After an exciting 2022, the energy sector is now retreating. The price of crude oil has been trading in a range of $75 to $65 since the spring, well below its 2022 peak when a barrel sold in excess of $120. The record production and profits enjoyed by oil and natural gas companies around the world have quickly dissipated.
And with that, the share prices of energy concerns have returned to earth after outperforming the entire market last year. The party is over, the lights have been turned on, and investors are coming to new terms. Many of the energy stocks that were soaring a few months ago have had their wings clipped now.
Some energy stocks have been hit harder than others, with investors abandoning them in droves. The outlook for energy prices remains muted as the global economy slows in the wake of higher interest rates. Here are three doomed energy stocks destined for disaster.
Suncor Energy (SU)
Canadian oil and gas company Suncor Energy (NYSE:SU) has seen better days.
The latest disaster to hit SU was a cyberattack against its Petro-Canada retail gas station network that occurred on June 21. The assault temporarily crippled SU’s ability to accept consumer payments. Also, it shut down its Petro-Points rewards program after it was determined that members’ contact information was stolen by the hackers. If those weren’t bad enough, the cyberattack then took down the company’s website and app.
This occurred as Suncor Energy is dealing with poor financial results, an executive shake-up, layoffs, and activist shareholders who are pushing for change. The company named its new president and CEO Rich Kruger in February. In June it announced plans to cut 1,500 jobs by year’s end as it seeks to reduce costs. Suncor most recently reported that its Q1 operating income declined 34% from a year earlier to $1.81 billion.
U.S.-based investor Elliott Investment Management has taken a stake in Suncor Energy. The activist is pushing for changes to improve the company’s financial performance and bolster its share price. SU stock is down 8% in the last 12 months and has decreased 30% over five years.
Devon Energy (DVN)
Good times may be coming to an end for Devon Energy (NYSE:DVN) stock. After flying high throughout 2022, the shares are now trading 37% below its 52-week high. And so, the company’s share price has retreated 15% year to date.
The decline has accelerated since the company began cutting its dividend last fall. Since Q3 2022, Devon Energy has reduced its total dividend payout (fixed and variable combined) by 43%. That hasn’t sat well with investors, a growing number of whom are hitting the sell button.
Devon Energy continues to offer one of the biggest dividend payments among U.S. oil and gas producers, offering a hefty yield of 9.14%. However, a large portion of the dividend payment comes from the variable portion. This is the very part that Devon Energy has been cutting as crude oil prices slide from a peak of $122 last June to around $73 today. Beyond the dividend, Devon Energy has also been struggling with declining sales. In its most recent quarter, the company reported that its revenue declined 16% year over year to $3.58 billion.
British Petroleum (BP)
Shares of international energy giant British Petroleum (NYSE:BP) have been treading water this year, up a slight 3% since January. However, the long-term performance of the company’s stock appears dreadful, having fallen 22% over the last five years.
With crude oil prices stagnating, the future performance of BP stock doesn’t look encouraging. Even though the company has continued decent earnings productions with a $4.96 billion profit for Q1 of this year, the share price has declined on news that BP is slowing its share repurchases.
Specifically, BP announced a new share buyback program of $1.75 billion, which is lower than the previous $2.75 billion stock buyback that was completed this past April 28. In total for 2023, BP expects to buy back about $4 billion of its own stock.
BP’s share price fell 5% immediately after the reduced stock buyback program was announced. As for the $4.96 billion Q1 profit, while it beat Wall Street forecasts, it was down 20% from $6.20 billion achieved in the Q1 prior year. BP is an energy stock to avoid.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
