The focus is shifting to bargain energy stocks for June with a confluence of market dynamics signaling an enticing window of opportunity for savvy investors.
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Last year, energy stocks surged to new heights following escalating geopolitical tension in Ukraine, mounting inflation and apprehensions around macroeconomic policy. However, now the landscape looks significantly different. This is marked by a substantial dip in oil prices that slipped below $75 per barrel and a steep decline in natural gas prices.
Nonetheless, the prospect of high return energy stocks is far from bleak. Indeed, the recent shock production cuts by the OPEC and non-member oil-producing nations underscore this belief. These production cuts amounting to 3.66 million barrels per day, showcase a symbolic shift in the worldwide power dynamic. Such an unexpected twist could be the catalyst needed for the best undervalued energy stocks for June to emerge from their indolence. Hence, it’s the right time to bet on these three energy stocks to buy in June.
Valero Energy (VLO)
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A daytime picture of a Valero (VLO) gas station located in San Francisco bay and clear blue sky in the background.
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Valero Energy (NYSE:VLO) shines in the refining space with 15 cutting-edge locations, propelling it to the forefront as the most cost-efficient player in the market. Its unique competitive advantage and its unrivaled scale position it to become a stronghold in a sector notorious for its volatility.
A decisive shift in the sector has breathed new life into the refining landscape. Refinery growth has been sluggish in the U.S., which has effectively balanced the supply-demand equation. The advent of fracking and other novel oil production methods bolsters this favorable outlook, offering cheap crude oil and effectively fattening refining margins. Additionally, revenue and EBITDA growth for the firm has averaged a stellar 21% and 111%, respectively. Moreover, it trades at just 0.3 times forward sales estimates, 75% lower than the sector average.
With a dozen ethanol plants under its belt and a robust output of 1.2 billion gallons of renewable diesel per annum, Valero is positioned to become a giant in sustainable energy.
PBF Energy (PBF)
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As a top petroleum refiner and supplier of petroleum-based products, PBF Energy (NYSE:PBF) plays a pivotal role in the broader infrastructure network. Though the current economic uncertainty has resulted in investor uneasiness, PBF’s financial management has been exemplary.
In the past year, expanding crack spreads have increased profitability for refiners. PBF Energy has taken advantage of this situation to pare down its debt effectively. Its total liabilities substantially dropped from $10.4 billion in March 2022 to $7.87 billion by March 2023.
In its commitment to return capital to shareholders, the company declared a 20 cents per share per quarter dividend. Notably, PBF has effectively executed $500 million in stock buybacks, increasing the authorized amount for buybacks to $1 billion. Meanwhile, during the first quarter, the firm’s operations further supported gross debt reductions of $525 million. The stock trades at just 0.12 times forward sales estimates, 89% lower than the sector median.
Magnolia Oil & Gas (MGY)
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Magnolia Oil & Gas (NYSE:MGY) possesses robust expertise in the exploration and production sphere, successfully operating in the region of South Texas. It has proven to be a remarkably consistent player in its niche, with industry-leading profit margins. Its year-over-year gross profit, EBITDA and net income margins stand at an impressive 87%, 76.6% and 51%, respectively.
With the current WTI oil price at $70, Magnolia could potentially generate substantial free cash flows at $311 million. Moreover, it closed out the first quarter with an extraordinary $667 million in its cash till. Magnolia also had $400 million in unsecured notes that won’t be maturing until 2026.
Furthermore, in response to the rising oil and gas prices, Magnolia adjusted its drilling capital expenditure budget to up to $460 million. Moreover, analysts at Tipranks have assigned a strong “Buy” rating to the stock, citing a 47% upside from current price.
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
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
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