3 Oil & Gas Stocks That Remain Undervalued
Oil and gas prices have been rising amid the tight supply situation, benefiting the producers. Moreover, the energy sector is known to have historically performed well amid an inflationary environment....
Oil and gas prices have been rising amid the tight supply situation, benefiting the producers. Moreover, the energy sector is known to have historically performed well amid an inflationary environment. Hence, we think oil and stocks YPF Sociedad Anónima (YPF), Gran Tierra (GTE), and Adams Resources & Energy (AE), which still look undervalued at their current price, could be ideal buys now.
Inflation rose to a new four-decade high of 8.6% in May, with energy prices up 3.9% from a month ago, bringing the annual increase to 34.6%. The inflation is showing no signs of slowing down amid the continued supply chain issues. However, the energy sector is known to have historically performed well in such an environment, beating inflation 71% of the time.
Oil prices rose yesterday, with Brent crude up 26 cents, settling at $122.27 a barrel, while the U.S. West Texas Intermediate crude rose 26 cents to settle at $120.93 a barrel, as tight supplies outweighed worries that demand would be pressured by the rise in COVID-19 cases in Beijing and more interest rate hikes.
Given the backdrop, we think oil and gas stocks YPF Sociedad Anónima (YPF), Gran Tierra Energy Inc. (GTE), and Adams Resources & Energy, Inc. (AE), that still look undervalued at their current price levels, could be ideal investments now.
YPF Sociedad Anónima (YPF)
YPF engages in the oil and gas upstream and downstream activities in Argentina. The company's upstream operations include the exploration, development, and production of crude oil, natural gas, and NGLs. Its downstream operations include the refining, marketing, transportation, and distribution of oil, petroleum products, natural gas, and others. It is headquartered in Buenos Aires, Argentina.
For the fiscal quarter ended March 2022, YPF's revenues increased 37.3% year-over-year to $3.64 billion. Its non-GAAP EBITDA grew 26.8% from the year-ago value to $972 million. Operating income for the quarter stood at $380 million, reflecting a 388.4% increase year-over-year. Moreover, its EPS was $0.64, up 966.7% from the prior-year quarter.
Analysts expect YPF's revenue in the current quarter to come in at $3.63 billion, indicating an increase of 8.5% year-over-year. Also, the company's revenue is expected to grow 9% year-over-year to $14.43 million in the ongoing fiscal year. The company also surpassed the consensus EPS estimates in three of the trailing four quarters.
In terms of its forward EV/Sales, YPF is currently trading at 0.62x, 70.9% lower than the industry average of 2.12x. Its forward Price/Sales multiple of 0.20 is 87.2% lower than the industry average of 1.60.
YPF has gained 1.6% year-to-date and slumped 27.9% over the past year to close the last trading session at $3.88.
YPF's sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our POWR Ratings system.
The company also has an A grade in Value and Momentum and a B in Growth and Quality. The stock is ranked #9 of 42 in the A-rated Foreign Oil & Gas industry. To get YPF's ratings for Stability, and Sentiment, click here.
Gran Tierra Energy Inc. (GTE)
GTE is a Canada-based energy company focused on exploring and producing oil and natural gas in Colombia and Ecuador.
GTE's net income increased 137.7% year-over-year to $14.12 million in the fiscal first quarter ended March 31, 2022. Its non-GAAP EBITDA grew 184.9% from the year-ago value to $119.38 million, while its net income per share improved 140% year-over-year to $0.04. The company's net cash provided by operating activities increased 147.6% from its year-ago value to $103.83 million.
Street expects GTE's EPS for the fiscal year ending December 2022 to improve 216.7% year-over-year to $0.38. The consensus revenue estimate of $779.67 million for the same period represents a 64.6% increase year-over-year.
In terms of its forward EV/Sales, GTE is currently trading at 1.79x, 15.5% lower than the industry average of 2.12x. Its forward EV/EBITDA multiple of 2.39 is 65.6% lower than the industry average of 6.94.
GTE's shares have gained 139.8% over the past year to close the last trading session at $1.66. The stock has gained 115.5% year-to-date.
It is no surprise that GTE has an overall B rating, equating to Buy in our POWR Ratings system.
The company has an A grade in Momentum and Value and a B in Quality. The stock is ranked #14 in the same industry. Click here to get GTE's ratings for Growth, Sentiment, and Stability.
Adams Resources & Energy, Inc. (AE)
AE engages in the marketing, transportation, terminalling, and storage of various crude oil and natural gas basins in the United States. The company operates through three segments Crude Oil Marketing, Transportation and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminalling and Storage of Crude Oil.
AE's total revenues increased 137.9% year-over-year to $774.25 million in the fiscal quarter ended March 31, 2022. Its operating earnings grew 111.6% from the year-ago value to $8.15 million. The company's net earnings increased 116.9% year-over-year to $6.09 million over the period. Also, its EPS came in at $1.39, up 110.6% from the prior-year quarter.
The consensus EPS estimate of $3.46 for the fiscal year ending December 2022 represents a 25.8% improvement year-over-year. The consensus revenue estimate for the same period is expected to come in at $3.12 billion.
In terms of its forward EV/EBITDA, AE is currently trading at 2.40x, 65.5% lower than the industry average of 6.94x. Its forward EV/Sales multiple of 0.02 is 98.8% lower than the industry average of 2.12.
The stock has gained 24.3% year-to-date to close yesterday's trading session at $34.56. However, the stock has slumped 0.5% over the past month.
AE's POWR Ratings reflect this promising outlook. The company has an overall rating of A, translating to Strong Buy in our proprietary rating system.
AE is also rated A in Value and Momentum and a B in Sentiment and Quality. It is ranked #1 of 101 stocks in the B-rated Energy - Oil & Gas industry. Click here to see additional POWR Ratings for Growth and Stability for AE.
YPF shares were trading at $3.82 per share on Tuesday morning, down $0.06 (-1.55%). Year-to-date, YPF has declined 0.00%, versus a -21.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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