3 Large-Cap Energy Stocks to Beat Volatility - Analyst Blog


A price jump and small cap companies do not always go hand in hand, though psychologically they do. This is because a small change in the price of these low-priced stocks makes the percentage gain significant. But lack of key growth ingredients is always a concern for these stocks.    

Large cap stocks, on the other hand, look like slow moving giants that generally do not promise much growth because of their 'been-there-done-that' attitude. These stocks have been in the industry for a long time, seen ups and downs, have grown and are sitting sturdily atop an industry. But it is this very experience and niche position that makes large-cap stocks the blue-eyed boys of their respective industries. Things take an interesting turn when these giants come with fat growth opportunities as well.

But before we delve into discovering some such biggies from the energy sector, a better understanding of their advantages over the smaller ones is necessary.

Large Cap Benefits

Most of the large-cap companies have operations all around the globe and are thus much less susceptible to geo-political risks than the smaller firms. Moreover, the financial strength allows them to explore potential growth regions, as is evident from the fact that many biggies are now turning toward the emerging markets.

Another important aspect of a company is its cash generation ability and the strength of its balance sheet. Large-cap companies have generally been in the industry for a long time and now sit on a large resource base which offers a steady stream of cash flow.

Further, the fact that most of these large-caps have substantial institutional ownership is the icing on the cake. It is often better to follow the footsteps of institutional investors because a lot of research goes behind their choices.

Why the Energy Sector Deserves Attention Now

The near term outlook for oil remains positive given the commodity's constrained supply picture. In particular, while the Western economies exhibit sluggish growth prospects in terms of demand, global oil consumption is expected to get a boost from sustained strength in China, which continues to expand at a healthy rate despite some moderation. Therefore, oil prices , though volatile, are expected to remain strong, enabling oil biggies to rake in cash.

However, greater focus remains on natural gas. We see a solid long-term future for the commodity as demand soars, spurred by its cost effectiveness and abundant supply in North America. In fact, natural gas is expected to overtake coal to become the largest contributor of electric power generation in the U.S. Continued growth in shale gas production and technological advancements like horizontal drilling and hydraulic fracturing should support this demand.

3 Top Large-Cap Energy Picks

We have handpicked three energy stocks with a market capitalization of over $10 billion, EPS growth of over 5% in the past 5 years, a projected growth of over 10% in the next 5-year period and current year EPS growth expectation of over 30%. These stocks have been witnessing upward estimate revisions as well and thus hold a favorable Zacks Rank #2 (Buy).  

EOG Resources, Inc. ( EOG )

Based in Houston, TX, EOG Resources is a major independent oil and gas exploration and production (E&P) company, with operations in the U.S., Canada, offshore Trinidad, and the U.K. North Sea. The company has historically concentrated on natural gas but is now gradually increasing its stake in liquid-linked assets.

Market Cap: 61.77B

Past 5-Yr. Growth: 10.6%    

Next 5-Yr. Growth Projection: 10.8%

Current Year Growth Projection: 32.0%

Pioneer Natural Resources Co. ( PXD )

The Irving, TX-based company is an independent E&P company with operations in the Spraberry Field in West Texas and the Eagle Ford in Southern Texas. The company has been increasing acreage over the past few years. Pioneer Natural Resources is expected to continue its robust production growth and drill to profits in the long term.  

Market Cap.: 31.71B

Past 5-Yr. Growth: 22.4%    

Next 5-Yr. Growth Projection: 15.3%

Current Year Growth Projection: 41.0%

EQT Corporation ( EQT )

Headquartered in Pittsburgh, PA, EQT Corp. is an integrated energy company that focuses on natural gas supply activities in the Appalachian area, including production and gathering, natural gas distribution and transmission as well as energy efficiency solutions. Increased drilling and investment in the deeper Marcellus gas shale play will be its key growth driver.

Market Cap.: 16.34B

Past 5-Yr. Growth: 5.7%    

Next 5-Yr. Growth Projection: 19.9%

Current Year Growth Projection: 71.3%

Bottom Line

The inherent volatility in the sector simply cannot be ignored. The Russia-Ukraine clash, current slowdown of the Chinese economy and less-than-expected growth in Japan are only adding to the looming uncertainty that threatens these companies. More recently, oil prices flared up on the news of the Iraqi insurgency.

It's hard for the energy sector to emerge from this nagging volatility. But large cap stocks are somewhat able to come out of this stickiness thanks to their global and diversified operations.

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PIONEER NAT RES (PXD): Free Stock Analysis Report

EQT CORP (EQT): Free Stock Analysis Report

EOG RES INC (EOG): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: PXD , EQT , EOG



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