As the first quarter of 2022 comes to a close, investors may be searching for value opportunities among stocks that have performed well so far this year.
While the energy sector has been battered in recent years due to shifts toward renewable sources and declines in demand during the Covid-19 pandemic, it is off to a good start this year as travel continues to pick back up and the Russia-Ukraine conflict has raised gas prices.
Year to date, the sector has climbed 28.13%.
On Thursday, however, the Biden administration announced it will release 1 million barrels per day of oil per day from the Strategic Oil Reserve over the next six months in an effort to combat spiking prices. As a result, the international benchmark Brent crude futures for May fell 4% on the news to $108.89 per barrel, while West Texas Intermediate crude futures for May slid 3.6% to trade at $103.97.
Due to these developments, investors may find value prospects among energy companies that outperformed the Standard & Poor’s 500 Index by at least 15% over the past three months.
The GuruFocus All-in-One Screener, a Premium feature, found several stocks that had a higher return relative to the benchmark index for the period. It also looked for companies with a predictability rank of at least one out of five stars. These companies are members of the benchmark index, which has posted a return of roughly -3.44% for the year so far.
Stocks within the S&P 500 that met these criteria as of March 31 were Marathon Petroleum Corp. (MPC, Financial) and Diamondback Energy Inc. (FANG, Financial).
Marathon Petroleum
Outperforming the index by approximately 38.84% over the past three months, Marathon Petroleum (MPC, Financial) has a $48.46 billion market cap; its shares were trading around $86.58 on Thursdaywith a price-earnings ratio of 5.79, a price-book ratio of 1.92 and a price-sales ratio of 0.46.
The GF Value Line suggests the stock is modestly overvalued currently based on historical ratios, past financial performance and future earnings projections.
The Findlay, Ohio-based midstream company refines, markets and transports petroleum products in the U.S.
GuruFocus rated Marathon Petroleum’s financial strength 6 out of 10. In addition to weak interest coverage, the Altman Z-Score of 2.5 indicates the company is under some pressure since assets are building up at a faster rate than revenue is growing. The weighted average cost of capital also overshadows the return on invested capital, suggesting the company is struggling to create value as it grows.
The company’s profitability scored a 7 out of 10 rating. Although the operating margin is underperforming versus competitors, Marathon is supported by strong returns on equity, assets and capital. It also has a high Piotroski F-Score of 7 out of 9, meaning business conditions are healthy, and a one-star predictability rank. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Marathon Petroleum, Hotchkis & Wiley has the largest stake with 0.34% of its outstanding shares. Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Bernard Horn (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) also have positions in the stock.
Diamondback Energy
Topping the S&P 500 by roughly 33.60% year to date, Diamondback Energy (FANG, Financial) has a market cap of $24.83 billion; its shares were trading around $140.43 on Thursday with a price-earnings ratio of 11.68, a price-book ratio of 2.08 and a price-sales ratio of 3.73.
The GF Score, a new ranking system that has been found to be closely correlated to the long-term performance of stocks, is 88 out of 100. The strong score was supported by robust ranks for growth, profitability and GF Value along with middling ranks for financial strength and momentum.
The oil and gas producer headquartered in Midland, Texas operates exclusively in the Permian Basin of West Texas and Southeastern New Mexico.
Diamondback’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately $357 million in new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 2.16 indicates the company is under some pressure since assets are building up at a faster rate than revenue is growing.
The company’s profitability fared better with an 8 out of 10 rating, driven by margins and returns that outperform over half of its industry peers. Diamondback also has a high Piotroski F-Score of 7 and, despite recording losses in operating income over the past several years, a one-star predictability rank.
With a 1.33% stake, Bill Nygren (Trades, Portfolio) is Diamondback Energy’s largest guru shareholder. Other gurus who have positions in the stock are Ken Heebner (Trades, Portfolio), Fisher, Arnold Van Den Berg (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Keeley-Teton Advisors, LLC (Trades, Portfolio), Scott Black (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Greenblatt and Azvalor Managers FI (Trades, Portfolio).
