Stock Analysis & Ideas

Surging Oil Stocks Leaving Tech Stocks in the Dust

Story Highlights
  • The underperformance of big tech weighed on the S&P 500 Index.
  • Thanks to the solid operating environment, Exxon outperforms the benchmark index by a wide margin and enhances shareholders’ returns. 
  • ConocoPhillips scores higher than Exxon on TipRanks’ data-driven Smart Score. 

The S&P 500 (SPX) is trading in the red as index heavyweights, including Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOGL), and Tesla (NASDAQ: TSLA) have shed more than 20% of their value this year. 

While big tech disappointed and dragged the benchmark index down, energy companies, flush with cash amid higher commodity prices, have supported the S&P 500 Index and enhanced shareholders’ returns through share buybacks and dividend payments. 

For context, Exxon Mobil (NYSE: XOM) stock has gained over 53% this year and significantly outperformed the benchmark index. Thanks to the higher crude prices, this energy giant delivered adjusted earnings of $8.8 billion during the last reported quarter that improved on a year-over-year and sequential basis. 

It’s worth mentioning that even with the $3.4 billion charge due to its exit from Russia, XOMs earnings came in at $5.5 billion and more than doubled from the prior year. 

What’s more, Exxon generated $14.8 billion in cash flow from operating activities that comfortably covered its capex and shareholder distribution. 

Thanks to the strength in the underlying business, XOM increased its share buyback plan. It now expects to repurchase shares worth $30 billion through 2023. 

The higher oil prices, absence of weather-related challenges, and improved volumes indicate that Exxon could deliver strong financials in the coming quarters. However, Exxon’s stock forecast and price target on TipRanks indicate that the positives are already priced in the share.  

XOM stock has received 10 Buy and 11 Hold recommendations for a Moderate Buy consensus rating. Meanwhile, XOM stock has a Neutral smart score of 7 out of 10. Its average price target of $94.53 represents an upside of 2.9% from current levels.

Now What? 

While XOM stock sports a Neutral smart score, ConocoPhillips (NYSE: COP) is another stock in the energy space with positive indicators from analysts, hedge funds, and retail investors. 

Notably, ConocoPhillips stock has received 12 Buy and two Hold recommendations for a Strong Buy consensus rating. Moreover, their average price target of $128.69 indicates 22.5% upside potential over the next 12 months. 

Per TipRanks’ Hedge Fund Trading Activity tool, Ray Dalio’s Bridgewater Associates, LP increased its stake in COP stock over the past quarter. Moreover, two funds opened a new position. Furthermore, TipRanks’ investors are optimistic about COP stock, and 7.5% of these investors have raised their holding in one month.

Overall, COP stock has a maximum Smart Score of 10 out of 10. 

Bottom Line

ConocoPhillips is well-positioned to capitalize on the higher crude prices. Its recent acquisition of Shell’s (NYSE:SHEL) Permian assets would strengthen its underlying business. Moreover, COP picked up an additional stake in Australia Pacific LNG (APLNG) that would help in capturing energy transition opportunities and diversifies its product mix.

Apart from portfolio upgrades, its focus on strengthening its balance sheet, accelerating debt reduction, and divesting non-core assets augur well for growth. 

During the most recent quarter, COP returned $2.3 billion to its shareholders in the form of ordinary dividends and VROC (variable return on cash), and share repurchases. Given its solid fundamentals and ongoing strength in the sector, the company could continue to enhance its shareholders’ value.  

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