The landscape looks quite grim as we assess underperforming energy stocks. Despite the anticipation that China’s economic reopening would rekindle some lost vigor, many energy stocks are in a troubling position. Mounting oil inventories and growing concerns over recession have compelled investors to ponder over which energy stocks to sell in June to cut losses.
Although long-term supply constraints could eventually spur oil prices, the short-to-medium-term outlook forecasts lower energy prices. After a stellar performance in 2022, the energy sector has witnessed a significant downturn in 2023, with an 11.2% drop, according to the S&P Global 1200 Energy index, underperforming the broader S&P 500. Moreover, crude oil and regular gas prices in the U.S. are subdued, with projections hinting at continued low prices. Thus, it becomes imperative to identify the top underperforming energy stocks to sell now.
| MRO | Marathon Oil | $22.47 |
| ENPH | Enphase Energy | $181.47 |
| TELL | Tellurian | $1.22 |
| NOV | NOV. Inc. | $14.81 |
| BTU | Peabody Energy | $18.31 |
| CHK | Chesapeake Energy | $76.15 |
| COP | ConocoPhillips | $99.53 |
Top Underperforming Energy Stocks: Marathon Oil (MRO)
Marathon Oil (NYSE:MRO) is a Texas-based energy titan with strong profitability metrics and steadfast fundamentals. Despite this, its stock, intriguingly, has dipped more than 22% in the last six months. Though its lackluster stock performance last year was somewhat puzzling, it appears more justified as we progress further into this year.
The plunge in oil and gas prices is a major factor weighing down Marathon and its peers, casting a long shadow on forthcoming quarterly results. U.S. oil and gas prices, particularly, took a major hit in the opening months of 2023. Top-line growth rates for Marathon in the past couple of quarters are firmly in the negative. Moreover, the firm’s analyst consensus revenue estimate for the year is at $6.8 billion, with a 10.4% drop from 2022 levels. Therefore, it’s perhaps best to steer clear of the stock for now.
Top Underperforming Energy Stocks: Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) is a top residential solar inverter realm player, boasting a robust growth pathway. However, a few prickly obstacles have greatly shadowed its prospects. The stagnation of the U.S. solar sector last year, along with the macro slowdown and reduced price credits under California’s NEM 3.0, are major headwinds. The new law clips the wings of solar customers, offering a staggering 75% less compensation for surplus energy sold to the grid.
Furthermore, Enphase Energy’s second-quarter revenue guidance was indicative of these growing tribulations. Its projected sales fall in the $700 million and $750 million, falling shy of Wall Street’s highly optimistic $772.8 million estimate. This downbeat forecast reflects the firm’s weakening position in the U.S. market, and rising interest rates threaten to dampen investor enthusiasm further for ENPH stock.
Tellurian Energy (TELL)
Natural gas play Tellurian Energy (NYSEAMERICAN:TELL) is coming off an extraordinary year in 2022, with its fourth-quarter production reaching a whopping 225 million cubic feet daily. However, the company doesn’t anticipate a further upswing in production for 2023, painting a subdued picture this year.
In the meantime, Tellurian keeps chiseling away at the Driftwood project; but the narrative remains as murky as ever. The challenging macro outlook pushes the company’s capital requirements for Driftwood’s construction upward. This is happening amidst a precarious financial position, with the firm ending the first quarter with just $150 million in cash and equivalents. Alarming forecasts suggest the firm could run dry within a year, further compounded by the potential shareholder dilution as convertible note holders are ready to cash in on $165 million of convertibles. With it burning through roughly $75 million of free cash flow in the first quarter, it’s no wonder why its investors are in a spot of bother.
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. Reports suggest that the first quarter saw a drop of 24 rigs, the first quarterly decrease in over three years. The decrease in drilling activity and potential production will naturally lead to lower demand for equipment and services the company provides.
The recent banking crisis further complicates the situation for companies in the energy sector. Given the boom in oil prices this year, most companies have seen their sales and earnings surge. In contrast, the firm hasn’t turned a quarterly profit in nearly three years, leaving it incredibly vulnerable to more downside ahead if energy markets weaken further.
Peabody Energy (BTU)
Peabody Energy (NYSE:BTU) one of the world’s leading coal companies, is facing an inevitable twilight. Sure, 2022 was a comeback year for coal. Disruptions to the oil and natural gas markets sparked by Ukraine’s invasion fueled a surge in global prices. Consequently, BTU stock surged from $10 to $32.
However, coal is the dirtiest fossil fuel, and with the global emphasis on cleaner energy sources, Peabody is far from being an ideal energy stock. Moreover, as 2023 sets in, the coal sector is bracing for tougher times with natural gas prices tumbling. Thus, for Peabody and its counterparts, the future looks like a steep downhill slope. However, at this point, its business remains in relatively strong shape, with attractive numbers across both lines. Over the long run, though, it’s tough to get excited about the stock.
Chesapeake Energy (CHK)
A splendid ride on the energy price wave saw Chesapeake Energy (NASDAQ:CHK) registering a rock-solid performance last year. The firm mainly deals in natural gas, as it effectively cashed in on surging prices, more than doubling its sales to a whopping $11.74 billion. However, in all likelihood, expect its results to fall dramatically back to pre-pandemic levels. Hence, CHK stock sends a clear warning signal to prospective investors.
Despite the clean slate, critics argue whether its previous missteps overshadow its future. Moreover, the firm’s tale is laced with past tribulations, notably its 2020 bankruptcy filing and subsequent emergence as a new public equity in 2021. Coupled with the U.S. government’s commitment to net zero by 2050, the firm faces a proverbial ticking clock. Hence, CHK stock appears less like an investment opportunity and more like a gamble against time and tides of change at this time.
ConocoPhillips (COP)
ConocoPhillips (NYSE:COP) has been struggling lately due to uncertainties surrounding its Willow Project in Alaska’s North Slope. The project faced a critical environmental review, resulting in the Biden Administration rejecting two out of five proposed drilling sites, shrinking its overall footprint by 40%. Speculation before the decision had also cast doubts on the project’s economic viability under a reduced scope.
On top of that, its business is struggling immensely, with forward revenue growth estimates to just 9.7%, from its 5-year average of 31%. It finds itself in an unconducive energy market, likely to result in an incredibly weak market. Moreover, profitability metrics are firmly in the red, yielding just 1.3%, with a 5-year growth rate of 0%. Hence, avoiding the stock is best, as it trades over 10.3 times its forward cash flows.
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
