Top Oil and Gas Stocks

NINE, TRMD, and STNG are rising as the Russell 1000 declines

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The top-performing oil and gas stocks in the past year include services firm Nine Energy Service Inc. and oil transport companies TORM PLC and Scorpio Tankers Inc. They've risen up to eight-fold in the past year thanks to high oil prices and tanker rates, beating the 11% drop in the Russell 1000 Index.

Oil and gas stocks as a group, measured by the benchmark Energy Select Sector SPDR ETF (XLE), have climbed by 70% in the past year, outperforming the broader market. While oil prices have pulled back in recent months, they remain higher than a year ago. These market performance figures and all statistics in the tables below are as of Dec. 2, 2022.

We examine the top oil and gas stocks in three categories: best value, fastest growth, and most momentum, respectively.

Best Value Oil and Gas Stocks

These are the oil and gas stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. A low P/E ratio shows that you’re paying less for each dollar of profit generated. Profit can be returned to shareholders in the form of dividends and share buybacks.

Best Value Oil and Gas Stocks
  Price ($) Market Capitalization (Market Cap) ($B) 12-Month Trailing P/E Ratio
YPF SA (YPF) 8.26 3.2 1.5
PBF Energy Inc. (PBF) 36.64 4.5 1.9
Laredo Petroleum Inc. (LPI) 61.54 1.0 1.9

Source: YCharts

  • YPF SA: YPF is an Argentinian oil and gas company that explores and produces petroleum products. It also engages in downstream operations. Even though its shares have nearly doubled in the past year, it's regarded as one of the top values because earnings are expected to increase more than 4,600% this year.
  • PBF Energy Inc.: PBF refines petroleum and sells transportation fuels, lubricants, heating oil, and feedstocks. In a cash and stock deal, PBF in November completed the purchase of the remaining half of PBF Logistics LP, an oil and petroleum products logistics company. PBF owned roughly 48% of PBF Logistics shares before the acquisition.
  • Laredo Petroleum Inc.: Laredo acquires, explores, and develops oil and natural gas properties in the Permian Basin region in Texas. Laredo reported in November that third-quarter net income increased 147% as revenue rose 22%, aided by higher selling prices.

Fastest-Growing Oil and Gas Stocks

These are the top oil and gas stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

Fastest-Growing Oil and Gas Stocks
  Price ($) Market Cap ($B) EPS Growth (%) Revenue Growth (%)
Vertex Energy Inc. (VTNR) 7.28 0.6 133.3 1,490
Permian Basin Royalty Trust (PBT) 20.91 1.0 866.7 717.1
DMC Global Inc. (BOOM) 18.47 0.4 2,200 159.7

Source: YCharts

  • Vertex Energy Inc.: Vertex produces and distributes alternative and conventional fuels, including motor oil and base oils for lubricant manufacturers. It also recycles industrial waste streams. Net income nearly tripled as revenue jumped almost 15-fold in its latest financial period. A $48 million reversal of unrealized derivative losses and other non-recurring items impacted profits.
  • Permian Basin Royalty Trust: Permian Basin is a trust that owns interests in Texas properties producing oil and natural gas liquids (NGLs). The trustee of Permian Basin Royalty is Simmons Bank.
  • DMC Global Inc.: DMC provides building products, metal manufacturing services, and well-completion solutions. DMC reported in November that net income rose about 20-fold to $8.2 million while net sales grew 160% in the latest quarter. Growth during the first three quarters of 2022 was positively impacted by DMC's acquisition in December 2021 of a 60% controlling interest in architectural products company Arcadia.

Oil and Gas Stocks With the Most Momentum

These are the oil and gas stocks that had the highest total return over the past 12 months. Companies with total returns over 2,500% were excluded as outliers.

Oil and Gas Stocks With the Most Momentum
  Price ($) Market Cap ($B) 12-Month Trailing Total Return (%)
Nine Energy Service Inc. (NINE) 10.04 0.3 765.5
TORM PLC (TRMD) 29.34 2.4 335.6
Scorpio Tankers Inc. (STNG) 53.90 3.0 327.8
Russell 1000 Index N/A N/A -10.9
Energy Select Sector SPDR ETF (XLE) N/A N/A 69.9

Source: YCharts

  • Nine Energy Service Inc.: Nine Energy provides oil well-completion services to oil and gas resource developers in North America. It cements, prepares, and drills wells and provides wireline services.
  • TORM PLC: TORM is a British tanker company that transports refined oil products including gasoline and jet fuel to end users.
  • Scorpio Tankers Inc. : Scorpio, based in Monaco, transports refined petroleum products. The company's fleet consists of 131 wholly owned, finance leased or chartered-in tankers. Scorpio will pay a quarterly dividend of $0.10 on Dec. 15, 2022.

Advantages of Oil and Gas Stocks

Inflation/Interest Rates Hedge: Historically, rising inflation has been correlated with higher oil prices, offering investors a potential portfolio hedge by investing in oil and gas stocks. Typically, the Federal Reserve raises interest rates to tackle inflation, aiming to lower consumer demand. According to Bob Iaccino, co-founder of Path Trading Partners, the price of West Texas Intermediate (WTI) crude contracts over the past six rate-tightening cycles has risen by an average of 16.06% six months after each rate hike. Although WTI has fallen around 15% since the Fed started raising interest rates in March this year, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fund has gained 13% as of September 2022, helping investors offset losses in other sectors.

Tax Advantages: Investing in oil and gas stocks provides investors and producers with a range of unique tax benefits. Some key advantages include the favorable way active and passive income is treated and the deduction of certain drilling and lease costs. For instance, the Internal Revenue Service (IRS) tax code considers earnings from oil and gas royalties as passive income while categorizing net losses as active income. This may enable some investors to offset their production revenue losses from other forms of income, such as capital gains.

Risks of Oil and Gas Stocks

Tightening Government Regulations: Oil and gas stocks face increasing challenges from environmental regulations as governments set targets on lowering carbon emissions and continue to encourage the transition from fossil fuels to renewable energy sources. Stocks in the sector already have high capital expenditure (CapEx); therefore, adding additional costs to meet climate goals eats into cash reserves, especially if energy prices start to fall. 

Price Volatility: Oil and gas stocks are prone to significant commodity price volatility, driven by supply and demand fundamentals and geopolitical events. For example, a surprise decision to increase production by the Organization of the Petroleum Exporting Countries (OPEC) members can cause a sharp sell-off in oil prices. Conversely, war breaking out can lead to a surge in energy prices. For instance, due to Russia's position as the world's largest gas exporter, natural gas has gained around 75% since Russia invaded Ukraine in February 2022.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

Article Sources
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