Oil prices are rising again but the energy sector remains volatile. The unpredictability in the sector isn’t merely a blip but reflects deeper concerns plaguing the sector, which highlights the importance of energy stocks to sell.
The coronavirus’s resurgence and its variants cast doubts over the global economic recovery again.
The oil market is fraught with uncertainty, while major players, including OPEC+ ramping up production, while others, including Iran and Venezuela, are embroiled in sanctions and political upheavals.
The mounting pressure to move to cleaner energy points to rough road ahead. With that said, here are seven energy stocks to sell, offering little to no upside potential ahead.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) exhibited lackluster second quarter results, shedding light on earnings vulnerability when oil prices drop.
In its second quarter, Exxon Mobil’s EPS stood at $1.94, missing analysts’ predictions by eight cents and considerably lower than the previous quarter’s $2.83.
Oil prices are currently elevated due to artificial supply restrictions by OPEC+, with spare oil capacity from OPEC+ nations surpassing four million barrels per day.
WTI crude, which traded in the mid-$70s in the second quarter, is now over $90, potentially reaching $100. OPEC+ significantly influences oil prices because of its members’ collective production levels.
Its ability to maintain artificially high prices is not indefinite. XOM stock is trading at over 8.3 times forward cash flow estimates, with its dividend yield of 3.1% trailing its historical average by 40.5%.
BP Prudhoe Bay Royalty Trust (BPT)
Navigating the U.S. oil trust landscape, BP Prudhoe Bay Royalty Trust (NYSE:BPT) is arguably one of the worst bets in its niche.
With no recorded net sales for the year’s first half and a dim third quarter projection, the specter of its termination clause casts a shadow over its long-term prospects.
This provision threatens to disband the company if revenues plummet below $1 million annually for two successive years, potentially deserting investors.
The Trust’s historical performance does little to alleviate the concerns. A disconcerting 50% plunge in the last year, coupled with over a 35% negative return year-to-date, echoes sentiments of uncertainty.
Zooming out further, the scene becomes even murkier, with a 90% decline over the past decade. While soaring oil prices might beckon some optimistic souls, the lurking dangers advise a more cautious stance.
Sunrun (RUN)
Amidst the radiant allure of the solar sphere, Sunrun (NASDAQ:RUN) has hit a cloudy patch.
With its shares dimming by approximately 41% YTD, the concerns have intensified, largely fueled by escalating debt and stunted net income growth. While the solar realm is undoubtedly awash with promise and potential, it’s crucial to discern wheat from the chaff.
Sunrun’s financials have been marred by a surge in customer acquisition costs without a corresponding spike in revenue forewarns potential turbulence ahead. Company sales rose by a meager 1% in its second quarter compared to its double-digit gains in past quarters. The problem with this company is ballooning debt.
Such precarious financial health and interest rate pressures paint a worrisome portrait of future profitability. Given this backdrop, it’s best to avoid RUN stock.
San Juan Basin Royalty Trust (SJT)
The San Juan Basin Royalty Trust (NYSE:SJT) has recently been navigating choppy waters in the energy sector.
After a positive uptick in distributable income last year, thanks to rising oil and gas prices, 2023 has thrown the company a curveball.
Its decision to spend $4.4 million in capital expenditures this year threatens to erase most of its gains from last year, putting more downward pressure on distributions and nudging the stock price into a 41% descent since the beginning of the year.
However, the challenges don’t stop there, as the trust registered double-digit declines in monthly dividends in three out of the last four months. Although flaunting an eyebrow-raising dividend yield north of 24%, the paltry 5-year dividend growth rate of 20% sends warning signals to potential investors. This relatively low growth and a decade-long history of high-income volatility exceeding many of its competitors point to a rocky road ahead.
Icahn Enterprises (IEP)
For investors in Icahn Enterprises (NASDAQ:IEP), recent developments have proven to be a tough pill to swallow.
The once-illustrious dividend of $2 was abruptly halved to $1 a share, toppling its status as one of the most high-yielding dividend stocks. This swift downturn doesn’t seem spontaneous, especially with the scalding May report from short-seller Hindenburg Research looming large.
Hindenburg’s blistering critique went so far as to accuse Carl Icahn of orchestrating a concealed Ponzi Scheme, recycling new investor capital to prop up what they deemed “unsustainable” dividends.
While Icahn Enterprises defended its dividend strategy, the subsequent financial reporting couldn’t have helped its cause. An underwhelming second quarter earnings report showed a staggering 72 cent loss per share, starkly contrasting the estimated 25 cent profit.
ReNew Energy Global (RNW)
ReNew Energy Global (NASDAQ:RNW) is a UK establishment championing sustainable energy alternatives. However, as we dive deeper into their ledger, uncover some disconcerting fiscal indicators.
While its journey has been peppered with collaborations and sales spikes, the current financial footing continues to raise eyebrows.
Its capital composition unveils an unsettling $8 billion in total liabilities, equating to a comparatively meager $2.13 billion market cap. This imbalance augments concerns about the company’s resilience, especially in rough economic scenarios.
The company’s bleak return metrics underscores this vulnerability. To top it off, Gurufocus has tagged ReNew Energy with mediocre financial strength and profitability ranks of 3 and 4 out of 10, respectively, pointing to the need for investor caution.
Mammoth Energy Services (TUSK)
Mammoth Energy Services (NASDAQ:TUSK) provides various energy services across its four main segments: infrastructure services, well completion services, natural sand proppant services and drilling services.
The company is confronting significant headwinds, especially during the second quarter. Critical to its operations, its well-completion services division grappled with an unexpected 56% reduction in active pressure pumping fleets.
This downward spiral is due to plummeting natural gas prices, predominantly affecting the Utica and Marcellus Shale areas where Mammoth has substantial operations.
Adjusting to these harsh market realities, Mammoth slashed its 2023 capex budget from an initial $64 million to $18 million.
Its adjusted EBITDA paints an even grimmer picture, which dropped from $19.5 million in the first quarter to $5.1 million in the second. Mammoth’s looming credit facility maturity in October 2023 introduces another layer of uncertainty.
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