Bet on 3 Low-Beta Energy Stocks to Combat Volatility

Oil prices have witnessed wild swings since the onset of the coronavirus pandemic, reflecting that notorious volatility is an integral part of the energy sector. Hence, creating a portfolio of low-beta energy stocks is of utmost importance since the securities will deliver healthy returns and shield against choppy market conditions.

In this regard, stocks like Murphy USA Inc. MUSA, Weatherford International plc WFRD and Transportadora de Gas del Sur SA TGS are worth betting on.

Extremely Volatile Energy Market

We should never forget how oil prices have behaved since the initial coronavirus outbreak. The early pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The commodity’s price plunged to a negative $36.98 per barrel on Apr 20, 2020.

However, with the rapid developments of vaccines by scientists, which, in turn, led to the gradual reopening of the economies, the pricing scenario of West Texas Intermediate crude improved drastically over time to reach $123.64 per barrel on Mar 8, 2022. Oil price data are per the U.S. Energy Information Administration. Oil is currently trading higher than the $70-per-barrel mark.

Low-Beta Energy Stocks to the Rescue

While the energy market is highly volatile, it will be better to consider stocks belonging to the sector that are less volatile than the market. For analyzing a stock’s risk profile, it is better to employ a statistical measure called beta — one of the popular indicators. Beta measures the volatility or risk of a particular asset compared to the market. In other words, beta measures the extent of a security’s price movement relative to the market. In this article, we are considering the S&P 500 as the market.

If a stock has a beta of 1, then the price of the stock will move with the market. Therefore, the stock is more volatile than the market if its beta is more than 1. In the same way, the stock is not as volatile as the market if its beta is less than 1.

For example, if the market offers a return of 20%, a stock with a beta of 3 will return 60%, which is overwhelming. Similarly, when the market slips 20%, the stock will sink 60%, which is devastating.

While employing our proprietary stock screener, we have zeroed down on three low-beta energy stocks that investors should bet on. All the companies sport a Zacks Rank #1 (Strong Buy) and have a beta lower than 1, which is our prime criterion for screening stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA is a well-known retailer of gasoline and convenience merchandise. Robust customer traffic has been driving its strong merchandise performance. Over the past 30 days, MUSA has witnessed upward earnings estimate revisions for 2023.

Weatherford is a key energy player and is engaged in offering exclusive drilling technologies that will maximize clients’ reservoir exposure. Weatherford is also involved in well construction and completion activities in an efficient manner.

Transportadora’s midstream asset portfolio has the most extensive natural gas pipeline network in Latin America. It generates stable fee-based revenues since its pipeline assets transport more than 60% of the gas consumed in Argentina.

Transportadora has witnessed upward estimate revisions for its 2023 bottom line in the past 30 days. The upward revisions are backed by the company’s stable business model and a strong focus on creating differential value for shareholders. Also, TGS has lower debt exposure than the composite stocks belonging to the industry.

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