas assets in the Western Canada Sedimentary Basin. Obsidian applied for a share buyback program in January and will repurchase up to 10% of its public float, starting February 27.
- Seadrill Ltd.: Seadrill is a provider of offshore drilling services to super-majors, state-owned and independent oil and gas companies. Seadrill operates 21 rigs in Harsh Environment, Floaters, and Jack-up Rigs segments. Seadrill recognized $3 billion in backlog orders in the third quarter of 2022, up from $2.1 billion the prior year. Furthermore, owing to strong fundamentals in the oil and gas sector, Seadrill expects strong fundamentals in the oil and gas sector to keep utilization rates of offshore rigs heightened in the near term.
- PBF Energy: PBF refines petroleum and sells transportation fuels, lubricants, heating oil, and feedstocks. Owing to higher realized oil prices, PBF paid down over $2.3 billion worth of debt in 2022, reducing their debt-to-capital ratio to 28% from 63%, and increasing EBITDA to $4.7 billion from $440 million during the same period.
Fastest-Growing Energy Stocks
These are the top energy stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.
Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax laws or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.
| Fastest-Growing Energy Stocks | ||||
|---|---|---|---|---|
| Price ($) | Market Cap ($B) | EPS Growth (%) | Revenue Growth (%) | |
| Vertex Energy Inc (VTNR) | 8.12 | 0.6 | N/A | 1362 |
| Tellurian Inc (TELL) | 1.15 | 0.6 | 67 | 375 |
| Permian Basin Royalty Trust (PBT) | 23.3 | 1.1 | 371 | 354 |
Source: YCharts
- Vertex Energy Inc.: Vertex produces and distributes alternative and conventional fuels, including motor oil and base oils for lubricant manufacturers. It also recycles industrial waste streams. Energy prices are expected to be a continued tailwind for Vertex going forward, with management guiding for an elevated margin environment for this year.
- Tellurian Inc.: Tellurian is a diversified player in the natural gas sector. Founded in 2016, the company is developing a portfolio of production, marketing, and infrastructure assets in natural gas, including liquefied natural gas export facility and pipeline capable of transporting 28 million tons annually. For the fourth quarter of 2022, Tellurian reported a fourfold increase in natural gas production in the fourth quarter of 2022, producing 225 million cubic feet per day (MMcfd) compared with 55 MMCfd a year before.
- Permian Basin Royalty Trust: Based in Dallas, Texas, the Trust holds overriding royalty interest in oil and gas properties throughout the state of Texas. Overall, the Trust holds royalty interest in over 51,000 net-producing acres. Owing to the rally in oil prices, the Trust reported royalty income of $27 million in the third quarter of 2022, compared to $3.4 million in the prior year quarter.
Energy Stocks with the Most Momentum
These are the energy stocks that had the highest total return over the past 12 months.
| Energy Stocks With the Most Momentum | |||
|---|---|---|---|
| Price ($) | Market Cap ($B) | 12-Month Trailing Total Return (%) | |
| TORM PLC (TRMD) | 35.19 | 2.9 | 341 |
| Teekay Tankers Ltd (TNK) | 43.72 | 1.5 | 225 |
| Scorpio Tankers Inc (STNG) | 57.39 | 3.4 | 192 |
| Russell 1000 Index | N/A | N/A | -13.1 |
| Energy Select Sector SPDR ETF (XLE) | N/A | N/A | 5.4 |
Source: YCharts
- TORM plc: Founded in 1889, TORM is a tanker company engaging in the transportation of oil products worldwide, while also developing and producing green marine equipment. TORM’s revenue grew 133% in 2022, while gross profit margin grew by nearly 24 percentage points.
- Teekay Tankers Ltd: Teekay Tankers offers marine transportation services to oil industries around Bermuda and internationally using its fleet of 48 double-hulled oil tankers, two Aframax tankers, and one LR2 tanker. During the fourth quarter of 2022, Teekay reported its highest consolidated adjusted net earnings per share in 14 years, owing to some of the highest mid-sized spot tanker rates ever recorded. Teekay’s management paid off its entire debt balance with the windfall and ended the year with $300 million in cash.
- Scorpio Tankers Inc: Scorpio engages in the marine transportation of refined petroleum products worldwide through its fleet of 113 tankers. Capitalizing on some of the highest tanker rates ever recorded, Scorpio reduced its debt by $1.2 billion and repurchased 5.8 million of its common shares last year.
What the Supreme Court’s EPA Ruling Means for Energy Stocks
In June 2022, the U.S. Supreme Court ruled to restrict the Environmental Protection Agency’s (EPA) ability to limit carbon emission outputs from power plants. Instead, the EPA must now gain congressional approval before enacting sweeping climate change regulations. The decision targeted the Obama administration’s Clean Power Plan (CPP), which had called for energy players to curb emissions by 32% from 2005 levels by 2030. Under the CPP, the EPA had the authority to remake the U.S. power system, shifting from fossil fuels to cleaner energy alternatives.
The ruling removes potential EPA regulatory challenges for coal, oil, and gas stocks that performed strongly in 2022 amid surging energy demand in the wake of the pandemic and the Russian invasion of Ukraine. However, the decision may present challenges for renewable energy stocks, many of which have struggled to gain traction despite clean energy being an integral part of President Joe Biden’s policy agenda.
It remains unclear how much long-term upside the ruling will deliver fossil fuel producers, given the clear move worldwide to renewable clean energy. Moreover, many utilities already have implemented EPA environmental regulations, especially where it has made economic sense.
Advantages of Investing in Energy Stocks
Two key reasons to invest in the energy sector are the size of the market and the sector’s recent returns.
Size of the market: Given that the world relies on energy to power everything from cars to factories and just about all else in between, it’s not surprising that the value of the global energy market in recent years has been calculated at around $6 trillion. The energy market also offers many subindustries to invest in, including exploitation, storage, renewables, production, transportation, and distribution.
Growth potential: The UN estimates the world needs to invest $2.4 trillion a year through 2035 in energy systems to achieve the Paris Climate Agreement goals. The global transition from fossil fuels to renewable energy presents investors with an opportunity to invest in upstart energy companies pursuing share in a huge market.
Source: https://www.investopedia.com/top-energy-stocks-april-2023-7373442?utm_campaign=quote-yahoo&utm_source=yahoo&utm_medium=referral&yptr=yahoo