Despite the uncertainty over interest rate hikes to tackle soaring inflation, worries about oil demand destruction eased this week. Oil prices are on track for a weekly gain of around 4% for Brent and 3% for WTI. Robust U.S. fuel consumption and tight supply outlook have primarily driven oil prices higher.
On the other hand, U.S. natural gas prices have jumped to levels not seen since 2008. Scorching temperatures and relatively low inventory levels primarily led to price spikes.
According to Truist Securities Managing Director of Energy Research Neal Dingmann, oil prices could spike again by the beginning of 2023 as oil and gas companies show limited incremental capacity.
Nevertheless, not all oil and gas stocks are expected to benefit from the high prices. It could be wise to buy Marathon Petroleum Corporation (MPC) and hold Devon Energy Corporation (DVN) due to their solid financials. On the other hand, Houston American Energy Corp. (HUSA) is best avoided now as it is not well-positioned to survive the macroeconomic headwinds.
Stock to Sell:
Houston American Energy Corp. (HUSA)
HUSA is an independent oil and gas company engaged in the exploration, development, and production of natural gas, crude oil, and condensate in the United States. Its oil and gas properties are located primarily in the Texas Permian Basin, onshore Texas and Louisiana Gulf Coast region, and in the South American country of Colombia.
During the second quarter ending June 30, 2022, HUSA’s loss from operations amounted to $163.68 million. Its net loss came in at $121.60 million, while its adjusted loss per share amounted to $0.02. The company’s net cash used in investing activities increased 57.2% from its previous period to $262.44 million for the six months ending June 30, 2022.
The stock has plunged 48.6% over the past year and 56.2% over the past nine months.
HUSA’s POWR Ratings are consistent with this bleak outlook. The company's overall D rating translates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
HUSA has an F grade for Value and a D for Stability and Growth. Within the B-rated Energy – Oil & Gas industry, it is ranked #93 of 97 stocks. To see additional POWR Ratings for Momentum, Sentiment, and Quality for HUSA, click here.
Stock to Hold:
Devon Energy Corporation (DVN)
DVN, an independent energy company, primarily engages in the exploration, development, and production of oil, natural gas, and natural gas liquids in the United States. It operates approximately 5,134 gross wells.
In August, DVN announced entering into a definitive purchase agreement to acquire Validus Energy, an Eagle Ford operator, for total cash consideration of $1.8 billion. The transaction is subject to customary terms and conditions and is expected to close at the end of the third quarter of 2022, with an effective date of June 1, 2022.
For the second quarter ending June 30, 2022, DVN’s total revenues increased 132.8% year-over-year to $5.63 billion. Its net earnings stood at $1.93 billion, up 655% from the prior-year quarter. The company’s EPS rose 671.1% from its year-ago value to $2.93.
The consensus EPS estimate of $2.30 for the third quarter ending September 2022 represents a 112.6% improvement year-over-year. Analysts expect the company’s revenue to increase 54.4% year-over-year to $5.35 billion for the third quarter ending September 2022. The stock has gained 160% over the past year.
DVN has an overall C rating, which equates to Neutral in our POWR Ratings system. The stock has an A grade for Momentum. It has a B grade for Sentiment and Quality and a D for Stability. Within the Energy – Oil & Gas industry, it is ranked #69.
Beyond what we've stated above, we have also given DVN grades for Momentum, Value, and Growth. Get all MTEX ratings here.
Stock to Buy:
Marathon Petroleum Corporation (MPC)
MPC functions as an integrated downstream energy company primarily in the United States. It has two operational segments, Refining & Marketing refines crude oil and other feedstocks at its refineries, and Midstream transports, stores, distributes, and markets crude oil and refined products.
MPC’s revenue and other income increased 81.8% year-over-year to $54.24 billion for the second quarter ended June 31, 2022. Its income from continuing operations grew 763% from its prior-year quarter to $8.33 billion, while its net income amounted to $5.87 billion. The company’s EPS came in at $10.95 over the period.
MPC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Growth, Momentum, and Quality. Within the same industry, it is ranked #6.
Beyond what we've stated above, we have also given MPC grades for Value, Sentiment, and Stability. Get all MPC ratings here.
HUSA shares were trading at $4.51 per share on Friday morning, down $0.01 (-0.22%). Year-to-date, HUSA has gained 215.38%, versus a -13.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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