New York, US (BBN)-Oil prices have been declining lately, consistently hitting five-year lows.
When oil prices act this way, it normally means doom for stocks in the energy sector, and analysts predict that it's going to get a lot worse for oil companies before it gets better, reports the Investopedia.
However, this doesn't mean that all energy companies are a sell.
When taking into account historical performance versus oil prices, volatility of past operations, financial strength, company cash flows, equities market returns, future interest rates, implied industry outlook and forecasted company earnings, there are still stocks that are poised to do well even with fluctuating oil prices.
These large-cap companies in the energy sector make good candidates for buy-and-hold stocks in an investor's portfolio.
1. Magellan Midstream Partners LP
Magellan Midstream Partners LP (NYSE: MMP) engages in the transportation, storage and distribution of refined petroleum products and crude oil in the United States.
It is comprised of three segments: refined products, crude oil and marine storage.
The company's stock is very strong due to its high revenue growth, high return on equity (ROE), growing profit margins, solid cash flow from operations and an increase in net income.
Revenue growth exceeded the industry average of 19.6 per cent, and that growth in revenue has helped boost the company's earnings per share (EPS).
Its current ROE is higher than its ROE from one year prior, which indicates that the company is strengthening.
The gross profit margin of the company is high at 53.62 per cent and has increased from the same quarter a year prior; the net company's profit margin of 37.78 per cent has significantly outperformed the industry average.
Magellan Midstream Partners' net operating cash flow has increased significantly – by 56.68 per ent when compared to the same quarter last year – to $393.99 million.
Net income has increased by 32.7 per cent when compared to the same quarter of a year ago, rising from $190.10 to $252.09.
2. Tesoro Corporation
Tesoro Corporation (NYSE: TSO) is a holding company that, through its subsidiaries, engages in petroleum refining and marketing activities in the US The company operates in three business segments: refining, logistics and retail.
The company has had a history of solid stock performance, high EPS growth, an exponential growth in net income, attractive valuation levels and a solid cash flow from operations.
The company has captured an incredibly strong earnings growth of 4,566.66 per cent over the past year, and the stock has responded by increasing by 54.62 per cent.
Analysts believe that the stock price will continue to increase, even though it has already had a nice gain so far.
Tesoro has reported significant improvements in its EPS in its most recent quarter compared to the same quarter from one year ago.
This adds to the company's positive earnings growth over the past two years.
On a per-share basis, the company has increased its earnings to $6.69 from $2.83 from one year prior.
The market expects a further increase this year from $6.69 to $7.12.
Net income growth, when compared to the same period one year ago, has increased by 2,171.4 per cent.
Net operating cash flow has also increased significantly – by 67.72 per cent when compared to the same period one year ago – to $317 million, also surpassing the industry average cash flow growth rate of -11.94 per cent.
3. Marathon Petroleum Corporation
Marathon Petroleum Corporation (NYSE: MPC), including its subsidiaries, operates as a company that engages in refining, marketing, retailing and transporting petroleum products in the US.
It operates in three segments: refining and marketing, speedway and pipeline transportation.
The company has impressive EPS growth, high net income growth, attractive valuation levels and a solid financial position with reasonable debt levels and a high ROE.
The company has been able to improve its EPS by 38.2 per cent in the most recent quarter when compared to the same quarter one year ago.
This highlights the company's ability to maintain a positive EPS growth over the past 12 months.
Analysts feel that this trend should continue. In 2014, Marathon increased its bottom line by $8.84 versus $6.61 in the previous year.
Marathon's debt/equity (D/E) ratio is less than the industry average, at 0.62.
This shows that the company's management team has done a good job in managing and reducing its debt levels.
However, the company's quick ratio is slightly high at 0.65, showing a potential problem with short-term cash requirements.
4. Valero Energy Corporation
Valero Energy Corporation (NYSE: VLO) operates as an independent petroleum refining and marketing company in the US, Canada, the Caribbean, the United Kingdom and Ireland.
It operates in the refining and ethanol segments. The company has been able to outperform the majority of stocks in the energy sector consistently.
Valero has a strong financial position with low debt levels, good ROE, attractive valuation levels and an increase in stock price over the past year.
The company's current D/E ratio is below the industry average at 0.31.
The ROE has improved compared to the same quarter one year ago, and the company has been able to outperform the industry average growth rate of 19.6 per cent.
However, when compared to the same quarter one year ago, company revenue actually declined by 19.1 per cent, with the weakness in revenue hurting its bottom line.
5. Spectra Energy Partners LP
Spectra Energy Partners LP (NYSE: SEP) operates as an investment arm of Spectra Energy Corporation.
The company has displayed robust revenue growth, has increased profit margins and has a solid financial position with low debt levels when compared to industry averages.
The company's current D/E ratio of 0.57 is below the industry average, showing that there has been a successful management of debt levels.
Even though the company has a strong D/E ratio, the quick ratio of 0.3 is weak and shows a potential lack of ability to pay short-term obligations.
The revenue growth exceeded the industry average of 19.6 per cent.
Since the same quarter one year prior, revenue has risen by a total of 15.2 per cent.
This growth doesn't seem to have passed through to the company's bottom line, demonstrated by a decline in EPS.
Spectra's gross profit margin is high, currently at 61.94 per cent; gross profit margin has increased from the same quarter the previous year.
The company's net profit margin of 47.24 per cent is significantly higher than the industry average.
BBN/SK/AD