Whether you see them or not, energy businesses play a crucial part in our daily activities, from powering our homes and businesses to powering our transportation and industries.Their momentum is also rising as lower interest rates, as well as AI energy needs, have incentivized higher capital spending. As a result, the industry has posted a 37.3% gain over the past six months, beating the S&P 500 by 29.4 percentage points.
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 poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Energy Stocks to Sell:
SLB (SLB)
Market Cap: $82.47 billion
What began in 1926 with two brothers logging the first electrical measurements in a well, SLB (NYSE: SLB) provides technology and services to help oil and gas companies locate reservoirs, drill wells, and produce hydrocarbons.
Why Is SLB Not Exciting?
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 21.5%
At $55.08 per share, SLB trades at 20.1x forward P/E. Check out our free in-depth research report to learn more about why SLB doesn’t pass our bar.
Core Laboratories (CLB)
Market Cap: $630.1 million
With roots dating back to the first commercial oil boom, Core Laboratories (NYSE: CLB) analyzes rock and fluid samples from oil and gas reservoirs to help energy companies optimize production and recovery.
Why Should You Sell CLB?
- 3.4% annual revenue growth over the last five years was slower than its energy upstream and integrated energy peers
- Smaller revenue base of $524.7 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Gross margin of 20.4% reflects its high production costs and unfavorable asset base
Core Laboratories is trading at $13.91 per share, or 1.3x forward price-to-sales. If you’re considering CLB for your portfolio, see our FREE research report to learn more.
One Energy Stock to Buy:
ConocoPhillips (COP)
Market Cap: $144.9 billion
Operating the famous Prudhoe Bay field discovered in 1968 that transformed Alaska's economy, ConocoPhillips (NYSE: COP) explores for and produces crude oil, natural gas, and liquefied natural gas across North America, Europe, Asia, and Africa.
Why Is COP a Good Business?
- Market share has increased this cycle as its 8% annual revenue growth over the last ten years was exceptional
- Dominant market position is represented by its $60.5 billion in revenue and gives it fixed cost leverage when sales grow
- Strong free cash flow margin of 17.3% enables it to reinvest or return capital consistently
ConocoPhillips’s stock price of $119.25 implies a valuation ratio of 12.8x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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