The second energy play I’d like to highlight is Hess (NYSE:HES), which is a high-powered oil company that contends with the likes of BP and Exxon.
Based in New York City, Hess is an integrated oil company. That means that the company takes care of all things related to oil and natural gas, from exploration to production to refining these fossil fuels. This company has been in the oil delivery business since 1933 and has since grown into a $21.7 billion empire that operates across six continents.
This company is slated to announce earnings before market open on Wednesday, but analysts are pretty pessimistic about Hess as well. Currently, the consensus calls for a -19.5% sales loss and a -17.6% profit loss. By comparison, the rest of the Oil & Gas Refining & Marketing Industry is headed towards 36.3% earnings growth. And, Hess has a history of lackluster earnings; the company has managed to miss earnings estimates in each of the past four quarters.
So, there’s good reason that my PortfolioGrader tool give this stock an F-rating. Unfortunately, the company just can’t get a grip on improving its fundamentals, and buying pressure for HES remains at rock bottom.
I consider HES a strong sell.
And then there’s Chevron (NYSE:CVX) another energy giant that has its hands in both oil and natural gas production.
At the consumer level, Chevron is most known for its gas stations, but the company is involved in a range of energy plays. First, the company creates about 2.76 million barrels of oil per day for distribution across six continents. Chevron has most of its retail stations in the United States, western Canada and Pakistan. The company also runs the Texaco brand. In addition, Chevron also has a lubricants business, aimed at industrial and marine clients worldwide. Finally, the company runs a pipe line business that transports oil, natural gas, CO2 and other refined products throughout the United States.
Chevron is also announcing earnings later this week — before the opening bell on Friday. At this moment, Chevron is headed towards 20% sales growth and 4.9% sales growth. This is a bit stronger than HES, but still comes far below the consensus earnings estimate for the rest of the Industry, which is 36.3%.
Over the past two months, analysts have upwardly revised their estimates by 8%. This, coupled with a history of modest earnings surprises, means that Chevron may have at least a positive earnings announcement.
Nonetheless, because buying pressure for this stock remains somewhat lukewarm, I recommend that you hold off on adding shares of CVX. This company still has plenty of room for improvement in terms of earnings growth and surprises, so it is a C-rated stock.
The numbers say it all, and I’m not a buyer of any of these companies right now.
But that doesn’t mean that all is lost. Right now, the most important thing that we investors can do to profit from the high prices at the pump is holding strong refinery stocks. The companies that process oil and turn it into the products that run your car and house are making out like bandits. While their costs aren’t 100% fixed, in most cases it costs them the same to make gasoline and diesel whether prices are at $3.00 a gallon or closer to $5.00 a gallon.
And the best part is that many of these refiners are small-cap stocks that, with just a little boost to profits and buying pressure, can take off and supercharge your profits.