Energy stocks to sell are making themselves more apparent. Many have been struggling to regain their footing, despite hopes that the Chinese reopening narrative would provide a much-needed boost.
As oil inventories pile up and recession fears loom, investors must consider which energy stocks to sell to avoid potential losses.
Long-term supply constraints indicate that oil prices will eventually climb higher, but lower energy prices are a given, with short to medium-term headwinds persisting.
One year after the start of the Russia/Ukraine war, crude oil prices and the retail price of regular gas across the U.S. are below pre-war levels, with forecasts suggesting they’ll remain that way.
Market analysts believe that the initial overreaction drove prices significantly higher. A combination of factors has since contributed to lower prices. Plus, the Oil Price Information Service predicts that the average price for 2023 will be down to $3.45, down from $3.96 last year.
Hence, avoiding the worst energy stocks that may be overvalued or face additional challenges is imperative.
| MRO | Marathon Oil | $22.66 |
| NOV | NOV Inc. | $15.68 |
| ENPH | Enphase Energy | $153.64 |
Marathon Oil (MRO)
Marathon Oil (NYSE:MRO) is a leading Texas-based energy player, boasting rock-solid fundamentals marked by its impeccable profitability metrics.
Despite its robust performance last year, its stock is down more than 19% in the past six months. Though the anemic stock price movement was puzzling in 2022, it’s probably justified this year.
A lot has to do with the drop in oil and gas prices, which will probably weigh down results in the upcoming quarters. Oil and gas prices in the U.S. were down by a hefty margin in the first few months of the year compared to last year.
The tough comps will likely weigh down the company’s stock for the foreseeable future, given the correlation between its stock price and oil and gas prices.
This will also affect its liquidity positioning, which is lagging its historical performances. For instance, its cash-to-debt ratio is at just 0.06, more than 130% lower than its 10-year median.
With a bumpy road ahead, it’s best to avoid wagering on MARA stock now.
NOV Inc. (NOV)
Prominent oil and gas player NOV Inc. (NYSE:NOV) is facing an uphill battle as the U.S. oil and gas rig count drops. The first quarter saw a drop of 24 rigs, its first quarterly decrease since the third quarter of 2020.
U.S. oil and gas futures have fallen by approximately 6% and 51%, respectively. With that said, investors need to assess these developments and weigh the potential risks before making decisions in the current market landscape.
The decrease in drilling activity and potential production will naturally lead to reduced demand for the equipment and services provided by Nov.
The recent banking crisis further complicates the situation for companies in the energy sector. On the profitability front, Nov lags its peers by more than 10% to 15% across major metrics.
Amid these challenges, NOV Inc. shareholders have had no opportunity to recover from the harsh downturn of 2020.
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) is a key player in the residential solar inverters market, with an impressive growth runway ahead of it.
The weaknesses in the U.S. solar market’s growth outlook are likely to become a thorn in its side.
It’s being clouded by factors such as the macro slowdown and reduced price credits under California NEM 3.0. Under the new law, solar customers selling excess energy to the grid will receive 75% less compensation from April 15.
The solar equipment maker’s second-quarter revenue guidance reflected these concerns, disappointing one and all.
It expects revenues to fall in the 700 million to $750 million range, disappointing investors as it fell short of Wall Street’s $772.8 million estimate.
The lowered guidance reflects the firm’s struggles with the weakening U.S. market, and rising interest rates, which will dampen investor enthusiasm for the stock.
ENPH stock remains the costliest among its peers, despite the post-earnings selloff. Bank of America downgraded Enphase to Underperform from Neutral, cutting the price target from $227 to $169, warning that demand-related headwinds will linger.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines