Even if they go mostly unnoticed, energy businesses are the backbone of our country, providing the energy we need to power our lives and businesses.Sure, they are at the whim of energy prices and other macroeconomic factors that influence capital spending (like interest rates and AI energy needs), but the industry has held its ground over the past six months as its 10.5% return was almost identical to the S&P 500.
Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. With that said, here are two energy stocks we think can generate sustainable market-beating returns and one best left ignored.
One Energy Stock to Sell:
Baker Hughes (BKR)
Market Cap: $64.01 billion
Tracing lineage to a 1907 cable tool drill bit patent, Baker Hughes (NASDAQ: BKR) provides equipment and services for oil and gas drilling, production, and transport.
Why Are We Hesitant About BKR?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 6.3% for the last five years
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 22.3%
Baker Hughes is trading at $64.48 per share, or 23.5x forward P/E. Check out our free in-depth research report to learn more about why BKR doesn’t pass our bar.
Two Energy Stocks to Buy:
Chord Energy (CHRD)
Market Cap: $8.09 billion
Holding the largest acreage position in the Williston Basin, Chord Energy (NASDAQ: CHRD) drills for and produces crude oil, natural gas liquids, and natural gas in North Dakota's Williston Basin.
Why Will CHRD Beat the Market?
- Annual revenue growth of 24.8% over the past ten years was outstanding, reflecting market share gains this cycle
- Sizeable revenue base of $6.32 billion gives it economies of scale and favorable terms with suppliers
- Robust free cash flow margin of 23.3% gives it many options for capital deployment
Chord Energy’s stock price of $143.99 implies a valuation ratio of 9.7x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
SM Energy (SM)
Market Cap: $8.60 billion
Operating across three key regions with over 328,000 net acres under its control, SM Energy (NYSE: SM) explores for, develops, and produces oil, natural gas, and natural gas liquids primarily from shale formations in Texas and Utah.
What Makes SM Stand Out?
- Annual revenue growth of 16.7% 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 86.8%
- EBITDA profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
At $35.74 per share, SM Energy trades at 5.1x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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