Thanks to sinking crude oil prices, energy stocks as
a group are down around 5% year-to-date. But the worst may be over.
The U.S. Energy Information Administration expects
WTI crude oil, which recently traded around $76/barrel, to average
$80/barrel by year’s end, and then $84/barrel next year.
Actually, if you pick the right companies, that is,
those that are increasing production, you only need steady crude oil
prices for them to grow per-share earnings, which usually translates
to higher share prices. Rising crude oil prices would only be icing
on the cake.
Here are my ideas for
constructing a stock screen for finding such stocks.
As usual, I’ll describe the process using Finviz
stock screen program. Why? It’s free, user-friendly and offers all
of the screening filters needed to do the job.
To use the Finviz screener, start by selecting
“Screener” on the toolbar near the top of the Finviz homepage
(finviz.com). Next, select “All” on the Filters bar to see the
available screening filters.
Define
Candidates
Since the U.S. continues to have the world’s
strongest economy, we’ll start by limiting our list to U.S.-based
oil and gas exploration and production stocks. Do that specifying
“Oil & Gas E&P” using the Industry filter and then “USA” using the
“Country” filter to select “USA.”
Find Earnings Growers
As mentioned, we’re looking for earnings growers, but
thanks to falling crude oil prices, most crude oil plays are
expected to report below year-ago earnings for 2023, but resume
earnings growth next year.
So limit your list to the strongest long-term
candidates by using the “EPS Growth Next Year” filter and specifying
“Over 25%.”
Fundamentals Matter
Highly profitable, low-debt stocks typically
outperform weaker players. Here’s how to find them.
Return on Equity (ROE) compares “net income” to
shareholders equity. ROE ratios should be at least 15, but higher is
better. Using the “Return on Equity” filter, specify “Over +35%” to
limit your list to the most profitable stocks.
Looking at debt gauges, the Debt/Equity ratio
compares total liabilities to shareholders equity. D/E ratios below
one signal low-debt, but lower is better. Specify “under 1” using
the “Debt/Equity filter.
Follow Smart Money
Institutional investors such as mutual funds have
access to information that we’ll never see. Stick with stocks that
these wired-in players not only like but are still adding to
positions.
Do that by specifying “Over 90%” using the
Institutional Ownership filter and specifying “Positive” for recent
Institutional Transactions to pinpoint stocks that the smart money
is still buying.
My screen turned up six candidates
Earthstone Energy (ESTE):
Expected to earn $4.49 per share this year and $5.67 in 2024.
Chord
Energy (CHRD):
Expected to earn
$20.66 per share this year and $27.80 next year. Pays an 8.2%
dividend yield.
Talos Energy (TALO): Expected to earn
$2.01 per share this year and $3.21 next year.
EQT Corp. (EQT): Expected to earn $2.18
per share this year and $2.86 in 2024. Pays a 1.5% dividend yield.
Silver Bow Resources (SBOW):
Expected to earn $7.92 per share this year and $13.06 next year.
Berry Corp. (BRY): Expected to earn $0.32 per share this year
and $0.77 per share next year. Pays a 6.4% dividend yield.
These are my ideas, but do your own due diligence.
The more you know about your stocks, the better your results.
