The energy sector has been the envy of the stock market in 2021. Its 50%-plus year-to-date return is leaps and bounds better than the next closest sector – which is financials, up 37% so far in 2021 – and that has included downright aggressively bullish performance from energy stocks over the past month or so.
The strong global economic recovery has driven these gains. As economies reopened, the demand for energy skyrocketed and producers couldn't keep up.
Crude prices are also rising due to a shortage of natural gas used to power businesses and homes, as well as the decision from the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to gradually increase oil output versus calls to boost production at a quicker rate. Against this backdrop, U.S. crude oil prices are now at levels not seen since 2014.
All of this has painted a bullish backdrop for the sector and has momentum investors seeking out energy stocks. Momentum investing is a strategy that seeks to capitalize on the continuation of a trend – and it's one that some investors swear by.
With the energy sector in a bullish trend, here are five momentum stocks to buy right now. We looked at stocks tracked by the Stock News POWR Ratings System (opens in new tab) and focused only on those that received a Buy rating from the pros based on a company's current fundamentals and longer-term outlook. We then homed in on energy stocks with a Momentum Grade of A, suggesting these names are more likely to continue outperforming. Check them out.
Data is as of Oct. 26.
APA
- Market value: $10.6 billion
- POWR Ratings overall rating: B (Buy)
- POWR Ratings momentum grade: A
- POWR Ratings average broker rating: 1.72
APA (APA (opens in new tab), $28.15) is an energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. Its operations are in the U.S. – mainly in the Permian Basin – Egypt and the U.K.'s North Sea.
The firm is one of the largest oil producers in Permian and has 4.9 million gross acres in the region, with exposure to the Midland Basin, the Delaware Basin and the Central Basin Platform. APA's significant find is Alpine High, located in the southern portion of the Delaware Basin. This is expected to be an essential volume growth driver in the years ahead.
The company is also involved in the midstream business via its publicly traded Permian subsidiary, Altus Midstream (ALTM (opens in new tab)). This subsidiary operates its gathering and processing assets in the region.
Outside of the U.S., the company's operations are focused in the North Sea and Egypt, where APA is the largest oil producer and acreage holder. Plus, its discoveries in Suriname, through a joint venture with TotalEnergies (TTE (opens in new tab)), are expected to become a significant asset, providing massive cash flow potential.
The POWR Ratings system pegs APA as a B-rated Buy. The company has a Growth Grade of A, as sales rose 25.1% over the past year. Analysts expect the company's earnings to swing to 92 cents per share from a loss of 16 cents per share in the year-ago period.
APA has also been one of the best energy stocks on the charts. It has a Momentum Grade of A thanks to its one-month gain of 28.5% and its 12-month return of +228.9%. You can find Apache's (APA) complete POWR Ratings analysis here. (opens in new tab)
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TotalEnergies
- Market value: $134.5 billion
- POWR Ratings overall rating: B (Buy)
- POWR Ratings momentum grade: A
- POWR Ratings average broker rating: 2.00
TotalEnergies (TTE (opens in new tab), $50.79) is an integrated oil and gas company that explores for, produces and refines oil worldwide. The company operates refineries with a capacity of nearly 3.0 million barrels of oil equivalent a day, primarily in Europe. It also distributes refined products in 65 countries and manufactures commodity and specialty chemicals. The company changed its name from Total to TotalEnergies in June to reflect its transition toward a diverse energy company.
The firm has strong production growth compared to its peers. This is due to an upstream portfolio with above-industry-average exposure to fast-growing hydrocarbon-producing regions. TTE also uses modern technology in drilling, which helps cost savings. Despite reducing its capital spending, the company expects to increase its upstream production an average of 3% per year through 2026 due to growth in liquified natural gas projects.
Plus, it has low exposure to North America, which is a mature region. In fact, its upstream assets have lower decline rates and longer productive lives. This gives TTE a competitive edge. The company also makes strategic acquisitions with existing operators in high-potential areas and divests its assets that don't match its long-term objectives. For example, in the first half of the year, the company acquired $2.9 billion in assets and sold assets worth $900 million.
TTE is one of several B-rated (Buy) energy stocks in the POWR Ratings system. It has a Growth Grade of A, as analysts forecast earnings per share (EPS) to surge 393.1% year-over-year in the third quarter and 269.9% for the full fiscal year. Plus, revenues for the third quarter are expected to rise 41.3% from the year-ago period.
The stock also has a Momentum Grade of A in large part because of its strength on the charts. TTE is up nearly 9% in the past month and almost 60% over the last 12 months. The complete POWR Ratings analysis for TotalEnergies (TTE) can be found here. (opens in new tab)
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BP
- Market value: $98.9 billion
- POWR Ratings overall rating: B (Buy)
- POWR Ratings momentum grade: A
- POWR Ratings average broker rating: 2.08
BP (BP (opens in new tab), $29.64) became infamous for its part in the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. These days, the integrated oil and gas name explores for crude oil and operates refineries with a capacity of 1.9 million barrels of oil per day. Additionally, BP has actively been reducing debt and transitioning to lower-carbon fuels.
