Energy businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. But their prominence also brings high exposure to the ups and downs of economic and energy cycles. Luckily, the tide is turning in their favor as the industry’s 29.2% return over the past six months has topped the S&P 500 by 22.8 percentage points.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. With that said, here are two energy stocks boasting durable advantages and one we’re steering clear of.
One Energy Stock to Sell:
Golar LNG (GLNG)
Market Cap: $5.15 billion
Pioneering a way to monetize stranded gas reserves that would otherwise be uneconomical to develop, Golar LNG (NASDAQ: GLNG) converts ships into floating liquefied natural gas facilities that liquefy natural gas at offshore sites.
Why Do We Think Twice About GLNG?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.7% annually over the last five years
- Cash-burning history makes us doubt the long-term viability of its business model
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Golar LNG’s stock price of $50.76 implies a valuation ratio of 76.5x forward P/E. If you’re considering GLNG for your portfolio, see our FREE research report to learn more.
Two Energy Stocks to Buy:
Matador Resources (MTDR)
Market Cap: $6.66 billion
Operating primarily in the Delaware Basin where multiple oil-bearing layers lie stacked thousands of feet deep, Matador Resources (NYSE: MTDR) explores for, drills, and produces oil and natural gas from underground rock formations in New Mexico and Texas.
Why Will MTDR Beat the Market?
- Annual revenue growth of 26.6% over the past ten years was outstanding, reflecting market share gains this cycle
- Highly-profitable operating model results in strong unit economics and a best-in-class gross margin of 81.9%
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Matador Resources is trading at $54.45 per share, or 6.3x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Talos Energy (TALO)
Market Cap: $2.47 billion
Operating its own deepwater production facilities with names like Tarantula, Pompano, and Brutus, Talos Energy (NYSE: TALO) explores for and produces oil and natural gas from offshore wells in the Gulf of Mexico and offshore Mexico.
Why Do We Love TALO?
- Impressive 16.9% annual revenue growth over the last eight years indicates it’s winning market share this cycle
- Highly-profitable operating model results in strong unit economics and a premier gross margin of 72.4%
- Robust free cash flow margin of 17.8% gives it many options for capital deployment
At $14.98 per share, Talos Energy trades at 25.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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