Energy prices climbed significantly in the first quarter of 2022, driven by solid demand and supply-side constraints exacerbated by Russia’s invasion of Ukraine. However, recently, oil and gas prices have retreated from their peaks. Factors, including global recession fears, have led to a steady price decline.
However, according to Bill Smead, Chief Investment Officer at Smead Capital Management, energy prices are likely to rise as a reopening of China’s economy could lead to a spike in energy demand while the supply remains tight. Also, with current supply shortfalls, Goldman Sachs sees potential for higher oil prices. Furthermore, government spending is expected to benefit the energy sector.
Thus, fundamentally sound energy stocks Valero Energy Corporation (VLO), Adams Resources & Energy, Inc. (AE), and Phillips 66 (PSX) could be ideal investments on their current dips.
Valero Energy Corporation (VLO)
VLO is involved in manufacturing, marketing, and selling transportation fuels and petrochemical products in domestic and international markets. The company operates in three segments: Refining; Renewable Diesel; and Ethanol. Its offerings include conventional, premium, and reformulated gasoline; California Air Resources Board (CARB) gasoline and diesel; and other refined petroleum products.
On June 1, VLO reduced its debt by approximately $300 million by acquiring $300 million of 4% Gulf Opportunity Zone Revenue Bonds Series 2010. The debt reduction and refinancing transactions in the previous three quarters collectively reduced VLO’s debt by approximately $2.3 billion, which is expected to reduce costs incurred for interest payments.
VLO’s revenues increased 86.1% year-over-year to $51.64 billion in the fiscal 2022 second quarter ended June 30, 2022. Its operating income improved 1,121.8% year-over-year to $6.22 billion. Its net income amounted to 4.77 billion, up 1,532.9% year-over-year. The company’s adjusted earnings per share came in at $11.36, registering an increase of 1,703.2% from the prior-year period.
The consensus EPS estimate of $24.18 for the fiscal year 2022 represents a 760.5% improvement year-over-year. The consensus revenue estimate of $176.50 billion for the current year represents a 54.9% increase from the previous year. The company has an impressive earnings surprise history, as it has surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, VLO has gained 20.2% to close the last trading session at $106.39. The stock is currently trading 27.5% below its 52-week high of $146.81, which it hit on June 8, 2022.
VLO’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VLO is also rated A in both Growth and Momentum. It has a B grade for Value and Quality. Within the B-rated Energy - Oil & Gas industry, it is ranked #2 of 97 stocks.
To see additional POWR Ratings for Sentiment and Stability for VLO, Click here.
Adams Resources & Energy, Inc. (AE)
AE is primarily involved in the marketing, transportation, terminal ling, and storage of the various crude oil and natural gas basins in the United States. The company operates through three segments: Crude Oil Marketing, Transportation and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling and Storage of Crude Oil.
On April 28, AE announced that Service Transport Company, Adam's liquid chemicals, pressurized gases, asphalt, and dry bulk transportation subsidiary, was recently presented with the tank truck industry's highest safety award at the National Tank Truck Carriers 2022 Annual Conference held April 23-26, 2022, in San Diego, California.
It reflects positively on the high standards that the company maintains in its core business of petroleum and natural gas.
For the fiscal 2022 first quarter ended March 31, 2022, AE’s revenues increased 137.9% year-over-year to $774.25 million. The company’s operating earnings rose 111.6% from the year-ago value to $8.15 million. In addition, its net earnings and earnings per share came in at $6.09 million and $1.39, up 116.9% and 110.6%, respectively, year-over-year.
Analysts expect AE's revenue for the fiscal year 2022 (ending December 2022) to come in at $3.07 billion, representing a 51.6% rise from the last year. Also, Street expects the company's EPS for the current year to come in at $3.54, representing an increase of 28.7% year-over-year.
Over the past six months, AE has gained 5.6% to close the last trading session at $33.48. The stock is currently trading 16.1% below its 52-week high of $39.89, which it hit on April 22, 2022.
AE's POWR Ratings reflect a strong outlook. The stock has an overall rating of A which translates to a Strong Buy in our proprietary rating system. It has a grade of A for Momentum and B for Quality, Value, and Sentiment. In the B-rated Energy - Oil & Gas industry, it is ranked #5 of 97 stocks.
Beyond what we’ve stated above, we have also given AE grades for Growth and Stability. Get all the AE ratings here.
Phillips 66 (PSX)
PSX is involved in energy manufacturing and logistics. The company operates through four segments: Midstream; Chemicals; Refining; and Marketing and Specialties (M&S). Its offerings include transportation, processing, marketing, and selling crude oil, refined petroleum products, natural gas, and natural gas liquids (NGL).
In July, PSX and H2 Energy Europe confirmed the closure of a 50-50 joint venture to set up and operate a network of approximately 250 hydrogen refueling sites in Germany, Austria, and Denmark by 2026. The joint venture, JET H2 Energy, is expected to benefit from its close ties with Hyundai Hydrogen Mobility, the exclusive European reseller of the Hyundai Xcient hydrogen fuel cell truck.
In the same month, the company confirmed its decision to invest significantly in the Rodeo California refinery. The $850M project will have a production capacity of more than 50,000 bbl/day and is due to begin commercial operations in 2024. It will also reduce emissions from the facility and produce lower carbon-intensity transportation fuels.
The Rodeo Renewed refinery project is expected to accelerate the company’s growth and promote its sustainability goals.
PSX’s revenue increased 72.5% year-over-year to $46.58 billion in the second quarter ended June 30, 2022. The company's pre-tax income rose 742% from the year-ago value to $4.23 billion. Its adjusted earnings came in at $3.29 billion, up 898.5% year-over-year. Furthermore, its adjusted earnings per share of common stock grew 814.9% from the prior-year period to $6.77.
The consensus EPS estimate of $15.80 for the fiscal year 2022 (ending December 2022) represents a 177.2% improvement year-over-year. The consensus revenue estimate of $165.08 billion for the ongoing year represents a 43.7% increase from the last year. The company has an impressive earnings surprise history, as it has topped the consensus EPS estimates in each of the trailing four quarters.
Over the past year, AE has gained 14.78% to close the last trading session at $83.80. The stock is currently trading 24.7% below its 52-week high of $111.28, which it hit on June 8, 2022.
PSX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. PSX has an A grade for Growth and Momentum and a B for Value and Quality. Among the 97 stocks in the same industry, it is ranked #8.
Click here to see the additional POWR Ratings for PSX (Stability and Sentiment).
VLO shares were trading at $110.33 per share on Tuesday afternoon, up $3.94 (+3.70%). Year-to-date, VLO has gained 51.10%, versus a -12.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
3 Energy Stocks to Buy on the Dip StockNews.com
