Are These 3 Energy Stocks Overbought After a Rally in Oil Prices?

Gran Tierra Energy Inc. (TSX:GTE)(NYSE:GTE) and others have surged on oil’s renewed strength, and geopolitical events may push them even higher in the coming weeks.

| More on:

The price of oil has rallied in recent weeks, which has resulted in a bounce back for many top energy stocks on the Toronto Stock Exchange (TSX). This has bolstered the energy-heavy S&P/TSX Composite in April, but can it last?

A commodity strategist at Goldman Sachs Group Inc. recently laid out the case for $80 oil in 2018. This came on the heels of U.S. president Donald Trump directly targeting the Organization of Petroleum Exporting Countries (OPEC). “Looks like OPEC is at it again,” Trump tweeted on the morning of April 20. “With record amounts of oil all over the place, including the fully loaded ships at sea, oil prices are artificially very high! No good and will not be accepted!”

Saudi Arabia, the largest producer in OPEC, has been rumoured to be targeting $80 a barrel or more. In addition to temporarily softer inventory reports, the decision by the Trump administration to strike the Russia-backed Syrian government with its French and British allies also caused oil prices to rise.

Today, we are going to look at three energy stocks that have benefited from this broader rally. Should investors cut and run from energy in the midst of this rally, or is the best yet to come?

Gran Tierra Energy Inc. (TSX:GTE)(NYSE:GTE) is a Calgary-based company engaged in the oil and gas industry. Shares of Gran Tierra have surged 13.1% month over month as of close on April 23 and are up 18% in 2018 thus far. The company released its 2017 fourth-quarter and full-year results on February 27.

Gran Tierra reported average annual Columbia-only production of 31,426 BOE per day in 2017, which represented a 20% increase from 2016. In the fourth quarter, funds flow from operations rose 25% to $69 million, and for the full year oil and gas sales climbed 46% to $422 million.

Parex Resources Inc. (TSX:PXT) is a Calgary-based oil and gas company with operations in South America. Parex stock has climbed 15.1% month over month and is up 17% in 2018 so far. The company released its 2017 Q4 and full-year results on March 5.

In 2017, oil and natural gas production averaged 35,541 BOE per day, representing a 20% increase from 2016. Funds flow from operations rose 94% from the prior year to $279.5 million, and it reported net income of $155.1 million compared to a net loss of $46.4 million in 2016.

Whitecap Resources Inc. (TSX:WCP) is yet another Calgary-based oil and gas company. Its stock has climbed 19.6% month over month and is up 6.8% year to date. Shares are still down 2.2% year over year.

The company released its 2017 fourth-quarter and full-year results on February 28. Petroleum and natural gas sales hit $1 billion in 2017 compared to $635 million in the previous year. Whitecap reported net income of $508 million in comparison to $384 million in 2016. The company also hiked its dividend by 5% in 2017 to $1.36 per share, representing a 3% dividend yield.

Should you jump on this rally?

Experts and analysts have turned bullish on oil in recent weeks. Oil prices could continue to see an upward trend ahead of a decision from the Trump White House on the Iran nuclear deal. The appointment of hawkish Mike Pompeo and John Bolton to secretary of state and national security advisor appear to signal that Trump is ready to scrap a deal that he himself has been extremely critical of. The re-imposition of sanctions on Iran would see a major blow dealt to a country that exported nearly one billion barrels in 2017.

The aforementioned energy stocks have room to run in April and May.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Energy Stocks

oil and gas pipeline
Energy Stocks

Pipeline to Prosperity: Invest in Enbridge and Pembina Stock

Here's why pipeline companies such as Enbridge and Pembina should be on the shopping list of income investors in July…

Read more »

Oil industry worker works in oilfield
Energy Stocks

If You Invested $1,000 in Headwater Exploration Stock 5 Years Ago, This Is How Much You’d Have Now

Here's why Headwater Exploration (TSX:HWX) stock has been an active investor's dream come true over the past half decade

Read more »

consider the options
Energy Stocks

Gold Stocks vs. Oil Stocks: Where to Invest for the Rest of 2024

Investing in oil and gold stocks can be tricky for the average investor given the cyclicality of these commodities.

Read more »

Silhouette of bull in front of setting sun
Energy Stocks

Here’s the Bull Case Behind Why Suncor Could Surge From Here

Let's dive into the bull case behind Suncor (TSX:SU), and where this Canadian energy giant could be headed into 2025.

Read more »

Oil industry worker works in oilfield
Energy Stocks

3 Energy Stocks to Buy Hand Over Fist in July 2024

Are you looking for a mix of income and capital growth in your portfolio? Here are three energy stocks that…

Read more »

pipe metal texture inside
Energy Stocks

Up by 1.6%: Is Enbridge (TSX:ENB) Stock a Buy in July 2024?

A small uptick is usually considered a fluke when it comes to most stocks, but for some slow-moving giants, it…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Energy Stocks

TFSA: 4 Canadian Stocks to Buy and Hold Forever

This well-priced basket of Canadian stocks is perfect for a long-term TFSA investor.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

These Stocks Offering Over 6% Are My Top Picks for Immediate Income

TSX energy stocks such as Tourmaline Oil pay shareholders a tasty dividend in 2024. Is the dividend stock a good…

Read more »