InvestingPro Exclusive: 4 Crackling Energy Plays, Led by Diamondback

InvestingPro Exclusive: 4 Crackling Energy Plays, Led by Diamondback
Credit: © Reuters.

Here is your VIP list of Pro Picks for the week, offered exclusively to InvestingPro subscribers: a hand-picked selection of S&P 500 stocks that InvestingPro awarded a high financial health score of at least 2.75 out of 5.00. This week, we're delving into the energy space.

Historically, stocks that rated above 2.75 have had a high potential to outperform the S&P 500. For a deeper dive into how we make our Pro Picks, read more here.


Analysts rate Diamondback Energy (NASDAQ: FANG ) a clear buy. In fact, Citi ranks it among its top exploration and production picks - and it’s easy to see why.

The company outperforms the vast majority of its peers on profit margins and its two- and five-year return on invested capital, as InvestingPro metrics reveal. And its average return on assets growth stands at some 270% for the past two years. Diamondback also vastly outstrips just about every other company in the sector when it comes to its InvestingPro revenue trend score - as well as its mighty cumulative growth in revenue (510%) and diluted earnings per share (368%) over the past five years.

You also get robust cash flow metrics with this company - a sky-high ratio of cash flow to current liabilities - 346% - and cash flow that comes in comfortably over its total debt. And the company generously pays that cash forward to shareholders: Its dividend yield is an incredible 7.4%, and the company has increased its payout for the past five years running.

Crucially, Diamondback is priced at a forward price-to-earnings ratio of a bargain basement 7.4x, and Wall Street targets put upside at over 25% above the current stock price, giving it plenty of room to run.

Marathon Petroleum

Marathon Petroleum (NYSE: MPC ) is trading at an even lower price-to-earnings ratio than Diamondback, 5.9x, as the company fires on all cylinders and gives plenty back to shareholders. Its operating income has cumulatively rocketed 1,275% over the past three years, beating out its peers, and it also sports strong trends in its EPS and levered free cash flow growth - giving it plenty of cushion to continue paying its solid 2.6% dividend and forge ahead with its aggressive share repurchase program.

In another boon for shareholders, Marathon's average return on invested capital growth has come to 738% over the past two years, also putting it in the elite tranches of its sector. Fittingly, Goldman Sachs recently upgraded the stock to Buy, due in large part to its “best-in-class capital returns story,” as well as its “consistent earnings execution across segments.”

With all of that, Marathon Petroleum’s share price looks to have plenty of upside ahead: analysts expect a 30% climb, while InvestingPro’s fair value calculations put upside at more than 35%.


EOG Resources may delay some Dorado gas wells in Texas due to low prices

EOG Resources Inc (NYSE: EOG ) is another energy name providing investors with an above-average return on invested capital, helped tremendously by its steadily rising earnings per share. It has snagged a perfect EPS Trend Score on InvestingPro - and that also goes for its gross profit, operating income, and revenue trends. Cumulative per-share growth comes in at an astonishing 340% over the past three years, and its last earnings print destroyed Wall Street estimates on both earnings and revenue.

In terms of cash flow, the company is also a standout in the energy space for its cash flow to total debt ratio (at 324%) and its interest coverage ratio (nearly 70x). That gives it room to continue funding its excellent 6.3% dividend, which it has been raising annually for the past five years straight.

The company recently scored fresh buy ratings at UBS and Mizuho Securities, and overall analysts think its price should be more than 20% higher than where it is now - which certainly tracks with its svelte price-to-earnings ratio of 7.2x.


With extraordinary growth rates, Valero Energy (NYSE: VLO ) shines with a remarkable 769% average return on invested capital over the past two years and a cumulative operating income growth of 1,300% over the past three years - better than the overwhelming majority of its peers. It is also in the 90th percentile for free cash flow yield and earnings yield, each around 34%, as InvestingPro metrics demonstrate.

On top of all that, just last month Goldman Sachs called out Valero as a dividend stock that’s due for a rebound. Valero has reliably paid out dividends for 34 consecutive years, with a current yield of 3.6%, and that’s in addition to a $22.5 billion share buyback that the company embarked upon last year.

Analysts put share upside at 28% from current levels, and InvestingPro’s Fair Value estimates a 25% climb from here.

Data as of June 8, 2023.

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