While the rest of the stock market endured a bear mauling in 2022, energy sectors became the best-performing asset class that year. My how things have changed. Today, oil prices are hovering around $80 a barrel and energy producers are marking down their profits. At the same time, concerns about slumping demand and the global transition to cleaner energy sources are rising. The net result is that energy stocks have gone from first to worst. The S&P 500 Energy Index is up 2% over the last 12 months compared to a 27% increase in the benchmark S&P 500 index. With the entire sector in a slump, it’s time! Here are three questionable energy stocks to sell in February.
Diamondback Energy (FANG)
Diamondback Energy’s (NASDAQ:FANG) stock has enjoyed a nice rally since it announced its intention to buy privately held Endeavor Energy Partners in a cash-and-stock deal worth $26 billion. However, while investors have given a thumbs up to the deal, a potential regulatory issue is looming. Anti-trust regulators are likely to scrutinize the purchase of Endeavour Energy closely, given that it is the latest in a wave of consolidation sweeping across the U.S. energy sector. This is especially true given that Endeavour Energy is the Permian Basin’s largest privately held oil and gas producer.
Endeavour Energy’s operations span 350,000 net acres in the Midland, Texas, area of the Permian Basin, which straddles West Texas and eastern New Mexico. Taking over Endeavour will dramatically expand Diamondback Energy’s footprint in the Permian Basin, and there’s no guarantee that anti-trust regulators will approve the deal. Diamondback’s move comes after Exxon Mobil (NYSE:XOM) announced a $60 billion takeover of Pioneer Natural Resources (NYSE:PXD), and Chevron (NYSE:CVX) said it would acquire Hess (NYSE:HES) for $53 billion.
Given all the consolidation happening in the U.S. energy sector, it may only be a matter of time before regulators say enough is enough. FANG stock is up 14% so far in 2024.
Occidental Petroleum (OXY)
Despite famed investor Warren Buffett buying its shares hand over fist, the stock of Occidental Petroleum (NYSE:OXY) continues to underperform. Year to date, OXY stock is up a tepid 1%. But the company’s share price is down 8% over five years. The valuation looks cheap, with the stock trading at 15 times future earnings estimates. But by most measures, Occidental Petroleum has been a bad investment. The stock is trading at the same level it was in spring 2019, before the Covid-19 pandemic.
Like Diamondback Energy, Occidental Petroleum is undertaking a deal in the Permian Basin. The company also buys a privately held energy producer, CrownRock, in a deal worth $12 billion. The CrownRock deal will give Occidental more than 94,000 net acres of land in the Permian Basin, the largest oil area in America. While this deal is expected to close relatively soon, it will saddle Occidental Petroleum with $9.1 billion of new debt. Perhaps owing to the new debt that will be taken on, OXY stock declined 1.2% on news of the CrownRock deal.
British Petroleum (BP)
British Petroleum (NYSE:BP) is not currently buying any assets in the Permian Basin. However, the European energy giant, commonly known as BP, is struggling with declining financial fortunes. The company recently announced that its net profit for last year was $13.80 billion, half of the record $27.70 billion booked in 2022 when crude oil prices were above $100 a barrel. Owing to the slumping finances, BP stock has declined nearly 10% over the past 12 months and is now down 16% over the last five years.
Additionally, BP has nearly $21 billion of net debt and a new CEO, Murray Auchincloss, who took over for former CEO Bernard Looney, who resigned late last year amid a workplace scandal. The company has done its best to try and convince shareholders to stick around, announcing that it will buyback $3.50 billion of its own stock in this year’s first half. BP plans to buyback a total of $14 billion of its own stock through 2025. However, the share buybacks are little consolation for the slumping revenues and deteriorating stock price, making this an energy stock to sell in February.
On the date of publication, Joel Baglole 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.