6 Outperforming Oil Producers – GuruFocus.com

As 2021 comes to a close, investors are searching for value opportunities to take advantage of in the new year.

While oil stocks were battered due to decreased travel demand throughout the Covid-19 pandemic, energy expert Daniel Yergin, vice chairman IHS Markit, told CNBC’s “Squawk Box Asia” on Wednesday that U.S. production output could increase by as much as 900,000 barrels per day in the coming year.

While production has not yet recovered to pre-pandemic levels of 12.29 million barrels of crude oil per day, the U.S. Energy Information Administration noted it is getting there. The U.S. produced 11.28 million barrels in 2020 and production is estimated to be 11.18 million barrels for 2021 and 11.85 million barrels in 2022.

“The U.S. is back,” Yergin said. “For the last year, year and a half, it’s been OPEC+ running the show, but U.S. production is coming back already, and it’s going to come back more in 2022.”

International benchmark Brent crude futures were down 0.01% at $79.24 on Thursday morning, while West Texas Intermediate crude futures gained 0.27% to trade at $76.73.

With the positive outlook for energy stocks heading into the new year as oil prices rise, U.S. drilling operations pick up and greener alternative fuels are being developed, investors may find value prospects among energy companies that outperformed the Standard & Poor’s 500 Index by at least 60% over the past 12 months.

As of Dec. 30, the GuruFocus All-in-One Screener, a Premium feature, found several stocks that had a higher return relative to the index for the period. It also looked for companies with a business 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 27.98% for the year.

Stocks within the S&P 500 that met these criteria were Devon Energy Corp. (DVN, Financial), Marathon Oil Corp. (MRO, Financial), Diamondback Energy Inc. (FANG, Financial), APA Corp. (APA, Financial), EOG Resources Inc. (EOG, Financial) and ConocoPhillips (COP, Financial).

Devon Energy

Outperforming the index by approximately 171.31% over the past 12 months, Devon Energy (DVN, Financial) has a $29.97 billion market cap; its shares were trading around $44.06 on Thursdaywith a price-earnings ratio of 26.51, a price-book ratio of 3.36 and a price-sales ratio of 2.99.

The GF Value Line suggests the stock is significantly overvalued currently based on historical ratios, past performance and future earnings projections.

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The Oklahoma City-based oil and gas producer has operations in the Delaware, STACK, Eagle Ford, Powder River Basin and Bakken plays.

Devon Energy’s financial strength and profitability were both rated 4 out of 10 by GuruFocus. In addition to poor interest coverage, the Altman Z-Score of 2.24 indicates the company is under some pressure. The Sloan ratio is also indicative of poor earnings quality. Additionally, the return on invested capital is overshadowed by the weighted average cost of capital, suggesting the company is struggling to create value as it grows.

The company’s margins and returns on equity, assets and capital, however, are strong and outperform a majority of competitors. Devon also has a moderate Piotroski F-Score of 6 out of 9, indicating operations are typical for a stable company. Although it has recorded a decline in revenue per share in recent years, the company still has 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 Devon Energy,
Ken Fisher
(Trades, Portfolio) has the largest stake with 0.53% of its outstanding shares.
Leon Cooperman
(Trades, Portfolio), Pioneer Investments,
Steven Cohen
(Trades, Portfolio),
Caxton Associates
(Trades, Portfolio) and several other gurus also have positions in the stock.

Marathon Oil

Beating the benchmark by around 124.69% over the past year, Marathon Oil (MRO, Financial) has a market cap of $12.85 billion; its shares were trading around $16.51 on Thursday with a forward price-earnings ratio of 9.44, a price-book ratio of 1.2 and a price-sales ratio of 2.77.

According to the GF Value Line, the stock is modestly overvalued currently.

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The oil and gas producer, which is headquartered in Houston, is has begun to focus on unconventional resources in the U.S.

Marathon’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. In addition to weak interest coverage, the Altman Z-Score of 2.07 indicates the company is under some pressure since revenue per share has declined in recent years. The ROIC has been eclipsed by the WACC, so it is having trouble creating value.

The company has weak margins and returns that underperform at least half of its industry peers, but the high Piotroski F-Score of 7 indicates operations are healthy. Marathon also has a one-star predictability rank.

With a 6.99% stake, Hotchkis & Wiley is the company’s largest guru shareholder. Fisher,
Jim Simons
(Trades, Portfolio)’ Renaissance Technologies, Cohen, Pioneer Investments,
Joel Greenblatt
(Trades, Portfolio),
Paul Tudor Jones
(Trades, Portfolio) and
Lee Ainslie
(Trades, Portfolio) also have positions in Marathon Oil.

Diamondback Energy

Topping the S&P 500 by roughly 104.76% in 2021, Diamondback Energy (FANG, Financial) has a $19.64 million market cap; its shares were trading around $108.56 on Thursday with a price-earnings ratio of 56.46, a price-book ratio of 1.71 and a price-sales ratio of 3.42.

