While the top-performing oil-and-gas giants such as Marathon Petroleum Corp. (NYSE: MPC), Exxon Mobil Corp. (NYSE: XOM), Shell plc (NYSE: SHEL), and oil services large cap Schlumberger Limited (NYSE: SLB) get the lion’s share of attention, energy mid-caps NOV Inc. (NYSE: NOV), Weatherford International PLC (NASDAQ: WFRD), and HighPeak Energy Inc. (NASDAQ: HPK) are on track to grow earnings at triple-digit rates this year.
Midcaps are often overlooked as investors focus on larger companies that may pay dividends or are better known. Large companies often have more Wall Street analyst coverage, as the investment banks and brokerages stand to gain more business from the bigger firms. That scarcity of coverage can benefit retail investors who can get in early before large institutional buying begins pushing prices sharply higher.
NOV, Weatherford, and Highpeak illustrate another advantage of midcaps: Because the companies are smaller, they are often well positioned for fast growth, as they are more nimble than larger industry peers.
NOV
NOV, which specializes in equipment and technologies for on- and offshore oil drillers, is down 8.74% in the past week and 6.97% in the past month, moving in the same direction as the broader market. The company reported earnings of $0.26 a share on revenue of $2.073 billion, topping views and improving significantly over the year-ago quarter, as MarketBeat earnings data show.
Analysts expect the Houston-based company to earn $1.17 per share this year, a 200% increase over 2022. In the earnings call, CEO Clay Williams referred to labor and product shortages due to Covid restrictions and years of underinvestment in the broad industry as reasons for the company’s upbeat outlook.
Rather than seeing major growth from the domestic drilling sector, NOV expects offshore and international markets to drive increases in 2023.
Analysts have a “moderate buy” rating on the stock with a price target of $24.75, an upside of 15.17%.
The stock is still out of buy range, having hit resistance repeatedly between $24 and $25. If it can cross that threshold keep an eye out for its next rally.
Weatherford
Weatherford is expected to earn $4.03 per share this year, a gain of 369%. Analysts see the company increasing earnings by another 38% in 2024.
Like NOV, Weatherford is also in the business of oilfield services and technologies. Lest you think it’s all about heavy machinery and big metal, Weatherford recently announced a multi-year partnership with artificial intelligence specialist DataRobot to develop advanced AI systems in its ForeSite production optimization and Centro well construction software platforms, among other areas.
Weatherford shares are up 11.38% in the past month and 49.19% in the past three months.
This is a company that’s gone through restructuring in the past few years. It was delisted from the Nasdaq following bankruptcy in 2019. Several key executives left the company in 2020 and 2021, among criticism for receiving large severance payouts as the company performed poorly.
However, that kind of housecleaning and restructuring can be exactly what injects new life into a firm. A new management team is now on board, and the company was relisted in June 2021. Weatherford’s chart reflects a strong uptrend since July 2022, as the stock has notched gains for eight months in a row.
It’s currently pulling back with the broader market; a pullback to the 50-day moving average could potentially offer a buy opportunity.
HighPeak Energy
Fort Worth, Texas-based HighPeak is engaged in the acquisition, exploration and production of oil, natural gas and natural gas reserves.
Wall Street analysts have pegged the company’s earnings at $2.25 a share when it reports 2022 results on March 6. That would be an increase of 317%. Earnings are expected to grow another 99% this year.
HighPeak has a market capitalization of $3 billion. As happens with many small and mid-size companies in capital-intensive industries, management is considering unlocking shareholder value by putting the company up for sale.
In a January 23 news release, CEO Jack Hightower said, “The Board and I believe now is an opportune time to capture the value we do not consider is presently reflected in our share price. We have worked diligently over the last few years to secure this position and are poised to capitalize on the favorable energy market outlook.”
The stock is currently working on a first-stage base that began in June of last year, with a potential buy zone between $38 and $39. Buying stock in anticipation of a sale is not necessarily a great idea, but there are some points to consider.
First, this or any stock could languish for months or even a year as a buyer is found and a transaction takes shape. But the contrary point is that once a deal is announced, a stock often gaps higher and stays at that point, with no further significant gains or losses.
In other words, there are pros and cons to buying too soon and waiting too long. It comes down to how a stock fits in with your goals, risk tolerance, and other investments already in your portfolio.
