Although recessionary fears have heightened market volatility, the oil industry is anticipated to benefit. Soaring demand for oil and gas on the backs of the reopening of the Chinese economy could push oil prices up in the upcoming months. Moreover, geopolitical tension-induced constrained supplies could result in higher oil prices as well.
Given this backdrop, let us take a look at some cheap energy stocks, W&T Offshore, Inc. (WTI), Berry Corporation (BRY), and Obsidian Energy Ltd. (OBE), which seem to have significant upside potential for the reason mentioned in this article.
Fears of an economic slowdown, driven by broader market jitters amid a liquidity scare in the banking sector, have heightened market volatility. Although uncertainties are anticipated to linger for a while, the energy sector is expected to stay well-positioned.
The year is anticipated to be a strong year for the oil industry. Citing China’s economic reboot and rebounding air travel, the International Energy Agency (IEA) anticipates the world oil demand growth to accelerate over the course of 2023 and reach 102 million barrels per day (bpd). Also, the European Union (EU) will likely purchase more oil, which it no longer buys from Russia, to refill its storage and continue using oil products.
Moreover, the Freeport LNG export facility reopening and relatively flat U.S. gas production for the rest of 2023 could propel the oil and gas prices up this year. Also, Russia’s production cuts could induce oil price rises this year.
Russell Hardy, CEO of Vitol Group, said, “The prospect of higher prices in the second half of the year, in the sort of $90-$100 range, is a real possibility.”
Against this backdrop, fundamentally sound energy stocks WTI, BRY, and OBE, trading under $10, might be solid buys now to capitalize on the current oil market dynamics.
W&T Offshore, Inc. (WTI)
WTI is an independent oil and natural gas producer that explores and develops oil and natural gas properties in the Gulf of Mexico. The company sells crude oil, natural gas liquids, and natural gas.
In terms of forward EV/Sales, WTI is trading at 1.27x, 26.7% lower than the industry average of 1.73x. Its forward EV/EBITDA multiple of 1.97 is 60.1% lower than the industry average of 4.94.
WTI’s trailing-12-month levered FCF margin of 18.95% is 181.2% higher than the industry average of 6.74%. Also, its trailing-12-month ROTC of 38.10% is 284.4% higher than the 9.91% industry average.
WTI’s total revenues increased 14.6% year-over-year to $189.70 million in the fiscal fourth quarter that ended December 31, 2022. Its revenues under the Oil segment rose 25.4% from the prior-year quarter to $111.75 million. WTI’s adjusted net income and adjusted net income per share for the same quarter stood at $15.23 million and $0.10, up 12.3% and 11.1% year-over-year, respectively.
The company’s cash and cash equivalents stood at $465.77 million as of December 31, 2022, compared to $250.22 million as of December 31, 2021.
Analysts expect WTI’s revenue and EPS for the fiscal second quarter ending June 2023 to come in at $191.80 million and $0.36, respectively. The company surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 26.2% over the past year to close the last trading session at $5.01. It has also gained 4.5% over the past five days.
WTI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock has a B grade for Value, Sentiment, and Quality. The stock is ranked #17 of 90 stocks in the Energy – Oil & Gas industry.
We have also graded WTI for Growth, Momentum, and Stability. Click here to access all WTI’s ratings.
Berry Corporation (BRY)
BRY is an independent upstream energy business focused on developing and producing oil reserves in the western United States. Its segments include Development and Production; and Well Servicing and Abandonment.
In February, BRY announced dividends totaling $0.50 per share on the company’s outstanding common stock, comprising a fixed dividend of $0.06 per share and a variable dividend of $0.44 per share. The dividends are paid to shareholders on March 23, 2023. This reflects on BRY’s cash generation ability.
Beginning with the first quarter 2023 results, in accordance with the updated shareholder return model, BRY plans to allocate adjusted free cash flow as 80%, primarily to share repurchases and debt repurchases, and 20% to variable dividends. In addition, the board also increased the authorization for share repurchases to $200 million.
