Five energy giants gained on Thursday morning as U.S. crude oil prices topped $75 a barrel, the highest price reached since 2018, ahead of a decision from OPEC+ on production policy for the second half of the year.
West Texas Intermediate crude for August rose 3.2% to $75.82 per barrel, while the international benchmark Brent crude for September climbed 2% to $76.10 per barrel.
Gas prices have also climbed in recent months as travel has begun to pick back up in conjunction with the economy reopening. The current average price for a gallon of unleaded gasoline is $3.12, up from $2.17 a year ago.
As a result of these developments, top energy gainers in the S&P 500 Index on Thursday included Occidental Petroleum Corp. (OXY, Financial), Diamondback Energy Inc. (FANG, Financial), ConocoPhillips (COP, Financial), Schlumberger Ltd. (SLB, Financial) and Halliburton Co. (HAL, Financial).
Occidental Petroleum
Recording a gain of 4.61%, Occidental Petroleum (OXY, Financial) has a $30.69 billion market cap; its shares were trading around $32.71 on Thursday morning with a price-book ratio of 3.6 and a price-sales ratio of 1.86.
While the GF Value Line shows the stock is fairly valued, the valuation rank of 8 out of 10 leans more toward undervaluation even though the share price and price ratios are approaching multiyear highs.
The oil and gas producer, which is headquartered in Houston, has a GuruFocus financial strength rating of 3 out of 10. The weak Altman Z-Score of 0.06 warns the company could be in danger of going bankrupt. In addition, assets are building up at a faster rate than revenue is growing, indicating it may be becoming less efficient.
The company’s profitability scored a 5 out of 10 rating on the back of negative margins and returns on equity, assets and capital that underperform a majority of its competitors. Occidental also has a low Piotroski F-Score of 3, suggesting operations are in poor shape, and the predictability rank of one out of five stars is on watch as a result of revenue per share declining over the past 12 months. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
With a 12.42% stake, Dodge & Cox is Occidental’s largest guru shareholder. Carl Icahn (Trades, Portfolio), David Tepper (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), John Paulson (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and the T Rowe Price Equity Income Fund (Trades, Portfolio) also have significant holdings in the stock.
Diamondback Energy
With the stock up 5.08%, Diamondback Energy (FANG, Financial) has a market cap of $17.46 billion; its shares were trading around $98.66 on Thursday with a price-book ratio of 1.63 and a price-sales ratio of 4.99.
According to the GF Value Line, the stock is fairly valued.
The Midland, Texas-based oil company has a GuruFocus financial strength rating of 4 out of 10. As a result of issuing approximately $3.2 billion in new long-term debt over the past three years, the company has weak interest coverage. In addition to a Sloan ratio indicating it has poor earnings quality, the Altman Z-Score of 0.09 warns the company could be in danger of going bankrupt as assets are building up at a faster rate than revenue is growing. The return on invested capital has also fallen below the weighted average cost of capital, indicating struggles with creating value.
The company’s profitability scored a 6 out of 10 rating, driven by a robust operating margin. Its returns, however, are negative and underperform a majority of industry peers. Diamondback also has a low Piotroski F-Score of 2 and the one-star predictability rank is on watch as a result of recording losses in operating income and declines in revenue per share over the past several years.
Bill Nygren (Trades, Portfolio) is Diamondback Energy’s largest guru shareholder with a 1.44% stake. Other gurus who have positions in the stock are Pioneer, Ken Fisher (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Scott Black (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Caxton, Chuck Royce (Trades, Portfolio) and azValor Managers FI (Trades, Portfolio).
ConocoPhillips
Posting a gain 3.38%, ConocoPhillips (COP, Financial) has an $84.74 billion market cap; its shares were trading around $62.96 on Thursdaywith a price-book ratio of 1.96 and a price-sales ratio of 3.27.
Based on the GF Value Line, the stock appears to be significantly overvalued currently. The valuation rank of 2 out of 10 also supports this assessment since the share price and price-sales ratio are closing in on multiyear highs.
The oil and gas producer based in Houston has a GuruFocus financial strength rating of 4 out of 10 on the back of an Altman Z-Score of 2.23, which indicates it is under some financial pressure.
The company’s profitability did not fare much better, scoring a 5 out of 10 rating as a result of margins and returns that outperform over half of its competitors. ConocoPhillips also has a low Piotroski F-Score of 3. Due to declining revenue per share over the past several years, the one-star predictability rank is on watch.
Of the gurus invested in ConocoPhillips, Dodge & Cox has the largest stake with 1.78% of outstanding shares. Fisher, Pioneer, Nygren, Yacktman Asset Management (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio) and Elfun Trusts (Trades, Portfolio) also have significant stakes in the company.
Schlumberger
Rising 3.47%, Schlumberger (SLB, Financial) has a market cap of $46.47 billion; its shares were trading around $33.12 on Thursday with a price-book ratio of 3.71 and a price-sales ratio of 2.18.
The GF Value Line indicates the stock is significantly overvalued currently. The GuruFocus valuation rank of 7 out of 10, however, favors undervaluation.
On the back of insufficient interest coverage, GuruFocus rated the Houston-based oilfield services company’s financial strength 4 out of 10. The Altman Z-Score of 1.58 also warns the company could be in danger of bankruptcy if it does not improve its liquidity position. Additionally, the company’s Sloan ratio is indicative of poor earnings quality and the WACC eclipses the ROIC, implying poor value creation.
The company’s profitability did not fare much better, scoring a 5 out of 10 rating as a result of declining margins and negative returns that underperform a majority of industry peers. Schlumberger also has a moderate Piotroski F-Score of 4, suggesting operations are stable, and a five-year decline in revenue per share led to a one-star predictability rank.
Dodge & Cox is Schlumberger’s largest guru shareholder with a 4.91% stake. Other top guru investors are First Eagle Investment (Trades, Portfolio), Pioneer, Fisher, Hotchkis & Wiley, Elfun Trusts (Trades, Portfolio), Cohen and azValor Internacional FI (Trades, Portfolio).
Halliburton
Increasing 3.55%, Halliburton (HAL, Financial) has a $21.26 billion market cap; its shares were trading around $23.94 on Thursday morning with a price-book ratio of 4.11 and a price-sales ratio of 1.65.
According to the GF Value Line, the stock is significantly overvalued. The valuation rank of 5 out of 10 leans more toward fair valuation, however, even though its share price and price-sales ratio are approaching multiyear highs.
The oilfield services company, which is headquartered in Houston, has a GuruFocus financial strength rating of 4 out of 10 on the back of weak interest coverage. The Altman Z-Score of 2.07 also suggests the company is under some pressure since revenue per share has declined over the past five years. The WACC also surpasses the ROIC, indicating poor value creation.
The company’s profitability scored a 5 out of 10 rating, driven by an expanding operating margin. Its returns, however, are negative and underperform a majority of competitors. Halliburton also has a moderate Piotroski F-Score of 5 and a one-star predictability rank.