The firm has a solid portfolio of upstream projects. And in the last year, it brought eight major projects online. This helped BP ramp up its production by 200,000 barrels of oil equivalent per day. The company is also implementing an energy transition plan – including entering the offshore wind business – to capitalize on the increasing demand for clean energy. This should leave the company in a better position than its peers over the next decade.
BP set a goal of developing 50 gigawatts of net renewable energy generating capacity by 2030. This would be a big jump from the 2.5 gigawatts capacity it has today. As part of this plan, the company hopes to reduce emissions from operations by 30% to 35% and reduce the weightage of hydrocarbons from its portfolio.
The stock's overall grade of B (Buy) in the POWR Ratings system includes a Growth Grade of B. Its EBITDA (earnings before interest, taxes, depreciation and amortization) is up over 649% in the past year and is expected to rise 30% over the next year. Plus, EPS for the third quarter are expected to jump to 92 cents from 3 cents in Q3 2020.
BP is also top-rated among momentum stocks, as evidenced by its Momentum Grade of A. Shares are up 13% over the past month and 87% in the last year. Check out the complete POWR Ratings analysis for BP (BP) here. (opens in new tab)
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Petroleo Brasileiro
- Market value: $68.7 billion
- POWR Ratings overall rating: B (Buy)
- POWR Ratings momentum grade: A
- POWR Ratings average broker rating: 1.50
Petroleo Brasileiro (PBR (opens in new tab), $10.54) – also known as Petrobras – is a Brazil-based state-owned integrated energy company. The company focuses on exploration and production for oil and gas in Brazilian offshore fields. Petrobras operates 13 refineries in Brazil with a capacity of 2.2 million barrels a day and distributes refined products and natural gas throughout the South American country.
PBR produces most of Brazil's crude oil and natural gas. It also accounts for almost the entire refining capacity of Brazil. PBR has a strong portfolio of investments in Brazil's pre-salt reservoirs that lie below the Campos, Espírito Santo and Santos basins. These investments bode well for its mid- to long-term growth potential.
In these pre-salt oil reserves, the company has an estimated 9.5 to 14 billion barrels of oil equivalent. The size and quality of these reservoirs offer PBR a lower-cost supply that is unrivaled by other global firms. PBR has also increased its diesel production and prices to capitalize on the growing domestic demand for refined products. Plus, Petrobras is focused on debt reduction to strengthen its credit rating.
The POWR ratings system gives PBR an overall grade of B (Buy). Among reasons to like it are its growth prospects, with earnings per share up 58.3%, on average, each year over the last three. Additionally, the company sports a Growth Grade of B as analysts forecast EPS to arrive at 55 cents in the third quarter, compared to a loss of 4 cents in the year-ago period.
And when it comes to energy momentum stocks, this one is tops. It is up 14.8% from its late-September lows and 49% in the past 12 months, earning it a Momentum Grade of A. Get Petroleo Brasileiro's (PBR) complete POWR Ratings analysis here. (opens in new tab)
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Royal Dutch Shell
- Market value: $189.5 billion
- POWR Ratings overall rating: B (Buy)
- POWR Ratings momentum grade: A
- POWR Ratings average broker rating: 1.31
Royal Dutch Shell (RDS.A (opens in new tab), $48.86) is an integrated oil and gas company that explores for, produces and refines oil worldwide. Its production and reserves are in Europe, Asia, Oceania, Africa and North and South America. The company generates more than $180 billion in annual revenue and produces roughly 3.4 million barrels per day of oil equivalent.
The company's acquisition of BG Group five years ago made RDS the world's largest liquefied natural gas (LNG) producer. The demand for LNG is expected to rise due to strong consumption from Asian importers, including China, India, Pakistan and South Korea. The company's position as a major supplier of liquefied natural gas should help feed this growing demand and improve cash flow.
RDS.A is making progress on its green initiatives, too. For example, it became the first oil company to link executive pay with carbon emissions to combat climate change. The firm has also collaborated with companies such as electric-vehicle charging network IONITY and U.K. energy supplier First Utility to diversify its portfolio beyond oil and gas. In the meantime, though, RDS is benefiting from a rise in energy prices and a strong downstream franchise, specifically in petrochemical and marketing activities.
The stock has an overall grade of B (Buy) in the POWR Ratings system. The company has a Growth Grade of B, which makes sense as earnings per share are expected to come in at $1.77 in the fourth quarter, compared to EPS of 10 cents in Q4 2020.
As for its place on this list of top momentum stocks, RDS.A has displayed strong near- and long-term price action – as evidenced by its Momentum Grade of A.
And while it pulled back after a disappointing third-quarter earnings report due to disruption from Hurricane Ida, the energy stock is still a strong chart performer. Through Oct. 26, RDS is up more than 16% on a one-month basis and almost 97% in the last year. And importantly, alongside those earnings, Bloomberg reported (opens in new tab) Daniel Loeb's Third Point hedge fund took a $750-million, or roughly 0.4%, stake in the energy firm, per people familiar with the matter. Like with other activist investors, Loeb's involvement could light a fire under the stock as it recovers from its earnings slump. Get Royal Dutch Shell's (RDS.A) complete POWR Ratings analysis here. (opens in new tab)
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