Economic growth leads to increased energy demand, including oil and gas, for transportation, manufacturing, and other industrial activities. Also, continued technological innovation, such as advances in drilling techniques like hydraulic fracturing and horizontal drilling, have unlocked new sources of oil and gas, contributing to higher production.
Considering these factors, it could be wise to invest in fundamentally sound energy stocks, Petróleo Brasileiro S.A. - Petrobras (PBR), Phillips 66 (PSX), and VAALCO Energy, Inc. (EGY) for solid gains in April.
The year 2024 appears to be highly dynamic for the oil and gas market due to the rapidly changing demand levels and anticipated non-OPEC+ domination amid the announcement of extended extra voluntary cuts by OPEC+ members to support market stability. The world oil production is expected at 870 kb/d for the first quarter of 2024.
Furthermore, the oil demand is on the rise with the higher-than-expected 1.7 mb/d levels for the first quarter.
According to a report by the Energy Information Administration (EIA), the U.S. crude oil production is leading the global oil production for a sixth straight year, with a record-breaking average production of 12.9 million barrels per day (bpd).
Moreover, during the last month of 2023, U.S. crude oil production had set a new monthly record high of more than 13.3 million bpd. “The United States produced more crude oil than any nation at any time, according to our International Energy Statistics, for the past six years in a row,” the EIA stated.
The oil and gas market is expected to grow from $7.19 trillion in 2023 to $7.62 trillion in 2024. Further, the market is expected to expand at a CAGR of 5.2%, resulting in a market volume of $9.35 trillion by 2028. Key market trends include resource exploration, government initiatives, and rising investments in oil and exploration in developing countries.
In addition, the technological integration is optimizing every aspect of production in real time with sensors, IoT devices, and advanced analytics platforms. The technology is also leading to production efficiency, enhanced equipment performance, better worker safety, and allowing remote monitoring of inaccessible regions.
With this, the global IoT in the oil and gas market is projected to reach $43 billion in 2024.
Given the industry’s robust outlook, investing in quality energy stocks such as PBR, PSX, and EGY could be wise for future gains.
Petróleo Brasileiro S.A. - Petrobras (PBR)
Headquartered in Rio de Janeiro, Brazil, PBR explores, produces, and sells oil and gas internationally. It operates through Exploration and Production; Refining, Transportation and Marketing; and Gas and Power segments. It also engages in drilling, refining, processing, trading, and transporting crude oil from producing onshore and offshore oil fields.
On April 3, 2024, PBR’s largest subsidiary, Transpetro, inaugurated the first photovoltaic solar plant capable of supplying 100% of an industrial plant in the Petrobras System at the Guarulhos Terminal in São Paulo. The initiated project is part of its investments in energy transition and decarbonization in its business areas.
In terms of forward EV/Sales, PBR is trading at 1.51x, 28.1% lower than the industry average of 2.10x. Further, the stock’s forward non-GAAP P/E multiple of 4.18 is 63.9% lower than the industry average of 11.57. Also, its forward Price/Sales of 1.02x is 34.7% lower than the industry average of 1.57x.
For the fourth quarter that ended December 31, 2023, PCR reported sales revenues of $27.11 billion, and its gross profit grew marginally year-over-year to $14.65 billion. Its adjusted EBITDA and free cash flow were $13.47 billion and $8.07 billion during the quarter, respectively.
Furthermore, the company’s cash and cash equivalents were $12.73 billion as of December 31, 2023, compared to $8 billion as of December 31, 2022.
Analysts expect PBR’s revenue for the second quarter (ending June 2024) to increase 9.9% year-over-year to $25.13 billion. Moreover, PBR has topped the consensus EPS estimates in three of the trailing four quarters.
Shares of PBR have gained 10.2% over the past six months and 48.8% over the past year to close the last trading session at $15.59.
PBR’s bright fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
PBR has an A grade for Quality and a B for Momentum. It is ranked #12 among 40 stocks in the A-rated Foreign Oil & Gas industry.
In addition to the POWR Ratings we’ve stated above, we also have PBR ratings for Growth, Sentiment, Stability, and Value. Get all PBR ratings here.
Phillips 66 (PSX)
PSX is an energy manufacturing and logistics company in the U.S., the United Kingdom, Germany, and worldwide. The company operates in four segments: Midstream; Chemicals; Refining; and Marketing and Specialties (M&S). It transports crude oil and other feedstocks, delivers refined petroleum products to market, and offers terminalling and storage services.
