Earnings season is in full swing, and at the sector level, 100% of the S&P 500 companies in the Energy and Utilities sectors are reporting earnings above estimates. So far this earnings season, energy stocks are the real winners.
The Energy sector is also reporting the largest upside aggregate difference between actual earnings and estimated earnings (+13.1%). Furthermore, the Energy sector is easily reporting the highest YoY earnings growth of all eleven sectors at 139.1%. Note that the unusually high growth rate for the sector is mostly due to unusually low earnings in the year-ago quarter.
As of Thursday January 25th, 120 companies listed in the S&P 500 index have reported their Q4’17 results according to Factset. Of these companies, 76% have reported positive EPS surprises and 81% have reported positive sales surprises (both above 5-year averages). The blended earnings growth rate for the S&P 500 in Q4’17 is expected to be 12.0% while the blended sales growth rate for the fourth quarter is expected to be 7.0%.
And the market is rewarding companies that report earnings beats. According to Factset, companies that have reported positive earnings surprises for Q4’17 have seen an average price increase of 1.4% immediately following the announcement. This percentage increase is above the 5-year average price increase of 1.2%.
Therefore I was curious to find companies that (1) are included in the energy sector, (2) have yet to report earnings, and (3) are trading at a low valuation implying that there’s nice upside potential following the earnings announcement.
Screening For Energy Stocks With Big Upside
The following are all the filters applied in this energy sector stock screen.
- sector = energy
- days to next earnings is between 2 and 30
- Upside as calculated from finbox.io’s fair value estimate > 15%
- Upside as calculated from consensus analyst price targets > 10%.
- Market Capitalization > $2 billion
There were only 9 companies that resulted from this stock screen as of January 29th. I then ranked them below by their blended upside potential.
9 Best Energy Stocks To Own Before Earnings: Oasis Petroleum
Oasis Petroleum Inc. (NYSE:OAS) is an exploration and production company focusing on the acquisition and development of unconventional oil and natural gas resources.
Shares of the company are up 7.4% over the last month. The stock last traded at $9.08 as of Monday, January 29 and three separate valuation analyses imply that there is big upside relative to its current trading price. Oasis Petroleum is due to report earnings on February 28.
John Paulson is a notable investor in the company. His fund currently holds a position worth $44.3 million. Paulson is best known for his 2007 bet against the U.S. housing market where he reportedly earned over $4 billion personally on one trade. He’s likely expecting outsized returns for his position in the company.
9 Best Energy Stocks To Own Before Earnings: Gulfport Energy
Gulfport Energy Corporation (NASDAQ:GPOR) specializes in Natural Gas Liquids (NGLs) and crude oil in the U.S.
Shares of Gulfport Energy are down -1.8% over the last month and finbox.io’s fair value estimate of $17.95 per share calculated from 5 cash flow models imply 47.0% upside. The average price target from 26 Wall Street analysts of $18.67 per share similarly imply big upside.
Gulport Eneregy is expected to reported earnings on February 12.
It is also important to note that fund manager David Dreman is currently long the stock as revealed in his firm’s most recent 13F filing. Dreman, founder and Chairman of Dreman Value Management, is best known for his contrarian value investing strategy. His published research has proven that out of favor stocks significantly outperform stocks considered to have more favorable outlooks. He obviously expects shares of Gulfport Energy to outperform going forward.
9 Best Energy Stocks To Own Before Earnings: Laredo Petroleum
Laredo Petroleum Inc (NYSE:LPI) focuses on oil and natural gas properties.
The company is estimated to report earnings on February 21.
Laredo Petroleum’s stock currently trades at $10.00 per share as of Monday January 29, down -5.8% over the last month. Finbox.io’s eight valuation analyses suggest that shares could increase 19.9% going forward.
It’s worth noting that highly followed portfolio manager Steven Cohen currently holds a position in Laredo Petroleum worth $52.3 million. He was the third highest-earning hedge fund manager of 2012 when he made $1.4 billion. No doubt Cohen is expecting big gains from his long position in Laredo Petroleum.
