Your Ultimate Guide to Investing in Energy Stocks
- (0:30) – Where to Invest With Energy Stocks
- (2:20) – Big Integrated Oil
- (5:40) – E&P Sector
- (11:45) – Permian Drilling Stocks
- (16:50) – Oilfield Service Sector
- (21:10) – Big Takeaways on Energy Industry
Welcome to Episode #99 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
Energy is on everyone’s minds in 2018.
With WTI crude trading over $70 in 2018, the earnings outlook on many of the oil rich energy stocks has suddenly changed for the better.
But it’s not just the E&Ps who will benefit. The rig count is back on the rise and many service companies are finally seeing the turnaround in business as well.
Use the Zacks Rank to Find the Top Stocks
It’s easy to get overwhelmed looking at your options for investing in “energy.” There are plenty of subgroups within the sector. And even within the subgroups, there are dozens of companies.
Take the E&Ps, as an example.
Zacks has 77 companies in that industry. That’s a lot.
How does an investor differentiate between them all?
A good place to start is by using the Zacks Rank to narrow the list.
In the E&P industry, 8 stocks are Zacks Rank #1 (Strong Buys) and 10 are Zacks Rank #2 (Buy). That likely means rising earnings estimates. That’s what you want.
From there, you’d have to do your homework to narrow the list even further.
Tracey takes a look at some of the top names from various industries within the energy group. It’s not all about the E&Ps on this podcast. There are opportunities in a lot of different areas.
5 Energy Stocks to Keep on Your Short List
1. Chevron CVX is the big oil superstar right now. It has that coveted Zacks Rank of #1 (Strong Buy) along with a forward P/E of just 14.8. It also pays a nice dividend, currently yielding 3.5%. Big oil stocks, with their sizable dividends, are a conservative play on crude’s rebound.
2. Bonanza Creek Energy, Inc. BCEI is a small cap E&P that is not in the Permian Basin. It drills in the Wattenberg Field. It’s a way to diversify away from the Permian players. This Zacks Rank #1 (Strong Buy) has no outstanding term debt and $182.5 million in liquidity. Should you be looking for hidden gems outside of the Permian?
3. Diamondback Energy FANG is one of the larger E&P players in the Permian Basin with a market cap of $12.7 billion. It announced in June 2018 that it had secured transportation for 70% of its Q3 and 65% of Q4 to the Gulf Coast. With infrastructure stressed, this took away some investor anxiety. Should you be loading up? It’s a Zacks Rank #3 (Hold).
4. Helmerich & Payne HP is a rig operator which has about 50% of its total rig count in the Permian. This has made investors nervous and the shares are down 3% year-to-date. Is this a buying opportunity? This Zacks Rank #3 (Hold) does reward investors through a dividend, currently yielding 4.4%.
5. CARBO Ceramics CRR is a small cap services company that provides sand and other oil services. After a difficult few years, it’s been trying to diversify its business so that it isn’t so reliant on the sands business. It has slowly been working its way out of the hole as revenue rose 42% in Q1. This Zacks #3 (Hold) had $70 million in cash as of March 31. Is it time to take a chance?
Remember, the Zacks Rank is a short-term recommendation of 1-3 months. It can change daily. And it likely will change frequently during earnings season.
But investors can use the Zacks Rank to narrow down the large list of energy companies to find those hidden gems that they may never have even heard of, such as Bonanza Creek Energy.
What other energy stocks should you be considering?
Be sure to check out this week’s podcast for the entire energy scoop.
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Carbo Ceramics, Inc. (CRR): Free Stock Analysis Report
Chevron Corporation (CVX): Free Stock Analysis Report
Helmerich & Payne, Inc. (HP): Free Stock Analysis Report
Bonanza Creek Energy, Inc. (BCEI): Free Stock Analysis Report
Diamondback Energy, Inc. (FANG): Free Stock Analysis Report
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