Everybody knows now, the energy sector was the place to be last year as the segment was an outlier and one of the few to sidestep 2022’s market carnage. Fueled by rising energy prices amidst Russia’s invasion of Ukraine, overall, energy stocks significantly beat the market.
For those mourning a missed opportunity, ‘
Shark Tank’ star Kevin O’Leary thinks opportunities in the segment are still abundant.
“I love energy. Everybody hates energy… Go where people hate it. Energy is the driving pivot.” O’Leary said. “The cash flow, the distribution… that sector is looking golden right now.”
O’Leary is not the only one thinking energy stocks are primed for more success. Taking a cue from O’Leary, we dipped into the TipRanks database and got the lowdown on three names for which the Street has big hopes – all are rated as Strong Buys by the analyst consensus. Let’s see what makes them appealing investment choices in the current climate.
Valero Energy Corporation (VLO)
With a market-cap over $50 billion, Valero Energy is the world’s largest independent refiner. The San Antonio, Texas-based player operates 15 refineries in the U.S., Canada and the U.K. and boasts a total throughput capacity of around 3.2 million barrels per day. Not only that, but it is also the second largest renewable fuels producer in the world.
All this adds up to a recipe for success in the current climate, as was evident in the latest fourth-quarter results. The company notched profits that more than tripled from the same period last year as net income clocked in at $3.1 billion, amounting to adj. EPS of $8.45 per share. That figure also came in well ahead of the $7.22 forecast. Moreover, at 97%, Valero’s refineries showed their best utilization rate since 2018. This allowed the company to take advantage of the large gap between the prices of crude oil prices and refined product prices. The upshot of that was a 230% increase for the refining segment’s operating profit – to $4.1 billion.
Given the performance, Valero was also able to lower its debt load by $2.7 billion last year, and the improved balance sheet provided the company with the means to return more cash to shareholders. As such, In January, the company upped its dividend payout by ~4% to $1.02 per share. With an annualized rate of $4.08, the dividend gives a 3.1% yield.
This energy giant has drawn plaudits from Raymond James analyst Justin Jenkins, who sees plenty to like here.
“We believe Valero remains extremely well-positioned to capitalize on the strength of the global refining backdrop as the ripple effects of Europe’s energy crisis add to the advantages of VLO’s top-tier portfolio,” the 5-star analyst said. “The company’s disciplined strategy has positioned VLO at the forefront of refining operations and broadened its footprint in both the renewable diesel and carbon capture spaces, all while re-fortifying its balance sheet. The stout combination will allow shareholder returns to ramp during 2023, positioning VLO to re-rate further.”
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