Based on the GF Value Line, the stock appears to be modestly undervalued currently.

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The Midland, Texas-based oil company operates exclusively in the Permian Basin of West Texas.

GuruFocus rated Diamondback’s financial strength 4 out of 10. Although the company has issued approximately $31.9 billion in new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. In addition to a Sloan ratio indicating it has poor earnings quality, the Altman Z-Score of 1.32 warns the company could be in danger of going bankrupt as assets are building up at a faster rate than revenue is growing. The WACC exceeds the ROIC, indicating struggles with creating value.

The company’s profitability fared better with a 6 out of 10 rating, driven by an expanding operating margin and returns that outperform over half of its competitors. Diamondback also has a high Piotroski F-Score of 7 and, despite recording losses in operating income and declines in revenue per share over the past several years, a one-star predictability rank.


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
Ken Heebner
(Trades, Portfolio), Pioneer Investments, Simons’ firm, Fisher,
Arnold Van Den Berg
(Trades, Portfolio),
Louis Moore Bacon
(Trades, Portfolio), Cohen, Jones,
Keeley-Teton Advisors, LLC
(Trades, Portfolio),
Scott Black
(Trades, Portfolio),
Chuck Royce
(Trades, Portfolio) and
Azvalor Managers FI
(Trades, Portfolio).

APA

Eclipsing the benchmark by around 67.96% over the past year, APA (APA, Financial) has a market cap of $9.95 billion; its shares were trading around $27.39 on Thursday with a price-earnings ratio of 18.26 and a price-sales ratio of 1.5.

The GF Value Line suggests the stock is modestly overvalued currently.

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The oil and gas producer headquartered in Houston is the holding company of Apache Corp.

APA’s financial strength was rated 3 out of 10 by GuruFocus. Although it has sufficient interest coverage, the Altman Z-Score of 0.39 warns the company could be at risk of bankruptcy. The Sloan ratio is indicative of poor earnings quality, while value creation is sluggish since the WACC surpasses the ROIC.

The company’s profitability fared a bit better with a 5 out of 10 rating. In addition to a strong operating margin, its returns are outperforming over half of industry peers. APA also has a high Piotroski F-Score of 7. Despite recording declines in revenue per share over the past several years, the company has a one-star predictability rank.

Of the gurus invested in APA, Hotchkis & Wiley has the largest stake with 7% of its outstanding shares. Dodge & Cox, Nygren and
John Paulson
(Trades, Portfolio) also have significant holdings in the stock.

EOG Resources

Surpassing the benchmark index by about 63.83% for the year, EOG Resources (EOG, Financial) has a $52.45 billion market cap; its shares were trading around $89.88 on Thursday with a price-earnings ratio of 17.34, a price-book ratio of 2.4 and a price-sales ratio of 3.13.

According to the GF Value Line, the stock is modestly overvalued currently.

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The Houston-based oil and gas producer has operations in the Permian Basin, Eagle Ford and Bakken plays.

GuruFocus rated EOG’s financial strength 6 out of 10, driven by adequate interest coverage and a high Altman Z-Score of 3.57 that indicates it is in good standing. The ROIC is also higher than the WACC, so value creation is occurring.

The company’s profitability scored a 7 out of 10 rating as its margins and returns outperform a majority of its competitors. Despite recording a decline in revenue per share in recent years, EOG has a high Piotroski F-Score of 7 and a one-star predictability rank.

With a 1.04% stake, Nygren is the company’s largest guru shareholder. Other significant guru investors in EOG are
PRIMECAP Management
(Trades, Portfolio), the
T Rowe Price Equity Income Fund
(Trades, Portfolio) and Pioneer Investments.

ConocoPhillips

With a return that exceeded the S&P 500 by approximately 60.86% in 2021, ConocoPhillips (COP, Financial) has a market cap of $95.81 billion; its shares were trading around $72.46 on Thursday with a price-earnings ratio of 21.62, a price-book ratio of 2.18 and a price-sales ratio of 2.59.

Based on the GF Value Line, the stock appears to be modestly overvalued currently.

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The oil giant, which is headquartered in Houston, has operations that span the globe.

ConocoPhillips’ financial strength was rated 5 out of 10 by GuruFocus. While the company has sufficient interest coverage, the Altman Z-Score of 2.82 indicates the company is under some pressure. The WACC also eclipses the ROIC, indicating struggles with creating value.

The company’s profitability scored a 6 out of 10 rating on the back of margins and returns that beat over half of its industry peers. ConocoPhillips also has a moderate Piotroski F-Score of 6. Although revenue per share has declined over the past several years, it still has a one-star predictability rank.

Dodge & Cox is the company’s largest guru shareholder with a 1.69% stake.
Ken Fisher
(Trades, Portfolio), Pioneer Investments, the
Smead Value Fund
(Trades, Portfolio) and
Elfun Trusts
(Trades, Portfolio) also have significant positions in ConocoPhillips.

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