PSX - Seeking Alpha Quant's top 3 picks in Energy sector this earnings season

2023-10-13 09:22:04 ET

The energy sector ( NYSEARCA: XLE ) finally achieved momentum, rising 11% in the third quarter after struggling to lock in gains during the first half of the year.

The S&P 500 Energy Index (SP500-1010) witnessed growth in Q3 after falling 2% in Q1 and 6.4% in Q2. This was thanks to a 28.6% rise in crude prices. That advance came due to a combination of factors like the ongoing Russia-Ukraine war, macroeconomic headwinds, rising interest rates, production curbs by OPEC+ and concerns over tight supply.

The sector, which houses behemoths like Exxon ( NYSE: XOM ) and Chevron ( NYSE: CVX ), made a positive turnaround after facing macro pressures from Eurozone and China regions and low crude prices that weighed on the energy companies’ stock in the first and second quarters of 2023.

For Q3, Bank of America estimates the energy constituents of the benchmark index will report 19.1% growth in earnings from Q2 and expect sales to be up 7.3% . The energy companies have a 4.3% weight on the overall index.

Stocks making up the Energy Index have secured an average health score of 3.57 , the second highest behind communication services, according to the latest data from Seeking Alpha's Quant Rating System.

The system awards grades based on quantitative measures like valuation, earnings growth, and recent stock performance. The highest possible score for any individual company is a 5.

When looking at individual components, five out of the 23 companies that make up the index are considered "buy" or higher. The rest are rated "hold" as per Quant's recommendation.

Marathon Petroleum ( NYSE: MPC ) notched the top spot with a score of 4.93 out of 5 . The system indicated green for its profitability, performance, and growth grades. The company is set to report its third-quarter earnings on October 31.

Phillips 66 ( NYSE: PSX ) secured the runner-up position with a score of 4.81 out of 5 , helped by profitability and stock momentum grades, which are rated A and B-, respectively, according to Quant's suggestions. On August 2, the refining services provider reported Q2 earnings that fell sharply but topped analyst estimates.

Baker Hughes ( NASDAQ: BKR ) comes in third with 4.62 out of 5 . The Quant System displayed that the rig operator has favorable ratings for its growth and momentum grades. The company has missed revenue and EPS estimates 5 out of 8 times in the last 2 years. Earnings are scheduled for October 25.

EQT ( NYSE: EQT ) gets an honorable mention amongst the rest of the energy index constituents. During a portfolio analysis, EQT came in at fourth rank and showed green for all its indicators, except for the EPS revision grade, which is a C+.

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