The energy sector shows promise due to geopolitical tensions and increasing energy needs from transportation, urbanization, and industrialization. Despite high interest rates and rising U.S. production, deep oil output cuts are expected in 2025 to stabilize the market. Additionally, anticipated Fed’s interest rate cuts in September are likely to stimulate economic activity and boost oil demand.
Amid this backdrop, investors could consider buying fundamentally strong energy stocks Newpark Resources, Inc. (NR), Unit Corporation (UNTC), and MV Oil Trust (MVO) this June.
Despite challenges, OPEC+ expects its crude demand to average 43.65 million bpd in the latter half of 2024. Asia's LNG demand is rising due to extreme heat, leading to significant import increases across the region. Additionally, OPEC predicts global economic growth of 2.8% in 2024, highlighting the U.S. economy's potential to boost fuel demand during the summer season.
The IEA predicts global oil demand growth of 1.1 million bpd this year. The EIA forecasts stable U.S. natural gas consumption in 2024 at 89 Bcf/d, with lower industrial usage offsetting higher consumption in power, residential, and commercial sectors. In contrast, OPEC expects a significant 2.25 million bpd increase in world oil demand for this year and a 1.85 million bpd increase for 2025.
The U.S. oil and gas market is projected to grow annually by over 4% by 2029, despite challenges like volatility, expenses, and the shift to renewable energy. This growth is driven by efficient drilling techniques, technological advancements, and rising prices in the sector. Likewise, the global oilfield services market is projected to grow at a CAGR of 6.5%, reaching $175.03 billion by 2031.
Furthermore, investors’ interest in energy stocks is evident from the Vanguard Energy Index Fund ETF Shares’ (VDE) 14.4% returns over the past year.
Considering these conducive trends, let’s analyze the fundamental aspects of the featured energy stocks.
Newpark Resources, Inc. (NR)
NR provides products, rentals, and services primarily to the oil and natural gas exploration and production (E&P) industry. It operates through two segments: Fluids Systems and Industrial Solutions.
In terms of the trailing-12-month levered FCF margin, NR’s 8.63% is 37.8% higher than the 6.26% industry average. Similarly, its 1.08x trailing-12-month asset turnover ratio is 114.9% higher than the industry average of 0.50x.
NR’s revenues for the first quarter which ended March 31, 2024, came in at $169.11 million. Its adjusted net income came in at $8.86 million, up 8.2% over the prior-year quarter. The company’s adjusted net income per common share rose 11.1% from the year-ago value to $0.10. Additionally, the company’s adjusted EBITDA grew 1.5% year-over-year to $21.28 million.
For the quarter ending December 31, 2024, its revenue and EPS are expected to increase 7.4% and 150% year-over-year to $180.25 million and $0.10, respectively. Over the past year, the stock has gained 98.8% to close the last trading session at $8.19.
NR’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 out of 51 stocks in the Energy - Services industry. It has an A grade for Momentum, and Sentiment and a B for Growth. Click here to see the other ratings of NR for Value, Stability, and Quality.
Unit Corporation (UNTC)
UNTC and its subsidiaries explore, acquire, develop, and produce oil and natural gas properties in the United States. They operate through three segments: Oil and Natural Gas, Contract Drilling, and Mid-Stream.
In terms of the trailing-12-month net income margin, UNTC’s 43.38% is 285.2% higher than the 11.26% industry average. Likewise, its 0.75x trailing-12-month asset turnover ratio is 48% higher than the industry average of 0.50x. Furthermore, the stock’s 41.48% trailing-12-month Return on Total Assets is 622.2% higher than the industry average of 5.74%.
For the first quarter that ended on March 31, 2024, UNTC’s total revenues stood at $67.20 million. Likewise, its income from operations was $20.56 million. For the same quarter, the company’s net income and net income per common share amounted to $16.10 million and $1.61, respectively.
Additionally, as of March 31, 2024, UNTC’s cash and cash equivalents stood at $65.60 million, compared to $60.78 million as of December 31, 2023.
Over the past year, UNTC’s stock has gained 8.3% to close the last trading session at $37.
UNTC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Quality. Within the Energy - Oil & Gas industry, it is ranked #14 out of 80 stocks. Beyond what we stated above, we also have given UNTC grades for Growth, Value, Stability, and Sentiment. Get all the UNTC ratings here.
MV Oil Trust (MVO)
MVO acquires and holds term net profits interests in the oil and natural gas properties of MV Partners, LLC. Its properties’ wells are located in the Mid-Continent region in the states of Kansas and Colorado.
In terms of trailing-12-month gross profit margin, MVO’s 100% is 126.3% higher than the industry average of 44.20%. Likewise, its trailing-12-month Return on Common Equity and Return on Total Assets of 302.01% and 352.67% are considerably higher than the industry averages of 14.15% and 5.74%, respectively.
During the fiscal first quarter that ended March 31, 2024, MVO’s income from net profits interest increased 7.2% year-over-year to $5.56 million. The company’s distributable income stood at $5.35 million or $0.47 per share, up 13.4% over the prior-year quarter.
Shares of MVO’s has declined marginally intraday to close the last trading session at $8.79.
MVO’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
MVO has a B grade for Quality. It is ranked #10 in the Energy - Oil & Gas industry. To see MVO’s Growth, Value, Momentum, Stability, and Sentiment ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NR shares were trading at $8.20 per share on Thursday morning, up $0.01 (+0.12%). Year-to-date, NR has gained 23.49%, versus a 12.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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