Crude oil prices have risen sharply this year as demand increased significantly once global economies reopened. The United States Oil Fund (USO), which tracks Light Sweet Crude Oil, is up 48% in 2021. The rise in oil prices helped drive prices of energy stocks up, with the SPDR Select Energy ETF (XLE) gaining over 41% year to date.
On Monday this week, an OPEC meeting was called off as countries couldn't agree on an increase in output for July. I see this as bullish for oil prices and energy stock prices. As another meeting won't occur until later this year, this rebound in oil and energy has more room to run.
Though prices are down this week, after the ISM services survey came in weaker than expected, I see this as a temporary blip and a great time to buy energy stocks on the dip. The outlook for oil consumption isn't changing. The EIA predicts global oil consumption will top 100 million barrels per day later in the year. This is why I think investors should consider Canadian Natural Resources Limited (CNQ) and EOG Resources, Inc. (EOG), two energy stocks that rank highly in our POWR Ratings system.
Canadian Natural Resources Limited (CNQ)
CNQ is one of the largest oil and natural gas producers in western Canada, with operations in the North Sea and Offshore Africa. The company has a diversified portfolio of crude oil, including heavy and light, natural gas, bitumen, and synthetic crude oil. The firm has substantial oil sands mining assets in the Horizon Oil Sands and the Athabasca Oil Sands Projects that hold leases containing an estimated six billion barrels of proved and probable synthetic crude oil reserves.
CNQ has a broad portfolio of low-risk exploration and development projects. Its balanced and diverse production mix helps facilitate its long-term value and significantly reduces its risk profile. The company also has solid international exposure, yielding long-term volume growth at above-average rates. Its low-cost structure, driven by the integration of its midstream pipeline assets, compares quite favorably to its peers.
Lower capital needs and improving operational efficiencies have enabled the company to generate robust free cash flow. Plus, its acquisitions have allowed the company to increase its competitive edge, boosting revenue and earnings. CNQ has an overall grade of B, which translates into a Buy rating in our POWR Ratings system. The company has a Growth Grade of A.
It has grown sales an average of 12.1% per year over the past five years, and analysts expect revenue to soar 169.7% year over year in the second quarter. Earnings also expect earnings to surge 289.4% year over year in the same quarter. CNQ has a Quality Grade of B due to a strong balance sheet. The company has an operating margin above the industry average and a debt-to-equity ratio of 0.6.
We also provide Value, Momentum, Stability, and Sentiment Grade of CNQ, which you can find here. CNQ is ranked #6 in the B-rated Foreign Oil & Gas industry. For more top stocks in this industry, click here.
EOG Resources, Inc. (EOG)
EOG is an oil and gas producer with acreage in several U.S. shale plays, including the Permian Basin, the Eagle Ford, and the Bakken. The company is one of the largest independent exploration & production companies operating in the United States. In fact, it derives almost all of its production from shale fields in the U.S.
The company announced plans to shift its strategy to what it calls "double premium," which means developing wells that deliver a 60%+ after-tax rate of return at $40 WTI crude oil. The "double" is twice its original premium strategy five years ago when it aimed for a 30% return. The company is also one of the most proficient operators in the business, with initial production rates from its shale wells consistently above the industry average.
The recent rise in crude oil prices also bodes well for the company. EOG has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Growth Grade of B, as analysts expect earnings to soar 713% year over year in the second quarter. Its earnings are expected to jump 276.7% year over year in the next quarter as well.
EOG also has a Quality Grade of B, which indicates a healthy balance sheet. The company had $3.4 billion in cash as of the most recent quarter-end, compared with only $39 million in short-term debt. The company also has a current ratio of 1.9 and a debt-to-equity ratio of only 0.3. For the rest of EOG's grades (Value, Momentum, Stability, and Sentiment), click here.
EOG is ranked #21 in the Energy – Oil & Gas industry. For other top-ranked stocks in this industry, click here.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years.
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CNQ shares were trading at $35.62 per share on Friday afternoon, up $0.42 (+1.19%). Year-to-date, CNQ has gained 48.11%, versus a 17.13% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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