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.They are also bound to benefit from a friendlier regulatory environment with the “American energy dominance” stance of the Trump administration, and this excitement has led to a six-month gain of 12.6% for the sector – higher than the S&P 500’s 6.3% return.
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. Keeping that in mind, here is one energy stock boasting a durable advantage and two that may face trouble.
Two Energy Stocks to Sell:
Northern Oil and Gas (NOG)
Market Cap: $2.20 billion
Taking the path less traveled in the oil industry by choosing not to operate its own wells, Northern Oil and Gas (NYSE:NOG) acquires minority stakes in oil and gas wells operated by other companies across major U.S. shale basins.
Why Are We Wary of NOG?
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Costs have risen faster than its revenue over the last five years, causing its EBITDA margin to decline by 3.2 percentage points
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15× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Northern Oil and Gas’s stock price of $20.35 implies a valuation ratio of 5.1x forward P/E. Dive into our free research report to see why there are better opportunities than NOG.
DHT Holdings (DHT)
Market Cap: $2.95 billion
With each vessel capable of carrying roughly 2 million barrels of oil—enough to fill about 125 Olympic swimming pools—DHT Holdings (NYSE:DHT) operates very large crude carriers that transport crude oil across international routes for energy companies and traders.
Why Does DHT Fall Short?
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Sales were flat over the last five years, indicating it’s failed to expand this cycle
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Revenue base of $448 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
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Costly operations and weak unit economics result in an inferior gross margin of 33.4% that must be offset through higher production volumes
At $18.29 per share, DHT Holdings trades at 5.9x forward P/E. Read our free research report to see why you should think twice about including DHT in your portfolio, it’s free.
One Energy Stock to Watch:
California Resources (CRC)
Market Cap: $4.51 billion
Operating some of California’s most productive oil fields including Elk Hills and Belridge, California Resources (NYSE:CRC) explores for and produces crude oil, natural gas, and natural gas liquids from fields across California.