For Immediate Release
Chicago, IL – April 19, 2022 – Today, Zacks Investment Ideas feature highlights The Marathon Oil Corp. MRO and ConocoPhillips COP.
The Commodity Surge: Is It Too Late to Buy These Leading Oil & Gas Stocks?
Energy demand has seen a significant rebound from the pandemic-driven lows as countries around the world have returned to full capacity. The supply imbalances and constraints that continue to plague the globe have led to multi-year highs in commodity prices. Oil prices have been no exception, with West Texas Intermediate (WTI) crude prices rising back over $100/barrel for the first time since 2014.
The Organization of Petroleum Exporting Countries (OPEC) recently cut its forecast for global oil demand this year, citing the Russia-Ukraine conflict as well as the resurgence of COVID-19 cases in China as the top threats to growth. World demand is set to rise by 3.67 million barrels per day (bpd) this year, down nearly half a million bpd from OPEC’s previous forecast. However, consumption is still expected to exceed the 100 million bpd mark later this year, which was last surpassed in 2019.
And while China’s Omicron outbreak dampened consumption in the first quarter, its oil demand is expected to rebound in the second quarter and show positive growth in May according to the China National Petroleum Corp. (CNPC). As long as COVID-19 cases remain under control, CNPC expects Chinese oil demand to climb to 15.26 million bpd in Q3 and rise to 15.37 million bpd in Q4 – up 4.1% and 6.7% year-over-year, respectively.
It’s no secret that oil-related stocks tend to have a high correlation with the price of crude oil. Higher oil prices are good news for oil company margins and profits. These instances of commodity price gains provide investors with opportunities. And with crude prices continuing to move higher, investors would be wise to consider an allocation to these stocks if they haven’t already done so.
After years of underperformance and underinvestment, last year was the first year in some time in which we saw the energy sector lead all sector returns. Much has been said and written in recent weeks about the Fed tightening and how it will bring down inflation, with energy prices coming down along with it. One thing we know for sure is that price trends tend to continue for longer than most people expect, and it wouldn’t be too shocking to see oil prices continue their rise in the short-term.
Quantitative research studies suggest that approximately half of a stock’s future price appreciation is due to its industry grouping. The Zacks Oil and Gas – Integrated – U.S. industry group is currently ranked in the top 3% out of approximately 250 industries. Because it is ranked in the top half of all industries, we expect it to outperform over the next three to six months.
This industry group has started out the year strong with a greater than 50% return, while the S&P is currently down more than 8%. The two oil and gas companies we will discuss below are part of this leading group and are both significantly outperforming the market. By focusing on stocks within the top Zacks Ranked Industries, we can dramatically improve our investing success.
Marathon Oil Corp.
Marathon Oil is a global, independent company that is engaged in the exploration, production, and marketing of crude oil and natural gas. MRO owns and operates 32 gathering and treatment facilities as well as a 42-mile natural gas pipeline known as the ‘Sugarloaf’ gathering system. Marathon Oil was founded in 1887 and is headquartered in Houston, TX.
A Zacks #1 (Strong Buy) stock, MRO has surpassed earnings estimates in each of the past seven quarters. The oil and gas producer most recently reported Q4 EPS back in February of $0.77, a +40% surprise over the $0.55 consensus estimate. Over the past four quarters, MRO has delivered an average earnings surprise of +37.39%. The stock has followed suit, advancing over 160% in the past year.
Despite the impressive performance, MRO trades a relatively undervalued 6.45 forward P/E compared to its industry (13.38). First-quarter EPS estimates for MRO have been revised upward in the past 60 days by 19.74%. The Zacks Consensus Estimate now stands at $0.91, translating to an astounding 333.33% growth rate versus the same quarter last year. MRO is scheduled to report the Q1 results on May 4th.
ConocoPhillips is a global exploration and production company. COP explores for, produces, transports, and markets crude oil, bitumen, and natural gas. The company is primarily engaged in the production of shale gas, heavy oil, liquefied natural gas, and oil sands operations. ConocoPhillips was founded in 1917 and is also based in Houston, TX.
COP has exceeded earnings estimates in each of the past five quarters. The company has posted a trailing four-quarter average earnings surprise of +12.59%. COP most recently reported Q4 earnings back in February of $2.27, a +3.18% beat over the $2.20 consensus. The stock has more than doubled in the past year, but still trades at a relatively undervalued 8.0 forward P/E.
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst revisions. This fresh information could potentially be more accurate than what analysts originally thought about company earnings. This proprietary technique has proven to be extremely useful – in fact, when combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
With a Zacks #1 (Strong Buy) ranking and a +9.6% Earnings ESP, another earnings beat may be in store for COP investors.
Analysts covering COP have increased their first-quarter EPS estimates by 15.85% in the past 60 days. The Zacks Consensus Estimate now sits at $2.85, representing potential growth of 313.04% relative to the same quarter a year ago. COP is due to report the Q1 results on May 5th.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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