In terms of forward EV/Sales, BRY is trading at 1.34x, 22.7% lower than the industry average of 1.73x. Its forward EV/EBITDA multiple of 3.39 is 31.3% lower than the industry average of 4.94.
BRY’s trailing-12-month levered FCF margin of 15.41% is 128.6% higher than the industry average of 6.74%. Also, its trailing-12-month ROCE of 33.51% is 56.3% higher than the 21.44% industry average.
For the fiscal year that ended December 31, 2022, BRY’s total revenues increased 68.5% year-over-year to $918.34 million, while its adjusted EBITDA increased 79.1% to $379.95 million. The company’s adjusted net income came in at $226.46 million or $2.74 per share, compared to $10.72 million or $0.13 per share during the previous fiscal year that ended on December 31, 2021.
Analysts expect BRY’s revenue and EPS to come in at $172 million and $0.18, respectively, for the fiscal second quarter ending June 2023. Moreover, it surpassed EPS and revenue consensus in three out of the four trailing quarters, which is impressive.
Shares of BRY have gained 3.1% over the past six months and 4.7% over the past five days to close the last trading session at $7.73.
BRY’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Value. Within the Energy - Oil & Gas industry, it is ranked #18.
To see additional POWR Ratings for Growth, Momentum, Stability, Sentiment, and Quality for BRY, click here.
Obsidian Energy Ltd. (OBE)
Calgary, Canada-based OBE focuses primarily on exploring, producing, and developing oil and natural gas properties in the Western Canada Sedimentary Basin.
In terms of forward P/E, OBE is trading at 4.41x, 7.3% lower than the industry average of 8.36x. Its forward EV/EBITDA multiple of 2.49 is 49.5% lower than the industry average of 4.94.
OBE’s trailing-12-month net income margin of 104.98% is 657.5% higher than the industry average of 13.86%. Also, its trailing-12-month ROCE of 69.14% is 222.4% higher than the 21.44% industry average.
For its fiscal year ended December 31, 2022, OBE’s production revenue increased 87.9% year-over-year to CAD 897.30 million ($660.44 million). Its net and comprehensive income came in at CAD 810.10 million ($596.25 million), reflecting an increase of 95.7% from its year-ago value.
Net income per share increased 79.8% year-over-year to CAD 9.60. Also, its net operating cash flow grew 129.9% from the prior year to CAD 456.80 million ($336.22 million).
Street expects OBE’s revenue to come in at $730.27 million for the fiscal year ending December 2024. The company’s FFO for the same period is expected to increase 26.2% year-over-year to $4.22.
OBE’s stock has gained 6.4% over the past five days to close the last trading session at $6.35.
OBE’s POWR Ratings reflect a promising outlook. It has an overall B rating, which translates to Buy in our proprietary POWR Ratings system.
The stock has an A grade for Value and a B for Quality. Within the same industry, OBE is ranked #21.
Beyond what we have stated above, one can also view OBE’s grades for Momentum, Sentiment, Growth, and Stability here.
Consider This Before Placing Your Next Trade…
We are still in the midst of a bear market.
Yes, some special stocks may go up like the ones discussed in this article. But most will tumble as the bear market claws ever lower this year.
That is why you need to discover the “REVISED: 2023 Stock Market Outlook” that was just created by 40 year investment veteran Steve Reitmeister. There he explains:
- 5 Warnings Signs the Bear Returns Starting Now!
- Banking Crisis Concerns Another Nail in the Coffin
- How Low Will Stocks Go?
- 7 Timely Trades to Profit on the Way Down
- Plan to Bottom Fish For Next Bull Market
- 2 Trades with 100%+ Upside Potential as New Bull Emerges
- And Much More!
You owe it to yourself to watch this timely presentation before placing your next trade.
REVISED: 2023 Stock Market Outlook >
WTI shares were trading at $5.07 per share on Friday morning, up $0.06 (+1.20%). Year-to-date, WTI has declined -9.14%, versus a 6.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
3 Affordable Energy Stocks Under $10 to Invest in Before It's Too Late StockNews.com
