It may seem like an odd time to be writing about risky energy stocks. After all, the United States Energy Information Administration (EIA) removed all doubt as to the direction of oil prices for the remainder of 2023 at least. The agency is expected to forecast that domestic oil production is expected will rise by 850,000 barrels.
That will bring the price of a barrel of crude oil to an average of $86 for the second half of the year. That’s about 10% higher than the prior forecast.
Even before the EIA report, investors have been plowing money back into energy stocks, particularly oil and gas stocks. However, just like that other red-hot sector, artificial intelligence, not every energy stock is looking like a good buy. For various fundamental reasons, these three stocks fall into the category of risky energy stocks.
As I always like to mention in an article like this, selling stocks is a natural part of trading even for long-term oriented investors. It may not be a time to say goodbye to these stocks forever, but when it comes to the oil sector, there appear to be more compelling buys right now.
Nabors Industries (NBR)
Nabors Industries (NYSE:NBR) is first on this list of risky energy stocks. The company is one of the world’s leading providers of high-specification onshore drilling rigs. In the company’s first quarter investor presentation, Nabors reported that they had 52% of their rigs in operation throughout the world.
Nabor’s revenue has been growing on a quarterly and year-over-year basis. Things get trickier when you look at earnings. Onshore drilling is a volatile industry with notoriously low profit margins. Although Nabor’s has managed to show improvement, it still is unprofitable even after its reverse stock split in 2020.
With the world needing more oil production, it seems logical that Nabors will continue to grow revenue and they may even be able to show a profit. However, among institutional investors, sellers outnumber buyers by a healthy margin.
This tells me that there may be a decent trading opportunity with NBR stock, but it’s not a good candidate for long-term investors.
Clean Energy Fuels (CLNE)
With governments all over the world committing to an energy transition, Clean Energy Fuels (NASDAQ:CLNE) would seem like a stock to buy. The company provides renewable natural gas (RNG), compressed natural gas (CNG), and liquefied natural gas (LNG) for medium and heavy-duty vehicles.
To be fair, the company is growing its revenue, although the growth has been uneven. The same can be said for the company’s earnings. The company has been in business since 2001 and has yet to turn a profit. The current forecast doesn’t show that it will change in the next two years at least.
At a time when there are other energy stocks that are turning a profit and are rewarding shareholders, it’s hard to recommend a stock that is doing neither. CLNE stock trades for less than $5 a share as of this writing. That may be attractive to some traders, but without more to see in terms of positive earnings, investors have good reason to put this on a list of risky energy stocks.
Transocean (RIG)
Transocean (NYSE:RIG) provides drilling equipment that oil companies need for their drilling operations. The company’s earnings report shows steady revenue that has fluctuated along with oil demand.
However, like other stocks on this list, the issue comes on the bottom line. Transocean is not profitable, and it doesn’t appear it will be profitable anytime soon. Strictly from a technical standpoint, Transocean is trading near the top of its 52-week range and short interest is around 17%. All signs point to RIG stock moving down in the near term.
Furthermore, the company competes with companies such as Halliburton (NYSE:HAL). Right now, when I look at HAL stock, I see a profitable company with a forward P/E ratio of just 13x. It even pays a respectable dividend.
This means that even within its own subsector of the oil and gas market, there are better options. This is one that you can pass on for now.
On the date of publication, Chris Markoch 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.
