The steep drop in crude oil prices this year created a difficult time for the energy sector. The concurrent drop in demand for energy due to lower business activity and power consumption, driven by a pandemic-led pause in the economy also adversely affected energy companies.
However, according to the US Energy Information Administration (EIA), “As global oil demand rises, forecast inventory draws in 2021 will cause some upward oil price pressures.” Brent crude oil prices are expected to be at an average of $47 per barrel in 2021. This could mean that energy companies will see a turnaround going into next year. The expected arrival of an effective coronavirus vaccine by the middle of next year also provides a bright outlook for energy stocks.
Chevron Corporation (CVX), ConocoPhillips, Inc. (COP), Marathon Petroleum Corporation (MPC), and Williams Companies, Inc. (WMB) are currently trading at low valuations. These companies have been investing in growing operations, so their stocks are well-poised to gain significantly once the energy sector rebounds.
Chevron Corporation (CVX)
CVX engages in petroleum, chemicals, and energy segments. The company has operations in 180 countries. CVX’s stock has gained 65.7% since hitting a low in mid-March.
CVX has recently completed the acquisition of Noble Energy. This move will help CVX leverage Noble Energy’s high-quality assets. Further, an international tribunal has ruled in favor of CVX in a $9.5 billion lawsuit against the state of Ecuador.
For the third quarter that ended September, 2020, the company saw a significant drop in business caused by the spread of the coronavirus. However, the company remains optimistic about the future and plans a $2.5 billion capital expenditure in its worldwide operations.
CVX is expected to see a rise in revenue of 22.8% in 2021. The company’s EPS is estimated to grow 2518% during the same period.
How does CVX stack up for the POWR Ratings?
B for Trade Grade
A for Peer Grade
B for Overall POWR Rating
The stock is also ranked #2 out of 97 stocks in the Energy – Oil and Gas industry.
ConocoPhillips, Inc. (COP)
COP explores, produces, and markets energy products such as crude oil, natural gas, bitumen, and natural gas liquids. The company has operations in seventeen countries. COP’s stock has risen 52.3% since the mid-March coronavirus-driven market crash.
COP recently made a natural gas discovery in an offshore field in Norway. The company has a 65% working interest in the field. This development could see high gains for the company in the future as they produce gas from this field. COP has also recently entered into an agreement to acquire Concho Resources, which is an energy company. The two companies will combine to form a company with an enterprise value of approximately $60 billion. This move is expected to create better synergy for the company and provide higher returns on investment for shareholders.
For the third quarter that ended September, 2020, the company witnessed a significant drop in revenue similar to other companies in the energy sector. However, COP managed to distribute $500 million in dividends thanks to its strong balance sheet. The company also completed an acquisition of acreage in Canada’s Montney area, signaling confidence for the future.
COP’s revenue for the quarter ending March 2021 is expected to rise 24.3%, and 37.6% for 2021. The company’s EPS is estimated to go up 177.6% in 2021.
In our POWR Ratings stsrem, COP has a grade of “B” in Peer Grade. Within the 97-stock Energy – Oil and Gas industry, it is ranked #12.
Marathon Petroleum Corporation (MPC)
MPC is involved in the refining and marketing of petroleum products. The company primarily operates in the United States. MPC’s stock has risen 108.2% since hitting a low on March 23rd.
MPC recently entered into an agreement to sell its subsidiary Speedway for $21 billion in cash to 7-Eleven. As part of the agreement, MPC will also supply approximately 7.7 billion gallons of fuel. The agreement is expected to create considerable value for shareholders and strengthen MPC’s balance sheet.
For the third quarter, the company reduced its workforce to realize better efficiency in its operations. The company also started a renewable fuels facility in Dickinson, ND. The available liquidity of the company exceeded $7 billion, indicating the resilience of the company.
MPC’s EPS is expected to grow 67.5% in 2021. Over the last five years, the company’s EPS has grown at a rate of 4.2%.
In our POWR Ratings system, MOC has a grade of “B” in Peer Grade. In the 97-stock Energy – Oil and Gas industry, it is ranked #16.
Williams Companies, Inc. (WMB)
WMB is an energy infrastructure company that primarily operates in the United States. The company’s core operation consists of processing and transporting natural gas. WMB’s stock has gained 78.5% since mid-March.
The company has recently resolved a payments dispute with bankrupt Chesapeake Energy Corp. The company will be taking control over certain assets of Chesapeake in exchange for allowing it to pay lower gas gathering fees. The company is also installing solar panels in its facilities to improve the sustainability of its operations.
For the third quarter that ended September, 2020, the company saw an increase in net income of 40% from the same period last year. The company made $415 million in capital investments during the same period.
WMB’s revenue is expected to grow 0.8% in 2021. The company’s EPS is estimated to rise 59.5% in 2021 and 5% per annum over the next five years.
WMB’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade. It is ranked #1 out of 97 stocks in the Energy – Oil and Gas industry.
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CVX shares were trading at $90.56 per share on Thursday morning, up $0.69 (+0.77%). Year-to-date, CVX has declined -20.59%, versus a 15.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaryaman Aashind
Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks.4 TURNAROUND Energy Stocks to Buy for 2021 appeared first on StockNews.com