Energy businesses quietly power the physical things we depend on, from cars and homes to e-commerce infrastructure. Their momentum is also rising as lower interest rates, as well as AI energy needs, have incentivized higher capital spending. As a result, the industry has posted a 40.8% gain over the past six months, beating the S&P 500 by 30.8 percentage points.
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 is one resilient energy stock at the top of our wish list and two we’re swiping left on.
Two Energy Stocks to Sell:
Borr Drilling (BORR)
Market Cap: $1.70 billion
Operating one of the world's youngest jack-up fleets with an average age under eight years, Borr Drilling (NYSE: BORR) operates jack-up rigs that drill oil and gas wells in shallow waters up to 400 feet deep for exploration and production companies.
Why Are We Hesitant About BORR?
- Revenue base of $1.05 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $5.62 per share, Borr Drilling trades at 80.6x forward P/E. Check out our free in-depth research report to learn more about why BORR doesn’t pass our bar.
Clean Energy Fuels (CLNE)
Market Cap: $451.5 million
Operating the largest network of natural gas fueling stations in North America with over 600 locations, Clean Energy Fuels (NASDAQ: CLNE) supplies renewable natural gas and conventional natural gas as fuel for commercial vehicle fleets.
Why Do We Steer Clear of CLNE?
- 9.2% annual revenue growth over the last five years was slower than its energy upstream and integrated energy peers
- Subscale operations are evident in its revenue base of $438.6 million, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 24.4% reflects its high production costs and unfavorable asset base
Clean Energy Fuels is trading at $2.05 per share, or 7.9x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CLNE.
One Energy Stock to Watch:
California Resources (CRC)
Market Cap: $5.51 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.
Why Are We Positive On CRC?
- Healthy unit economics are reflected in its 54.7% gross margin and give it more money to invest in marketing and R&D
- EBITDA margin improvement of 2.2 percentage points over the last five years demonstrates its ability to scale efficiently
- Robust free cash flow margin of 13.7% gives it many options for capital deployment
California Resources’s stock price of $62.03 implies a valuation ratio of 11.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
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