9 Best Energy Stocks To Own Before Earnings: EQT Corp
EQT Corporation (NYSE:EQT) specializes in natural gas in the Appalachian Basin.
Shares of the company are trading 3.2% higher month over month while the stock price could end up trading 28.9% higher in 2018 based on EQT Corp’s future cash flow projections. The company is expected to report earnings on February 15 before the market opens.
Illustrious money manager George Soros currently owns 1,344,834 shares of EQT which represents 2.8% of his stock portfolio. Soros is considered “the man who broke the Bank of England” after taking on the central bank in a trade that earned him over $1 billion.
9 Best Energy Stocks To Own Before Earnings: Antero Resources
Antero Resources Corp (NYSE:AR) is an independent oil and natural gas company.
Antero Resources Corp’s stock last traded at $19.70 per share as of Monday January 29, up 5.3% over the last month. On a fundamental basis, the company’s stock is trading at a 26.7% discount to finbox.io’s intrinsic value estimate. Antero Resources Corp is expected to report earnings on February 13 after the market closes.
Widely respected investor Seth Klarman currently owns shares of Antero Resources Corp worth $475.9 million (6.2% of his portfolio). Klarman is the CEO & President of the Boston based Baupost Group which managed $30 billion as of December 2016. Klarman, along with Warren Buffett, is regarded as one of the most successful value investors in the world and likely enjoys Antero Resources Corp’s large margin of safety.
9 Best Energy Stocks To Own Before Earnings: Kosmos Energy
Kosmos Energy Ltd (NYSE:KOS) finds and produces oil and gas in Africa and South America.
Shares of the company are up 9.1% over the last month. The stock last traded at $7.29 as of Monday January 29 and six separate valuation analyses imply that there is 25.1% upside relative to its current trading price. The consensus price target of $9.75 per share calculated from 14 Wall Street analysts implies even further upside. Kosmos Energy is expected to report earnings on February 26.
9 Best Energy Stocks To Own Before Earnings: Noble Energy
Noble Energy, Inc. (NYSE:NBL) specializes in the acquisition, exploration, development, and production of crude oil and natural gas worldwide.
Shares of Noble Energy are up 11.7% over the last month and finbox.io’s fair value estimate of $43.07 per share calculated from five cash flow models imply 32.7% upside. The average price target from 29 Wall Street analysts of $38.24 per share similarly imply upside. Noble Energy is expected to report earnings on February 20 before the market opens.
Steven Cohen also owns shares of Noble Energy worth $94.0 million.
9 Best Energy Stocks To Own Before Earnings: Transocean
Transocean LTD (NYSE:RIG) specializes offshore contract drilling services for oil and gas wells.
Transocean is expected to report earnings on February 20 after the market closes.
Transocean’s stock currently trades at $11.11 per share as of Monday January 29, up 4.5% over the last month. Finbox.io’s three valuation analyses suggest that shares could increase 29.8% going forward.
9 Best Energy Stocks To Own Before Earnings: Newfield Exploration
Newfield Exploration Co. (NYSE:NFX) in another country that engages in the exploration, development, and production of crude oil and natural gas in the U.S.
Ray Dalio is a notable investor in the company. His fund currently holds a position worth $12.0 million. Dalio is the billionaire investor that founded Bridgewater, one of the largest hedge funds on Wall Street. His hedge fund was likely attracted by Newfield Exploration’s strong fundamentals.
Shares of the company are trading 7.7% higher month over month. The stock price could end up trading another 21.7% higher in 2018 based on Newfield Exploration’s future cash flow projections. Newfield Exploration is expected to report earnings on February 20 after the market closes.
9 Best Energy Stocks To Own Before Earnings
In conclusion, the table below highlights all nine stocks and their upside potential.
Earnings season is an exciting time. Investors are provided with buying and selling opportunities as the majority of publicly traded companies release their results for the fourth quarter of 2017.
If the first two weeks of the Q4’17 earnings season is any indicator of how the energy sector is going to perform, value investors may want to take a closer look at these stocks prior to earnings. They all appear to be trading well below their intrinsic values.
As of this writing, Matt Hogan did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.