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 19.7% for the sector - higher than the S&P 500’s 9.3% return.
Nevertheless, investors must be mindful as the cycle can unexpectedly turn. When this inevitably happens, only the elite companies will survive and ultimately thrive. Taking that into account, here are two resilient energy stocks at the top of our wish list and one we’re passing on.
One Energy Stock to Sell:
Centrus Energy (LEU)
Market Cap: $3.12 billion
Operating the only active U.S. facility licensed to produce high-assay low-enriched uranium (HALEU) for next-generation reactors, Centrus Energy (NYSE: LEU) supplies enriched uranium, the fissile component needed to produce fuel for nuclear power reactors.
Why Do We Pass on LEU?
- Subscale operations are evident in its revenue base of $452.3 million, meaning it has fewer distribution channels than its larger rivals
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 32.5%
- Expenses have increased as a percentage of revenue over the last five years as its EBITDA margin fell by 38.7 percentage points
Centrus Energy’s stock price of $167.48 implies a valuation ratio of 37.9x forward P/E. Check out our free in-depth research report to learn more about why LEU doesn’t pass our bar.
Two Energy Stocks to Watch:
Patterson-UTI (PTEN)
Market Cap: $4.36 billion
Operating 135 Tier-1 super-spec rigs that can handle the industry's most demanding drilling projects, Patterson-UTI (NASDAQ: PTEN) provides contract drilling rigs, hydraulic fracturing, and drill bits to oil and gas operators.
Why Are We Positive on PTEN?
- Annual revenue growth of 12.5% over the past ten years was outstanding, reflecting market share gains this cycle
- Economies of scale give it more fixed cost leverage than its smaller competitors
- EBITDA margin expanded by 3.4 percentage points over the last five years as it scaled and became more efficient
Patterson-UTI is trading at $8.76 per share, or 4.8x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Vitesse Energy (VTS)
Market Cap: $701.2 million
Taking a hands-off approach to energy production, Vitesse Energy (NYSE: VTS) owns non-operated stakes in oil and natural gas wells primarily in North Dakota and Montana's Williston Basin.
Why Is VTS Interesting?
- Attractive asset base leads to wonderful unit economics and a best-in-class gross margin of 80%
- Robust free cash flow margin of 24.4% gives it many options for capital deployment
At $16.04 per share, Vitesse Energy trades at 31.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
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