Why Small-Cap Energy Stocks Could Lead and What to do About It

For a group to get hot in a bull market trend, it’s not enough to simply have a good fundamental case.

“Hot” means retail money flowing in, which equals multiple expansion and a crowd of hungry speculators looking for the next breakout in the group. For that, you need a compelling “story”.

Right now, small-cap energy plays have all of those elements lining up as we head toward the summer.

In terms of the fundamental case, oil production capacity investment was sharply underfunded over the past year after the crash last April and the chronic fear of the next lockdown that took us through the rest of 2020 into the teeth of winter and cold & flu season.

That mixes now with a surge in coming travel as vaccinations pick up, an uber-dovish Fed, and an upcoming multi-trillion-dollar infrastructure bill.

As far as the compelling story, nothing is currently gripping the headlines like the debate around inflation, and commodities are riding that wave, with copper and oil both seeing major price target jumps on the Street in the past few weeks. As we head toward the summer driving season, that story could narrow down and focus itself sharply on energy stocks.

Given all of that, it may pay to search the small-cap side of the energy space to beat the crowd in the door in stocks like SM Energy Co (NYSE:SM), PDC Energy Inc (NASDAQ:PDCE), Viking Energy Group Inc (OTCMKTS:VKIN), PBF Energy Inc (NYSE:PBF), and Southwestern Energy Company (NYSE:SWN).

 

SM Energy Co (NYSE:SM) bills itself as an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas, and NGLs in the state of Texas.

SM Energy routinely posts important information about the Company on its website.

SM Energy Co (NYSE:SM) most recently announced that it expects to release its first quarter 2021 financial and operating results after market on April 29, 2021.

Last time around, the company announced Fourth quarter 2020 production volumes at 122.4 MBoe/d, 51% oil, including production that exceeded guidance, predominantly due to better-than-expected base production from existing Midland Basin wells.

The stock has been acting well over recent days, up something like 12% in that time. Shares of the stock have powered higher over the past month, rallying roughly 12% in that time on strong overall action.

SM Energy Co (NYSE:SM) generated sales of $320.3M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 14% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($10K against $583.7M, respectively).

 

Viking Energy Group Inc (OTCMKTS:VKIN) has not made a run with the rest of the space over the past few months despite strong and growing results, which could mean it has more upside potential if we a fresh wave of momentum in the group.

The company bills itself as an independent exploration and production company focused on acquiring, enhancing, and developing oil and natural gas properties in the Gulf Coast and Mid-Continent regions. It has assets in Texas, Louisiana, Mississippi, and Kansas. It is also currently the majority-owned subsidiary of Camber Energy Inc (NYSEAMERICAN:CEI), and a merger agreement is in the works that could increase the value of both companies through geographic and operational synergies.

Viking Energy Group Inc (OTCMKTS:VKIN) most recently announced performance metrics, which continued to show tremendous promise. According to its filing, Viking recorded new top marks in topline performance, posting 2020 revenues above $40 million, which is up over 400% from 2018.

James Doris, President and Chief Executive Officer of both Camber and Viking, commented, “We are pleased with Viking’s results given the challenges faced in 2020. In many respects the year was about survival for E&P companies given the unprecedented price environment and market conditions, and not only did we endure thanks to the commitment and perseverance of our entire team we also managed to improve in key areas, including increasing overall revenues and reducing debt at the Viking level. We remain focused on executing on our strategy and forging a path toward profitability.”

Over the past month, shares of the stock have been pulling back into key support, which could offer oil investors an interesting opportunity.

Viking Energy Group Inc (OTCMKTS:VKIN) managed to rope in revenues totaling $8.8 million in overall sales during the company’s most recently reported quarterly financial data – a figure that represents a rate of top line growth of 16.9%, as compared to year-ago data in comparable terms, paired with nearly $8 million on hand in cash.

 

PBF Energy Inc (NYSE:PBF) bills itself as one of the largest independent refiners in North America, operating, through its subsidiaries, oil refineries and related facilities in California, Delaware, Louisiana, New Jersey and Ohio.

PBF Energy Inc. also currently indirectly owns the general partner and approximately 48% of the limited partnership interest of PBF Logistics LP (NYSE:PBFX).

PBF Energy Inc (NYSE:PBF) recently reported first quarter 2021 income from operations of $57.7 million as compared to loss from operations of $1,366.8 million for the first quarter of 2020. Excluding special items, first quarter 2021 loss from operations was $317.8 million as compared to loss from operations of $134.0 million for the first quarter of 2020. PBF Energy’s financial results reflect the consolidation of PBF Logistics LP (NYSE: PBFX), a master limited partnership of which PBF Energy indirectly owns the general partner and approximately 48% of the limited partner interests as of quarter-end.

Tom Nimbley, PBF Energy’s Chairman and CEO, said, “PBF’s first quarter results reflect the continuing challenges of lower demand brought on by the pandemic. Our refineries operated well and at rates which mirrored demand.” Mr. Nimbley continued, “We did see sequential improvement during the quarter. We ran higher in March than we did in January which reflects more favorable market conditions as the progressive vaccine rollout lead to improving demand. However, even with rising demand, the independent refining sector is facing unsustainable headwinds as a result of escalating compliance costs under the RFS program. If the rogram is not fixed, it will likely result in a reshaping of the U.S. refining industry and a greater reliance on foreign energy.”

If you’re long this stock, then you’re liking how the stock has responded to the announcement. PBF shares have been moving higher over the past week overall, pushing about 17% to the upside on above average trading volume. Shares of the stock have powered higher over the past month, rallying roughly 5% in that time on strong overall action.

PBF Energy Inc (NYSE:PBF) pulled in sales of $4.9B in its last reported quarterly financials, representing top line growth of -6.7%.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.

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