Amid rising demand following the Covid-19 pandemic, supply shortages due to hurricanes in the Gulf of Mexico and disruptions in wind electricity generation in Europe, oil and natural gas prices have risen over the past several weeks.
On Wednesday, West Texas Intermediate Crude prices increased nearly 3% to around $72.49 per barrel, while prices for Brent crude were up 2.55% at $75.48. Natural gas prices also got a 3.42% boost to $5.44.
Despite the increasing shift toward cleaner energy alternatives, gurus are still finding value opportunities among traditional oil and gas companies as they look for ways to adapt. According to GuruFocus’ Hot Picks, a Premium feature, the energy companies most-bought by gurus during the second quarter were Chevron Corp. (CVX, Financial), Exxon Mobil Corp. (XOM, Financial), Royal Dutch Shell PLC (RDS.A, Financial), Bonanza Creek Energy Inc. (BCEI, Financial) and HollyFrontier Corp. (HFC, Financial).
Chevron
Held by 21 gurus with a combined equity portfolio weight of 10.58%, 11 buys and eight sells were recorded for Chevron (CVX, Financial) in the second quarter.
The San Ramon, California-based oil and gas company, which recently announced it will invest $10 billion in clean energy initiatives, has a $189.48 billion market cap; its shares were trading around $98.26 on Wednesday with a price-earnings ratio of 52.4, a price-book ratio of 1.43 and a price-sales ratio of 1.61.
The GF Value Line suggests the stock is fairly valued currently based on historical ratios, past performance and future earnings projections.
Chevron’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. Despite having adequate interest coverage, the Altman Z-Score of 2.53 indicates the company is under some pressure since revenue per share had declined over the past five years. The return on invested capital is also being overshadowed by the weighted average cost of capital, suggesting struggles with creating value while the company grows.
The company’s margins and returns on equity, assets and capital top over half of its competitors, while the Piotroski F-Score of 7 out of 9 indicates operations are healthy. Chevron also has a predictability rank of one out of five stars. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Chevron, Warren Buffett (Trades, Portfolio) has the largest stake with 1.2% of its outstanding shares. Other top guru shareholders include Pioneer Investments, Ken Fisher (Trades, Portfolio) and Diamond Hill Capital (Trades, Portfolio).
Exxon Mobil
Recording 10 buys and 12 sells for the second quarter, 23 gurus are invested in Exxon Mobil (XOM, Financial). The combined weight in their equity portfolios is 16.22%.
Headquartered in Irving, Texas, the oil and gas giant, which recently expanded is commitment to investments in renewable diesel, has a market cap of $238.56 billion; its shares were trading around $56.39 on Wednesday with a price-book ratio of 1.51 and a price-sales ratio of 1.13.
According to the GF Value Line, the stock is modestly undervalued currently.
GuruFocus rated Exxon Mobil’s financial strength 4 out of 10. As a result of issuing new long-term debt over the past several years, the Altman Z-Score of 2.86 indicates the company is under some pressure.
The company’s profitability fared a bit better, scoring a 5 out of 10 rating on the back of negative margins and returns that underperform a majority of industry peers. Exxon Mobil also has a low Piotroski F-Score of 3, suggesting operations are in poor shape. As a result of recording losses in operating income and declines in revenue per share over the past several years, the one-star predictability rank is on watch.
With a 0.60% stake, First Eagle Investment (Trades, Portfolio) is Exxon Mobil’s largest guru shareholder. Pioneer Investments, Fisher, Richard Pzena (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), John Paulson (Trades, Portfolio) and Yacktman Asset Management (Trades, Portfolio) also have significant positions in the stock.
Royal Dutch Shell
Royal Dutch Shell (RDS.A, Financial), which recorded nine buys and five sells for the second quarter, is held by 12 gurus with a combined equity portfolio weight of 5.18%.
The Dutch company, which recently announced a slate of new clean energy projects, has a $161.42 billion market cap; its shares were trading around $41.49 on Wednesday with a price-earnings ratio of 30.51, a price-book ratio of 0.98 and a price-sales ratio of 0.79.
Based on the GF Value Line, the stock appears to be fairly valued currently.
Weighed down by a low cash-debt ratio and weak interest coverage, GuruFocus rated Royal Dutch Shell’s financial strength 4 out of 10. The Altman Z-Score of 1.66 warns the company could be at risk of bankruptcy if it does not improve its liquidity. The WACC also eclipses the ROIC, implying it struggles to create value.
The company’s profitability scored a 5 out of 10 rating, driven by margins and returns that outperform over half of its competitors, a high Piotroski F-Score of 7 and a one-star business predictability rank that is on watch as a result of a decline in revenue per share over the past five years.
Fisher is Royal Dutch Shell’s largest guru shareholder with a 0.45% stake. Hotchkis & Wiley, Pzena, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Paulson and Steven Cohen (Trades, Portfolio) also have large holdings.
Bonanza Creek Energy
With a combined equity portfolio weight of 9.43%, 11 gurus own Bonanza Creek Energy (BCEI, Financial) currently. Nine buys and three sells were recorded during the second quarter.
The Denver-based exploration and production company, which is in the process of merging with Extraction Oil & Gas Inc. (XOG, Financial) to become Colorado’s first net-zero producer, has a market cap of $1.38 billion; its shares were trading around $44.74 on Wednesday with a price-earnings ratio of 20.25, a price-book ratio of 1 and a price-sales ratio of 3.09.
The GF Value Line suggests the stock is modestly overvalued currently.
Bonanza Creek’s financial strength was rated 8 out of 10 by GuruFocus on the back of a comfortable level of interest coverage. The Altman Z-Score of 1.8, however, warns the company could be in danger of going bankrupt if it does not improve its liquidity.
The company’s profitability did not fare as well with a 4 out of 10 rating. In addition to strong margins and returns that outperform a majority of industry peers, Bonanza Creek has a moderate Piotroski F-Score of 5, indicating its operations are typical for a stable company.
Donald Smith & Co. has the largest stake in Bonanza Creek Energy with 4.56% of outstanding shares. Hotchkis & Wiley, azValor Internactional FI, Diamond Hill, Chuck Royce (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and several other gurus also own the stock.
HollyFrontier
Having recorded eight buys and one sell during the quarter, HollyFrontier (HFC, Financial) is held by eight gurus with a combined equity portfolio weight of 0.37%.
Headquartered in Dallas, the petroleum refiner, which has expanded its renewable business in recent years, has a $5.05 billion market cap; its shares were trading around $31.05 on Wednesday with a price-earnings ratio of 26.09, a price-book ratio of 0.93 and a price-sales ratio of 0.36.
According to the GF Value Line, the stock is modestly undervalued currently.
GuruFocus rated HollyFrontier’s financial strength 5 out of 10. As a result of issuing approximately $723.13 million in new long-term debt over the past three years, it has poor interest coverage. The Altman Z-Score of 2.35 also indicates the company is under some pressure. The ROIC has fallen below the WACC, hinting at poor value creation.
The company’s profitability scored a 6 out of 10 rating on the back of margins and returns that outperform over half of its competitors. HollyFrontier also has a moderate Piotroski F-Score of 6. Despite recording losses in operating income and declining revenue per share, it has a one-star predictability rank.
Of the gurus invested in HollyFrontier, Cohen is the company’s largest guru shareholder with 0.42% of its outstanding shares. Paul Tudor Jones (Trades, Portfolio), Hotchkis & Wiley, Simons’ firm, Pioneer Investments, Lee Ainslie (Trades, Portfolio), Richard Snow (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) are also invested in the stock.
