The conflict in the Middle East is only getting worse. After an attack on Israel last week and a subsequent attack on Lebanese leaders, both in Lebanon and Iran, tensions have definitely risen. Antony Blinken, the Secretary of State, has indicated that Iran is likely to strike back within the next 24-48 hours. While the world is on edge, instability in the region will also have a significant impact on oil. As I’m sure many of you know, the Middle East is a hub for fossil fuel extraction, with black gold being one of the key products. An expansion of the current conflict will lead to a knee-jerk reaction in the prices of oil due to the higher risks involved, leading to a consequent decline in the companies that operate in that region. Due to this, here are three energy stocks to sell at the current moment.
ExxonMobil (XOM)
ExxonMobil (NYSE:XOM) ranks among the world’s largest companies and is heavily involved in the petroleum industry. It has oil farming locations in the Middle East, although it also operates globally, which, in some ways, protects it from instability. However, any additional risks to XOM make investors weary, which is why you should be careful.
XOM has missed two of the last four earnings estimates. In addition to this, the company saw a decline in year-over-year revenue in 2023 as compared to 2022. While that was likely due to macroeconomic conditions not under XOM’s control, this fact still remains.
As the market continues to price in the developments in the Middle East, this gigantic company will be one energy-focused investors should watch extremely closely. Higher oil costs correlate with higher operating costs and, at the end of the day, impact consumers, who may choose to cut down on spending. That could lead to losses for the company. Based on current information, I believe XOM is a sell.
Shell (SHEL)
Shell (NYSE:SHEL) is another globally renowned fossil fuel-centric company. It has a market cap of $221 billion and was trading at $71.68 as of market close on 8/2. Like many other oil and gas giants, the company has a presence in the Middle East. Thus, it is likely to be affected by any future volatility in the region.
The company’s financials are mediocre at best. While the company has pumped out higher earnings, YoY quarterly revenue is still down 2.6%. In addition to this, SHEL stock has a profit margin of a mere 6%, which pales in comparison to the profit margins of its competitors (like ExxonMobil).
According to Simply Wall St., Shell’s revenue reports missed analyst expectations; this is reflected in the EPS revisions. Now, analysts are expecting revenue to stay flat for the next three years, which is bearish enough without the addition of any unforeseen external factors.
Helmerich & Payne (HP)
Helmerich & Payne (NYSE:HP) is yet another globally present energy company that operates primarily through oil and gas. It has drilling operations set up all over the world, which includes a recent expansion into the Middle East region. As of the market close on 8/2, the company is trading at $36.39, with a market cap of $3.59 billion.
HP recently released earnings, and while they did beat estimates, revenue and profit are down year-over-year for this quarter, sitting at -3.6% and -6.9% each. The company also has a relatively high beta of 1.47, which indicates more volatility than the overall market. With a current debt/equity ratio of 2.12, the company is also significantly leveraged at the moment.
A recent acquisition of KCA Deutag, a company with significant land-based oil drilling operations in the Middle East, has increased the company’s exposure to this area significantly. The deal reportedly cost $1.97 billion and was paid in cash. It represents a significant liability in the short term. Thus, you should sell for now.
On the date of publication, Achintya Pasricha did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
