The stock market has had a turbulent year with lingering concerns over multi-decade high inflation and the Fed’s aggressive interest rate hikes. The two consecutive quarters of economic contraction have made many economists believe that a recession has arrived.
The July jobs data, which came in stronger than expected, had led investors to believe that inflation would rise further. However, the July CPI data released this morning shows that inflation has eased from the 40-year high level but remained elevated with an 8.5% increase from a year ago.
According to Diane Swonk, the chief economist at KPMG LLP., the labor market is “still sizzling” and can drive inflation higher. So, the Fed might not change its hawkish stance.
Despite the uncertainties surrounding the economy and the stock market, fundamentally sound stocks Valero Energy Corporation (VLO) and Shell plc (SHEL) have maintained strong momentum lately. Since these stocks are well-positioned to keep their momentum alive for some time irrespective of the market volatilities, it could be wise to invest in them now.
Valero Energy Corporation (VLO)
VLO is a manufacturer and marketer of petroleum-based and low-carbon liquid transportation fuels and petrochemical products. The company operates in three segments: Refining, Renewable Diesel, and Ethanol. Its offerings include conventional, premium, reformulated gasoline, California Air Resources Board (CARB) gasoline and diesel, and other refined petroleum products.
On June 1, 2022, VLO reduced its debt by approximately $300 million by acquiring $300 million of 4% Gulf Opportunity Zone Revenue Bonds Series 2010. The debt reduction and refinancing transactions in the previous three quarters collectively reduced VLO’s debt by approximately $2.3 billion, which might reduce the costs incurred for interest payments.
VLO’s revenues increased 86.1% year-over-year to $51.64 billion in the fiscal second quarter ended June 30, 2022. Its operating income improved 1,121.8% year-over-year to $6.22 billion. Its adjusted net income attributable came in at $4.61 billion, up 1,672.7% year-over-year. The company’s adjusted earnings per share came in at $11.36, registering an increase of 1,703.2% from the prior-year period.
The consensus EPS estimate of $7.58 for the third quarter ending September 30, 2022, represents a 521.7% improvement year-over-year. The consensus revenue estimate of $42.76 billion for the current quarter represents a 44.9% increase from the previous year. The company has an impressive earnings surprise history, as it has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 67.7% over the past year to close the last trading session at $110.67. VLO is trading above its 10-day and 200-day moving averages of $108.87 and $96, respectively, indicating an uptrend.
VLO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Momentum and a B for Growth, Value, and Quality. In the B-rated Energy - Oil & Gas industry, it is ranked #3 out of 97 stocks. Click here to see the other ratings of VLO for Stability and Sentiment.
Shell plc (SHEL)
SHEL is an international energy and petrochemical company headquartered in London, the United Kingdom. The company is engaged in the exploration, production, refining, and marketing of oil and natural gas and the manufacturing and marketing of chemicals. Its businesses include Upstream, Integrated Gas, Renewables and Energy Solutions, and Downstream.
On August 9, 2022, SHEL’s subsidiary Shell Overseas Investment B.V. acquired Solenergi Power Private Limited and Sprng Energy Group, a renewable energy platform. This acquisition is expected to increase the company’s renewable capacity three times in operation and help achieve its target of becoming a net-zero emissions energy business by 2050.
For the fiscal second quarter ended June 30, 2022, SHEL’s total revenue and other income increased 66.9% year-over-year to $103.08 billion. Its adjusted earnings grew 107.3% year-over-year to $11.47 billion. The company’s adjusted EBITDA increased 69.9% year-over-year to $23.15 billion. Also, its adjusted EPS increased 116.9% year-over-year to $1.54.
For the quarter ending September 30, 2022, SHEL’s EPS is expected to increase 152.8% year-over-year to $2.68. Its revenue for the next quarter ending December 31, 2022, is expected to increase 17.7% year-over-year to $100.36 billion. It has surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 28% to close the last trading session at $52.52. SHEL is currently trading above its 10-day and 200-day moving averages of $52.15 and $51.10, respectively, indicating an uptrend.
SHEL’s POWR Ratings reflect solid prospects. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Sentiment and Quality. Within the same industry, it is ranked #11. To see the other ratings of SHEL for Growth, Value, and Stability, click here.
VLO shares were trading at $112.19 per share on Wednesday afternoon, up $1.52 (+1.37%). Year-to-date, VLO has gained 53.64%, versus a -11.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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