In an already volatile environment in the wake of the coronavirus continuing to spread, markets cratered on Monday morning after an oil price war broke out over the weekend. The Dow Jones Industrial Average tanked more than 1,500 points, on pace for its worst day since December 2008, while the S&P 500 Index and Nasdaq composite both fell over 5%.
The energy markets have also suffered a blow after both OPEC and non-OPEC groups, headed respectively by Saudi Arabia and Russia, failed to agree on the terms of deeper supply cuts on Friday.
The following day, Saudi Arabia announced it is slashing prices for April as well as preparing to ramp up oil production to above 10 million barrels per day.
As a result, Brent crude traded at $35.60 on Monday morning, down more than 21%, while U.S. West Texas Intermediate declined around 22% to $32.14 per barrel.
In light of these developments, prudent investors may now be seeking value opportunities among profitable energy companies. According to the GuruFocus Predictable Companies screener, a Premium feature that correlates the predictability of a company’s earnings and revenue growth with its long-term returns, several companies are worth consideration as of March 9. These included Magellan Midstream Partners LP (MMP, Financial), USA Compression Partners LP (USAC, Financial), Pioneer Natural Resources Co. (PXD, Financial), Marathon Petroleum Corp. (MPC, Financial) and Cabot Oil & Gas Corp. (COG, Financial).
Magellan Midstream
The Tulsa, Oklahoma-based midstream energy company, which owns and operates ammonia and petroleum pipelines, has a $10.16 billion market cap; its shares were trading around $47.60 on Monday with a price-earnings ratio of 10.68, a price-book ratio of 4.01 and a price-sales ratio of 3.99.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The GuruFocus valuation rank of 6 out of 10 also supports this assessment as the price-book and price-sales ratios are near five-year lows.
GuruFocus rated Magellan’s financial strength 4 out of 10. Although the company has issued approximately $643.12 million in new long-term debt over the past three years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 2.02 indicates it is under some financial pressure, however, as its assets are building at a faster rate than its revenue is growing.
The company’s profitability scored a 9 out of 10 rating. Even though the operating margin is in decline, it still outperforms a majority of competitors. Magellan is also supported by strong returns and a moderate Piotroski F-Score of 4, which indicates operations are stable. The business predictability rank of 4.5 out of five stars is on watch as a result of a slowdown in revenue per share growth over the past 12 months. According to GuruFocus, companies with this rank typically see their stocks return an average of 10.6% per annum over a 10-year period.
Of the gurus invested in Magellan Midstream, George Soros (Trades, Portfolio) has the largest position with 0.04% of outstanding shares. T Boone Pickens’ BP Capital Fund Advisors (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Pioneer Investments (Trades, Portfolio) are also shareholders.
USA Compression Partners
Headquartered in Austin, Texas, the company, which provides natural gas compression services, has a market cap of $1.05 billion; its shares were trading around $11.92 on Monday with a price-book ratio of 0.64 and a price-sales ratio of 1.52, which GuruFocus noted are near multiyear lows.
According to the median price-sales chart, the stock is overvalued.
Weighed down by $333.66 million in new long-term debt and low interest coverage, USA Compression Partners’ financial strength was rated 3 out of 10 by GuruFocus. Additionally, the Altman Z-Score of 0.73 warns the company could be at risk of going bankrupt as it has recorded a loss in operating income for the last three years as well as a slowdown in revenue per share growth over the past 12 months.
The company’s profitability fared better, scoring a 7 out of 10 rating on the back of strong margins and returns that outperform over half of its industry peers. USA Compression also has a moderate Piotroski F-Score of 6 and a four-star business predictability rank. GuruFocus says companies with this rank typically record an average return of 9.8% per year.
Simons’ firm holds 0.01% of the company’s outstanding shares.
