Escalating tensions in the Middle East, notably Israel's rejection of a ceasefire from Hamas, have triggered a substantial surge in the crude oil market. Concerns over potential disruptions to global oil supply amid the conflict have reverberated worldwide, driving prices significantly upward.
Given these developments, it could be wise to invest in resilient energy stocks, HF Sinclair Corporation (DINO), CVR Energy, Inc. (CVI), and REX American Resources Corporation (REX), to capitalize on rising prices. However, before delving into the featured stocks, let's analyze the current dynamics within the energy sector.
The oil market's volatility is arising not just from the Middle East conflict but also from other factors. Russia's overproduction, the rising output of non-OPEC countries, and China's economic uncertainties are contributing to global supply concerns, significantly affecting oil supply and pricing dynamics.
Russia, a major oil producer, has surpassed its planned crude exports under the OPEC+ agreement, mainly due to drone attacks and technical refinery outages. Moreover, the U.S. Treasury Department's sanctions for breaching the cap on Russian oil prices could worsen global oil supply disruptions, driving prices higher.
For the first quarter of 2024, the U.S. Energy Information Administration (EIA) anticipates a modest increase in crude oil prices. The rise is attributed to OPEC+ production cuts, causing global stock draws of 810,000 barrels per day (b/d), resulting in an expected jump in Brent prices from $78/b in December 2023 to $85/b by March 2024.
Additionally, the EIA predicts a rise in U.S. natural gas production, reaching 105 Bcf/d by March. The level is expected to be maintained throughout the year. Dry natural gas production is forecasted to average 104 Bcf/d for 2024, slightly lower than the previous month's forecast.
In light of these trends, let’s look at the fundamentals of the three best energy stocks.
HF Sinclair Corporation (DINO)
DINO produces and markets a diverse range of petroleum products, including gasoline, diesel fuel, jet fuel, renewable diesel, and specialty lubricants. Additionally, it offers specialized chemicals, asphalt, base oils, and lubricants, along with comprehensive transportation, storage, and throughput services for the petroleum sector.
Over the past three years, DINO’s revenue and EBITDA increased at CAGRs of 38% and 122.7%, respectively. Its tangible book value and total assets grew at respective CAGRs of 36.5% and 17.7% over the same time frame. In addition, the company’s levered free cash flow rose at a CAGR of 75.7% during the period.
On December 1, 2024, DINO finalized the acquisition of Holly Energy Partners, L.P. by HF Sinclair, streamlining its corporate structure and bolstering operational efficiency. The move is expected to yield increased EPS and available free cash flow within the initial twelve months, aligning with DINO's commitment to enhancing shareholder value through prudent capital allocation.
DINO’s trailing-12-month levered FCF margin of 7.07% is 22.9% higher than the 5.75% industry average. Moreover, its trailing-12-month ROCE, ROTC, and ROTA of 23.56%, 14.12%, and 11.84% are 22.2%, 61.2%, and 62.2% higher than the industry averages of 19.27%, 8.76%, and 7.30%, respectively.
For the fiscal 2023 third quarter that ended September 30, 2023, DINO’s sales and other revenues stood at $8.91 billion. Additionally, net income and EPS attributable to DINO stockholders registered at $790.92 million and $4.23, respectively.
Furthermore, as of September 30, 2023, the company’s cash and cash equivalents amounted to $2.21 billion, compared to $1.67 billion as of December 31, 2022. Its total assets came in at $18.90 billion, up from $18.13 billion as of December 31, 2022.
Shares of DINO have gained 7% over the past five days and 12.7% over the past year to close the last trading session at $59.52.
DINO’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
DINO has a B grade for Value, Momentum, and Quality. It is ranked #11 out of 83 stocks within the Energy - Oil & Gas industry.
In addition to the POWR Ratings I’ve highlighted, you can see DINO’s Growth, Stability and Sentiment ratings here.
CVR Energy, Inc. (CVI)
CVI is involved in petroleum refining and nitrogen fertilizer manufacturing. Its Petroleum segment refines and markets gasoline, diesel fuel, and other refined products. The Nitrogen Fertilizer segment operates plants in North America, utilizing pet coke gasification to produce ammonia and urea ammonium nitrate (UAN) fertilizers.
CVI’s revenue increased at a CAGR of 30.5% over the past three years. In addition, the company’s EBITDA grew at a 102.8% CAGR during the period. Moreover, its total assets rose at a CAGR of 4.5% over the same time frame.
The stock’s trailing-12-month levered FCF margin of 6.70% is 16.5% higher than the 5.75% industry average. Additionally, CVI’s trailing-12-month ROCE, ROTC, and ROTA of 104.15%, 30.13%, and 17.87% compare with the industry averages of 19.27%, 8.76%, and 7.30%, respectively.
For the fiscal 2023 third quarter that ended September 30, 2023, CVI’s operating income increased 332% year-over-year to $445 million. Its EBITDA grew 192.8% from the year-ago value to $530 million. Also, the company’s net income and EPS rose 342.5% and 281.5% from the prior year’s period to $354 million and $3.51, respectively.
The stock has gained 7.2% over the past five days and 12.8% over the past month, closing the last trading session at $35.26.
CVI’s robust fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
CVI has an A grade for Quality and a B for Value and Momentum. It is ranked #6 out of 83 stocks within the Energy - Oil & Gas industry.
Click here to access additional CVI ratings for Growth, Stability, and Sentiment.
REX American Resources Corporation (REX)
REX specializes in ethanol production and sales, alongside offerings of corn, distillers grains, non-food grade corn oil, gasoline, and natural gas. Additionally, the company supplies dry distillers grains with solubles, a valuable protein source utilized in animal feed.
Over the past three years, REX’s revenue and EBITDA rose at a CAGR of 32% and 59.4%, respectively. Its net income and EPS grew at respective CAGRs of 132.5% and 138.1% over the same time frame. Furthermore, the company’s total assets rose at a CAGR of 9.7% during the period.
REX’s trailing-12-month ROTA of 7.73% is 5.9% higher than the 7.30% industry average. Furthermore, its trailing-12-month asset turnover ratio of 1.41x is 156.7% higher than the 0.55x industry average. In addition, the stock’s trailing-12-month cash per share of $4.16 compare with the industry average of $0.95.
For the fiscal 2023 third quarter that ended October 31, 2023, REX’s net sales and revenue marginally increased year-over-year to $221.08 million. Its gross profit grew 323.7% from the year-ago value to $39.29 million.
In addition, net income and net income per share attributable to REX common shareholders rose 719% and 727.8% from the prior year’s period to $26.08 million and $1.49, respectively.
The consensus EPS estimate of $3.02 for the fiscal year that ended January 2024 reflects a 92.4% year-over-year rise. Also, the company topped the consensus EPS estimates in three of the trailing four quarters. REX’s shares have gained 15.4% over the past six months and 31.7% over the past year, closing the last trading session at $43.71.
REX’s sound prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
REX has a B grade for Growth and Sentiment. It has ranked #12 out of 51 stocks within the Energy - Services industry.
Click here to access the additional REX ratings (Value, Momentum, Stability, and Quality).
What To Do Next?
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DINO shares were trading at $59.37 per share on Monday morning, down $0.15 (-0.25%). Year-to-date, DINO has gained 6.84%, versus a 5.83% 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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