On April 3, 2024, PSX’s Board of Directors declared a quarterly dividend of $1.15 per share on the company’s common stock, representing a 10% increase from the prior quarter. The dividend is payable on June 3, 2024, to shareholders of record as of the close of business on May 20, 2024.
PSX pays an annual dividend of $4.60, which translates to a yield of 2.66% at the current share price. Its four-year average dividend yield is 4.41%. Moreover, the company’s dividend payouts have grown at a CAGR of 11.8% over the past five years. Kroger has raised its dividends for 4 consecutive years.
On April 1, 2024, PSX announced a major milestone in the conversion of the San Francisco refinery into the Rodeo Renewable Energy Complex, expanding commercial scale production of renewable diesel.
With the Rodeo Renewed project progress, the facility is now processing only renewable feedstocks and producing approximately 30,000 barrels per day of renewable diesel and is on track to increase production to over 800 million gallons per year (50,000 BPD) of renewable fuels by the second quarter.
In terms of forward Price/Sales, PSX is trading at 0.53x, 66.2% lower than the industry average of 1.57x. Also, the stock’s forward EV/Sales multiple of 0.66 is 68.5% lower than the industry average of 2.10.
For the fourth quarter that ended December 31, 2023, PSX posted consolidated earnings of $1.26 billion. Its midstream pre-tax income grew 15.2% from the year-ago value to $756 million. The company’s adjusted earnings came in at $1.36 billion and $3.09 per share for the quarter, respectively.
In addition, the company’s operating cash flow stood at $2.20 billion as of December 31, 2023.
Street expects PSX’s EPS for the second quarter (ending June 2024) to grow marginally year-over-year to $3.90. Also, for the fiscal year ending December 2025, the company’s EPS is expected to increase 6.4% year-over-year to $14.38. Further, the company surpassed the consensus EPS estimates in three of the four trailing quarters.
Over the past six months, the stock has gained 49.4% and 67.8% over the past year to close the last trading session at $172.71.
PSX’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Momentum. Within the Energy - Oil & Gas, PSX is ranked #14 of 83 stocks.
Click here to access additional ratings of PSX for Sentiment, Quality, Growth, Value, and Stability.
VAALCO Energy, Inc. (EGY)
EGY is an independent energy company that engages in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in Gabon, Egypt, Equatorial Guinea, and Canada. It holds interest in the Etame production sharing contract and Eastern Desert, containing West Gharib, West Bakr and North West Gharib.
On March 25, EGY received the Government of Equatorial Guinea's approval for the Joint Operating agreement related to the previously approved Venus-Block P Plan of Development. This will allow the company to proceed with its Front-End Engineering Design (FEED) study, enabling the development of the Venus POD, diversifying its portfolio widely, and expanding its abilities.
On February 29, EGY entered into a sales and purchase agreement to acquire Svenska Petroleum Exploration AB, a privately held exploration and production company based in Stockholm, Sweden. The acquisition will conclude during the second quarter of 2024, strategically expanding EGY’s West African focus area with a sizeable producing asset in Cote d’Ivoire.
In terms of forward non-GAAP P/E, EGY is trading at 6.08x, 47.5% lower than the industry average of 11.57x. Similarly, the stock’s forward EV/Sales multiple of 1.75 is 16.5% lower than the industry average of 2.10. Also, its forward EV/EBITDA of 3.32x is 44.3% lower than the industry average of 5.97x.
In the fourth quarter that ended December 31, 2023, EGY’s revenue increased 54.4% year-over-year to $149.15 million. Its operating income grew 234.1% from the prior year’s quarter to $80.94 million. The company’s adjusted net income was $38.99 million, or $0.37 per share, up 102.9% and 94.7% year-over-year, respectively.
Furthermore, the company’s adjusted EBITDAX of $95.88 million indicates an increase of 92.5% from the prior year’s quarter.
Analysts expect EGY’s revenue and EPS for the first quarter (ended March 2024) to increase 41.4% and 257.1% year-over-year to $113.70 million and $0.25, respectively. For the fiscal year 2024, the company’s EPS is expected to grow 98.4% year-over-year to $1.23.
EGY’s stock has surged 69.4% over the past month and 78.9% over the past six months to close the last trading session at $7.48.
EGY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B grade for Value, Quality, and Growth. EGY is ranked #3 out of 83 stocks in the Energy – Oil & Gas industry.
Click here to access additional ratings of EGY for Momentum and Stability.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
PBR shares were trading at $15.97 per share on Thursday morning, up $0.38 (+2.44%). Year-to-date, PBR has declined 0.00%, versus a 10.37% 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 Invest in for April Gains StockNews.com