Pioneer Natural Resources
The Irving, Texas-based oil and gas producer has an $11.42 billion market cap; its shares were trading around $69.37 on Monday with a price-earnings ratio of 15.36, a price-book ratio of 0.93 and a price-sales ratio of 1.19.
Based on the Peter Lynch chart, the stock appears to be overvalued. This analysis is also supported by the GuruFocus valuation rank of 9 out of 10 as the price-book and price-sales ratios are near 10-year lows.
GuruFocus rated Pioneer’s financial strength 6 out of 10 on the back of adequate interest coverage. The Altman Z-Score of 2.51, however, hints at some financial stress.
The company’s profitability scored an 8 out of 10 rating, driven by strong margins and returns that outperform a majority of competitors as well as a moderate Piotroski F-Score of 5. The 2.5-star business predictability rank is on watch as a result of a slowdown in revenue growth over the past year. GuruFocus noted companies with this rank return an average of 7.3% per year.
PRIMECAP Management (Trades, Portfolio) is the company’s largest guru shareholder with a 3.46% stake. Other top guru investors include the T Rowe Price Equity Income Fund (Trades, Portfolio), Steven Cohen (Trades, Portfolio), John Rogers (Trades, Portfolio), Pioneer, Simons’ firm, Ken Fisher (Trades, Portfolio), Soros, Jeremy Grantham (Trades, Portfolio), BP Capital, Richard Snow (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Tom Russo (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).
Marathon Petroleum
The petroleum refining company, which is headquartered in Findlay, Ohio, has a market cap of $22.94 billion; its shares were trading around $35.03 on Monday with a price-earnings ratio of 8.92, a price-book ratio of 0.69and a price-sales ratio of 0.19, which GuruFocus noted are near multiyear lows.
The Peter Lynch chart suggests the stock is undervalued.
Marathon Petroleum’s financial strength was rated 4 out of 10 by GuruFocus. As a result of issuing approximately $8.9 billion in new long-term debt over the past three years, the company has low interest coverage. The Altman Z-Score of 1.97 also indicates mounting financial pressure as assets are building at a faster rate than revenue is growing.
Boosted by an expanding operating margin, the company’s profitability scored a 7 out of 10 rating. Marathon also has strong returns that outperform over half of its industry peers, a moderate Piotroski F-Score of 6 and a 2.5-star business predictability rank that is on watch as a result of a slowdown in revenue growth over the past year.
With a 1.49% stake, Paul Singer (Trades, Portfolio) is the company’s largest guru shareholder. Sarah Ketterer (Trades, Portfolio), Hotchkis & Wiley, Simons’ firm, First Eagle Investment (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio), Pioneer, Joel Greenblatt (Trades, Portfolio), Cohen, Snow, Paul Tudor Jones (Trades, Portfolio) and several other gurus also have positions in the stock.
Cabot Oil & Gas
The Houston-based natural gas company has a market cap of $6.93 billion; its shares were trading around $17.14 on Monday with a price-earnings ratio of 10.67, a price-book ratio of 3.27 and a price-sales ratio of 3.51.
According to the Peter Lynch chart and the GuruFocus valuation rank of 8 out of 10, the stock is undervalued.
Even though it has comfortable interest coverage and a high Altman Z-Score of 3.75, which implies financial stability, GuruFocus rated Cabot’s financial strength 5 out of 10 as its revenue growth has slowed down over the past 12 months.
The company’s profitability scored a 7 out of 10 rating, driven by strong margins and returns that outperform a majority of industry peers, a high Piotroski F-Score of 8, which implies operations are healthy, and a two-star business predictability rank. GuruFocus says companies with this rank return, on average, 6% per year.
Of the gurus invested in Cabot, PRIMECAP is the company’s largest guru shareholder. Chris Davis (Trades, Portfolio), Soros, Pioneer, Grantham, Greenblatt, Simons’ firm, Dalio, Philippe Laffont (Trades, Portfolio), Snow and Jones also have positions in the stock.
Disclosure: No positions.
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