Energy businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. They are also bound to benefit from a friendlier regulatory environment with "American energy dominance" stance from the Trump administration, and this excitement has led to a six-month gain of 31.6% for the sector - higher than the S&P 500’s 7.1% return.
Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. On that note, here is one energy stock boasting a durable advantage and two we’re swiping left on.
Two Energy Stocks to Sell:
ExxonMobil (XOM)
Market Cap: $599.2 billion
One of the successor companies to John D. Rockefeller's Standard Oil monopoly that was broken up in 1911, ExxonMobil (NYSE: XOM) explores for and produces crude oil and natural gas, refines and sells petroleum products, and manufactures petrochemicals.
Why Do We Think Twice About XOM?
- Gross margin of 44.1% reflects its high production costs and unfavorable asset base
- EBITDA margin was unchanged over the last five years, suggesting it failed to gain leverage on its fixed costs
ExxonMobil is trading at $144.25 per share, or 12x forward P/E. If you’re considering XOM for your portfolio, see our FREE research report to learn more.
Halliburton (HAL)
Market Cap: $33.27 billion
Behind nearly every oil and gas well drilled worldwide, Halliburton (NYSE: HAL) provides drilling, completion, and production services that help oil and gas companies extract hydrocarbons from underground reservoirs.
Why Are We Cautious About HAL?
- Costly operations and weak unit economics result in an inferior gross margin of 16.8% that must be offset through higher production volumes
At $39.88 per share, Halliburton trades at 16.3x forward P/E. To fully understand why you should be careful with HAL, check out our full research report (it’s free).
One Energy Stock to Watch:
Patterson-UTI (PTEN)
Market Cap: $4.34 billion
Operating 135 Tier-1 super-spec rigs that can handle the industry's most demanding drilling projects, Patterson-UTI (NASDAQ: PTEN) provides contract drilling rigs, hydraulic fracturing, and drill bits to oil and gas operators.
Why Does PTEN Stand Out?
- Market share has increased this cycle as its 12.5% annual revenue growth over the last ten years was exceptional
- Economies of scale give it more fixed cost leverage than its smaller competitors
- EBITDA margin improvement of 3.4 percentage points over the last five years demonstrates its ability to scale efficiently
Patterson-UTI’s stock price of $11.60 implies a valuation ratio of 6.1x forward EV-to-EBITDA. Is now the right time to buy? See for yourself in our full research report, it’s free.
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