3 Oil Stocks to Offload as Prices Plunge
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Some investors have already decided which oil stocks to sell after last week’s oil price plunge. In the aftermath of OPEC+’s move towards easing its production cuts, it melded with earlier calls that suggested many oil stocks had already become overvalued.
With the hope that the war in Gaza might be near its conclusion, tensions in the Middle East might abate. And the latest strong jobs numbers might indicate that the Federal Reserve will keep rates higher for longer than initially anticipated. This could keep the dollar stronger and maintain downward pressure on crude prices.
After three weeks of declining oil prices, oil companies that had experienced rapid growth during 2024 highs may now be indeed overvalued and susceptible to a price correction. This assumes the cost of crude oil continues to decrease.
The current active rig count in the U.S. is also at its lowest since early 2022. China, the world’s largest crude importer, has also witnessed slowing energy demand. Imports were down in May as the country’s consumption eased.
In such an environment of declining oil prices, firms with high production costs or engaged in exploration activities may be most suitable to divest from. Three such oil stocks to sell in advance of their share price following suit are:
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Crossamerica Partners (CAPL)
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The convenience store and fuels wholesaler, Crossamerica Partners (NYSE:CAPL), could be facing difficult times ahead. For the past three years, the company has seen revenue decline year-on-year (YOY) as consumers feel the impact of higher prices at the pumps.
Forecasts from the Energy Information Administration suggest fuel prices will remain steady despite rising crude oil costs, putting pressure on Crossamerica’s profit margins. This is because the company will have increased input costs without a corresponding increase in sales revenue.
Following a large miss in quarterly earnings, analysts have flagged concerns. Some predict an overall loss for the company in the current year. The sustainability of Crossamerica’s dividend also looks questionable. It only generates enough cash to cover 59% of dividend payments. Additionally, free cash flow turned negative recently, and available cash reserves are just a quarter of the level from 12 months ago.
CAPL stock price looks high compared to fundamentals, with a price-to-earnings (P/E) ratio of 33.15x. This is more than double the energy sector average of 12.9x, which makes the stock quite overvalued. Considering these challenges, Crossamerica Partners faces an uncertain outlook and is one of the oil stocks to sell.