Yahoo Finance The Zacks Analyst Blog Highlights Occidental Petroleum, Hess, Marathon Petroleum, ExxonMobil and Schlumberger
For Immediate Release
Chicago, IL – January 4, 2023 – 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: Occidental Petroleum OXY, Hess Corp. HES, Marathon Petroleum MPC, ExxonMobil XOM and Schlumberger SLB.
Here are highlights from Tuesday’s Analyst Blog:
Will These 5 Energy Stocks See Another Bull Run in 2023?
The year 2022 was a tough one for Wall Street. In particular, the S&P 500 — which tracks the biggest U.S.-listed companies — closed down around 20% in what was its worst performance in more than a decade. With market participants concerned that the American central bank’s rate-hiking campaign to fight the persistently high inflation would trigger an eventual recession, the major U.S. equity indices were caught up in a selloff even as the war between Russia and Ukraine continues to drag on.
But through the stock market’s steepest annual loss since 2008, the Oil/Energy sector stood out, with commodity prices soaring to new highs and some of the companies being the biggest winners of the year. The standout performers of 2022 were Occidental Petroleum, Hess Corp., Marathon Petroleum, ExxonMobil and Schlumberger.
Energy Outperforms Amid Carnage
Although the S&P 500 finished the year deep in the red, a particular group of stocks stood out.
On the sectoral front, it was energy that topped the S&P standings for the period with an outsized gain, while all others lost value. The space has comprehensively outperformed the market, with the Energy Select Sector SPDR’s (an assortment of the largest U.S. energy companies, popularly known by its ticker, XLE) impressive gains, primarily fueled by a tight supply picture and the geopolitical premium. To be precise, the energy index continued to move higher last year after comfortably topping the S&P 500 leaderboard in 2021. It generated a total return of 58% in 2022 against the S&P 500’s decline of 19.7%.
The energy market continued to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity. The Biden administration’s ban on the import of Russian crude and energy products contributed to oil’s rapid price increase. Agreed, crude has pulled back from those lofty levels but with the conflict showing no signs of a quick resolution and the European Union putting a price cap on Russian oil exports — even at the cost of their economies — the oil bulls have got a fresh impetus.
While there are jitters over high inflation and stuttering economic growth, these have been more than offset by the market’s precariously low level of spare capacity, China’s emergence from its strict COVID-19 restrictions, a stretched-out refining system, plus the influential oil exporters’ group OPEC sticking to a conservative production profile.
Meanwhile, natural gas hit $10 per MMBtu for the first time since 2008 in 2022 and gained approximately 20% last year despite a steep selloff at the end of unseasonal warm weather projections for January. But overall, the commodity’s performance in 2022 was driven by a late-season cold and then a quick turnaround to summer heat in the United States, high demand in Europe (as the continent reduces its dependence on Russian gas) and strong LNG shipments.
While most energy investors have had something to cheer about in 2022, some stocks certainly performed better than the others. The five largest contributors to the yearly sectoral gains were Occidental Petroleum, Hess, Marathon Petroleum, ExxonMobil and Schlumberger.
Will these winners maintain their run in 2023 too, or will they eventually run out of steam? Here's a summary of them:
Occidental Petroleum: Founded in 1920, Houston, TX-based Occidental Petroleum is an integrated oil and gas company, with significant exploration and production exposure. OXY is also a producer of a variety of basic chemicals, petrochemicals, polymers and specialty chemicals.
This stock handily outperformed all other companies and was up 117.3% during the period, ranking first on the S&P 500 list. While Occidental continues to increase production from high-quality asset holdings and benefit from the acquisition of Anadarko, the American multinational might have run out of steam. In particular, this Zacks Rank #3 (Hold) company‘s massive long-term debt of more than $20 billion and exposure to volatile commodity prices could limit further share price gains.
Hess Corporation: Hess is a leading global integrated energy company. The company’s E&P activities are concentrated in Denmark, Guyana, Canada, Suriname, the Joint Development Area of Malaysia/Thailand (JDA), Malaysia, and the United States. Additionally, Hess provides gathering, terminaling, loading and transporting operations for both crude oil and NGLs.
Hess, carrying a Zacks Rank of 3, rallied 91.6% last year. Its slew of discoveries in the Stabroek Block, offshore Guyana, is a big positive catalyst for the company. Over time, Guyana is expected to become one of HES’ major assets with significant cash flow potential. However, the energy operator’s rising costs and expenses, in addition to its relatively high debt-to-capitalization of 50.9%, can affect its financial flexibility. Finally, the dividend yield of Hess compares unfavorably to most of its peers and the S&P 500.
Marathon Petroleum: Marathon Petroleum is a leading independent refiner, transporter and marketer of petroleum products. MPC’s $23.3 billion acquisition of Andeavor has integrated the premier assets of both companies, bolstering the scale and leadership position of the combined entity in the United States. As it is, Marathon Petroleum's access to lower cost of crude in the Permian, Bakken, and Canada helps it to benefit from the differentials.
This stock was the third-best sector performer on the S&P 500 Index, with shares appreciating 81.9% in the past year. MPC’s sale of its Speedway retail business for $21 billion provided the downstream operator 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.
But while refining fundamentals have certainly brightened from the COVID lows, the continued increase in costs over the past few quarters and execution risks related to renewables foray are negatives in the Marathon Petroleum story. This suggests a tricky risk/reward profile and limited upside potential for #3 Ranked MPC.
ExxonMobil: ExxonMobil is one of the largest publicly traded oil and gas companies in the world, with operations that span almost every corner of the globe. XOM is fully integrated, meaning it participates in every aspect related to energy — from oil production, to refining and marketing.
This Zacks Rank #3 stock ended 80.3% higher in the last twelve months. ExxonMobil's bellwether status and an optimal integrated capital structure that has historically produced industry-leading returns make it a relatively lower-risk energy sector play. With steadily increasing cash flows, XOM recently said that it will now buy back $50 billion of stock through 2024.
However, the energy giant’s above-average capital spending program has got investors concerned. Also, the integrated energy major has been witnessing lower oil equivalent production volumes, which might affect the bottom line.
Schlumberger: Schlumberger is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance, and engineering and construction services to the energy, industrial and government sectors.
This Zacks Rank #2 (Buy) stock ended 78.5% higher in the January-December period. High commodity prices have increased demand for its services in energy markets across the globe. Schlumberger's strong free cash flow generating ability indicates its financial strength, while its healthy relationship with national oil companies and digitization efforts also bode well.
Additionally, its disciplined capital spending will likely benefit shareholders over the long term. While macro headwinds could still impact SLB’s EPS growth In 2023, it’s still a good investment for those interested in the energy market.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
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Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
