While enhanced volatility and overall market declines have been hallmarks of the broader S&P 500 index for most of 2022, energy stocks have performed significantly well due to surging oil and gas prices aggravated by the Russia-Ukraine war. The Energy Select Sector SPDR ETF (XLE) has gained 42.7% over the past year, while the S&P 500 declined 16.7%.
According to the S&P 500 Global Community Insights Energy Outlook 2023, China’s total energy demand is expected to increase by 3.3 million barrels of oil equivalent per day. It will represent nearly 47% of global energy demand growth this year. Moreover, analysts remain bullish on oil prices this year despite various macroeconomic headwinds.
According to Goldman Sachs, strong oil demand growth would drive oil prices over $100 per barrel this year. The investment bank expects Brent Crude to trade at $105 per barrel by the fourth quarter.
Given the energy industry's promising growth prospects, it seems wise to add fundamentally strong energy stocks TotalEnergies SE (TTE), Valero Energy Corporation (VLO), and Adams Resources & Energy, Inc. (AE) to your portfolio.
TotalEnergies SE (TTE)
TTE is a global integrated oil and gas corporation headquartered in Courbevoie, France. It operates through four segments, Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services.
On December 21, 2022, TTE and Eni S.p.A. (E) made a new gas discovery at the Zeus-1 well in Block 6, offshore Cyprus. The well found 105 meters of net gas pay in carbonate reservoirs, reinforcing the region's favorable development prospects. The well's new data should help TTE evaluate quick development alternatives for the discovered resources.
On December 15, 2022, TTE and the Saudi Arabian oil corporation Aramco made the final investment decision to develop a large-scale petrochemical complex in Saudi Arabia. This world-class facility is also consistent with TTE's plan to grow sustainably in the petrochemical industry by utilizing the synergies between its key platforms.
For the fiscal third quarter that ended September 30, 2022, TTE’s sales increased 26.1% year-over-year to $69.04 billion. Its adjusted EBITDA was $19.42 billion, up 73.7% year-over-year. The company’s adjusted net income rose 106.8% year-over-year to $9.86 billion, and its adjusted EPS came in at $3.83, up 117.6% from the prior year’s quarter.
TTE pays a $2.81 per share dividend annually, which translates to a 4.51% yield on the current price. Its four-year average dividend yield is 6.53%.
The consensus EPS estimate of $14.15 for the fiscal year ended December 2022 indicates a 111.9% year-over-year improvement. Likewise, the consensus revenue estimate of $257.33 billion for the same year reflects a rise of 39.4% from the prior year.
Shares of TTE have gained 5.2% over the past month and 28% over the past six months to close the last trading session at $62.23.
TTE’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
TTE has a Momentum grade of A and a Quality grade of B. In the 93-stock B-rated Energy - Oil & Gas industry, it is ranked #21.
Beyond what we stated above, we also have TTE’s ratings for Growth, Value, Stability, and Sentiment. Get all TTE ratings here.
Valero Energy Corporation (VLO)
VLO manufactures and distributes transportation fuels and petrochemical products on a global scale. It operates in three segments, Refining; Renewable Diesel; and Ethanol. The company produces and sells conventional, premium, and reformulated gasoline.
On September 26, 2022, VLO decreased its debt by about $1.25 billion through previously announced tender offers for various series of VLO’s senior notes, which the company funded with cash on hand. Together with debt reduction and refinancing deals finished in the second half of 2021 and the first half of 2022, these transactions lowered VLO's debt by about $3.60 billion.
VLO’s revenue increased 50.6% year-over-year to $44.45 billion in the fiscal third quarter that ended September 30, 2022. Its operating income grew 447.2% from the prior year’s period to $3.79 billion. The company’s net income was $2.91 billion, up 473.2% year-over-year, while its EPS came in at $2.25, a 536.3% increase from the year-ago value.
The company pays a $3.92 per share dividend annually, which translates to a 3.05% yield on the current price level. VLO’s dividend payments have grown at a CAGR of 7% over the past five years, and its four-year average dividend yield is 5.05%.
Analysts expect VLO’s revenue to increase 22.2% year-over-year to $43.87 billion for the fourth quarter (ended December 2022). The company’s EPS for the same quarter is expected to grow 172% from the prior year’s quarter to $6.72.
Furthermore, analysts expect its revenue and EPS for the fiscal 2023 first quarter (ending March 2023) to grow 10.6% and 75.8% year-over-year to $42.63 billion and $4.06, respectively.
The stock has gained 10.8% over the month and 58.7% over the year to close the last trading session at $128.58.
VLO’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Quality, Growth, and Value. Within the Energy - Oil & Gas industry, it is ranked #9 of 93 stocks.
To see additional POWR Ratings for Sentiment and Stability for VLO, click here.
Adams Resources & Energy, Inc. (AE)
AE primarily specializes in the marketing, transportation, and storage of natural gas and crude oil. Its business segments include 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 September 1, 2022, AE declared that its subsidiary, Service Transport Company, had opened its 20th terminal situated in Pittsburgh, Pennsylvania. This new facility would give Service Transport's customers more resources in the northeastern region of the United States and also present new opportunities for the company to increase its income and profitability.
For the fiscal third quarter (ended September 30, 2022), AE’s total revenues increased 50.1% year-over-year to $852.90 million, and its operating earnings increased 30.1% from the year-ago value to $2.99 million. The company’s net earnings came in at $2.19 million, a 41.7% increase year-over-year, while EPS stood at $0.50, up 38.9%year-over-year.
AE pays a $0.96 per share dividend annually, which translates to a 2.35% yield on the current price. Its four-year average dividend yield is 3.21%.
The consensus EPS estimate of $3.37 for the fiscal year ended December 2022 indicates a 22.6% year-over-year improvement. Likewise, the consensus EPS estimate of $4.01 for the current fiscal year (ending December 2023) reflects a rise of 19% year-over-year.
Shares of AE have gained 29.1% over the past six months and 40.1% over the past year to close the last trading session at $40.85.
AE’s strong prospects are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Momentum and Sentiment and a B for Value and Quality. Within the same industry, it is ranked #3 of 93 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see AE ratings for Growth and Stability here.
TTE shares were trading at $62.75 per share on Tuesday afternoon, up $0.52 (+0.84%). Year-to-date, TTE has gained 1.08%, versus a 1.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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