3 Oil Stocks With Strong Momentum

Amidst diminishing crude oil inventory and robust demand, oil prices are rising. Hence, fundamentally strong oil stocks BP p.l.c (BP), Petróleo Brasileiro (PBR), and Sasol (SSL), which have gained steady momentum, might be ideal buys to capitalize on industry tailwinds. Keep reading...

Oil prices are hovering close to their peak levels since April 2023. This increase was prompted by inventory data indicating strong demand from the largest global fuel consumer, the US.

Therefore, investors could consider investing in quality oil stocks BP p.l.c. (BP), Petróleo Brasileiro S.A. – Petrobras (PBR), and Sasol Limited (SSL), which are currently on an upward trajectory.

U.S. crude inventories fell by 15.4 million barrels in the week ended July 28, 2023, according to market sources citing American Petroleum Institute figures, compared with analysts' estimates for a drop of 1.37 million barrels.

Oil prices have rallied to a three-month high this week, above $85 a barrel for Brent crude, as tighter supply and rising demand outweigh concerns that interest rate hikes and stubborn inflation could hit economic growth.

Moreover, the upcoming panel meeting on Friday is expected to see OPEC+ maintain its current oil output policy, according to six sources within OPEC+. At its last policy meeting in June, OPEC+ agreed on a broad deal to limit supply into 2024, and Saudi Arabia pledged a voluntary production cut for July that it has since extended to include August.

Furthermore, Deloitte's latest forecast predicts a modest increase in oil prices in the coming months due to supply cuts and robust demand. Also, the summer driving season, spanning the interval between the U.S. Memorial Day and Labor Day holidays, consistently stimulates higher fuel demand and elevates pump prices, as individuals across North America travel the roads to relish the warmer climate.

Here are the three stocks mentioned above:

BP p.l.c. (BP)

Headquartered in London, United Kingdom, BP engages in the production of natural gas and integrated gas and power, trading of gas, operation of onshore and offshore wind power, and hydrogen and carbon capture and storage facilities. The company operates through Gas & Low Carbon Energy; Oil Production & Operations; and Customers & Products segments.

In terms of forward non-GAAP P/E, BP’s 6.75x is 36.7% lower than the industry average of 10.66x. The stock’s forward EV/EBIT of 4.89x is 49.6% lower than the 9.70x industry average. Also, its forward Price/Sales multiple of 0.45 is 69.9% lower than the industry average of 1.51.

On May 15, BP’s wholly-owned indirect subsidiary, BP Products North America Inc. announced the completion of its $1.3 billion acquisition of TravelCenters of America Inc. (TA), one of the country’s leading full-service travel center operators.

The purchase holds the potential to unlock growth avenues for four out of BP's five transition growth engines: BP Pulse's electric vehicle charging, convenience services, biofuels and RNG, and hydrogen. This addition would result in an immediate increase in EBITDA, projected to reach approximately $800 million by 2025.

In the fiscal half-year that ended June 30, 2023, BP’s adjusted EBITDA amounted to $22.84 billion, while operating cash flow stood at $13.92 billion. Also, profit for the period attributable to BP shareholders amounted to $10.01 billion, compared to a loss of $11.12 billion in the previous year.

BP’s EPS is expected to amount to $1.31 in the fiscal third quarter ending September 2023.

Shares of BP have gained 27.2% over the past year to close the last trading session at $36.96. The stock is currently trading above its the 50-day and 200-day moving averages of $35.67 and $36.11, indicating an uptrend.

BP’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

BP also has an A grade for Momentum and a B for Value and Quality. It is ranked #6 out of 42 stocks in the B-rated Foreign Oil & Gas industry.

Beyond what is stated above, we have also given BP grades for Growth, Stability, and Sentiment. Get all BP ratings here.

Petróleo Brasileiro S.A. – Petrobras (PBR)

Headquartered in Rio de Janeiro, Brazil, PBR discovers, produces, and sells oil and gas in Brazil and internationally. The company operates in Exploration and Production; Refining, Transportation, and Marketing; Gas and Power; and Corporate and Other Businesses segments.

PBR’s forward non-GAAP P/E multiple of 4.20 is 60.9% lower than the industry average of 10.75. Its forward EV/EBITDA of 2.43x is 58% lower than the industry average of 5.79x. The stock’s forward P/S multiple of 0.81X is 46.2% lower than the 1.51x industry average.

PBR’s sales revenues amounted to $26.77 billion in the fiscal first quarter that ended March 31, 2023. Its gross profit stood at $14.11 billion, while consolidated net income attributable to the shareholders of PBR came in at $7,34 billion.

Analysts expect PBR’s EPS and revenue to amount to $0.88 and $23.91 billion in the first quarter that ended June 2023. In addition, it has an impressive earnings surprise history, surpassing the consensus EPS and revenue estimates in three of the trailing four quarters.

PBR’s shares have surged 37.7% over the past three months to close the last trading session at $14.19. The stock is trading above its 50-day and 200-day moving averages of $13.44 and $11.84, indicating an uptrend.

PBR’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.

PBR has an A grade for Momentum and Quality. In the same industry, it is ranked #9.

Click here for additional PBR’s POWR Ratings for Growth, Value, Sentiment, and Stability.

Sasol Limited (SSL)

SSL operates as an integrated chemical and energy company in South Africa. The company operates through Mining; Gas; Fuels; Chemicals Africa; Chemicals America; and Chemicals Eurasia segments. It operates coal mines and develops and manages upstream oil and gas exploration and production interests.

SSL’s forward EV/Sales multiple of 0.66 is 69.8% lower than the industry average of 2.17. Its forward EV/EBIT of 4.89x is 49.6% lower than the industry average of 9.70x. The stock’s forward P/S multiple of 0.45X is 69.9% lower than the 1.51x industry average.

SSL’s turnover rose 26.6% year-over-year to ZAR151.75 billion ($8.38 billion) in the fiscal six months that ended December 2022. The company’s earnings for the period came in at ZAR14.70 billion ($811.73 million) and EBIT amounted to ZAR24.20 billion ($1.33 billion). Also, its core headline EPS stood at ZAR24,85.

Street expects SSL’s EPS and revenue to increase 52.3% and 1% year-over-year to $4.26 and $16.85 billion, respectively, in fiscal year 2024.

The stock has gained 11.8% over the past month to close its last trading session at $13.84. It is trading above its 50-day moving average of $12.99.

SSL’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.

It has an A grade for Momentum and a B in Sentiment. It is ranked #11 in the same industry.

To access the additional POWR Ratings for SSL for Quality, Stability, Sentiment, and Value, click here.

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BP shares were trading at $36.47 per share on Wednesday morning, down $0.49 (-1.33%). Year-to-date, BP has gained 6.56%, versus a 19.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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