Let's talk oil and gas stock, $Marathon(MRO)$ +$ConocoPhillips(COP)$ too late to buy them now or?

Energy demand has seen a significant rebound from the pandemic-driven lows as countries around the world have returned to full capacity. The supply imbalances and constraints that continue to plague the globe have led to multi-year highs in commodity prices. Oil prices have been no exception, with West Texas Intermediate (WTI) crude prices rising back over $100/barrel for the first time since 2014.

The Organization of Petroleum Exporting Countries (OPEC) recently cut its forecast for global oil demand this year, citing the Russia-Ukraine conflict as well as the resurgence of COVID-19 cases in China as the top threats to growth. World demand is set to rise by 3.67 million barrels per day (bpd) this year, down nearly half a million bpd from OPEC's previous forecast. However, consumption is still expected to exceed the 100 million bpd mark later this year, which was last surpassed in 2019.

And while China's Omicron outbreak dampened consumption in the first quarter, its oil demand is expected to rebound in the second quarter and show positive growth in May according to the China National Petroleum Corp. (CNPC). As long as COVID-19 cases remain under control, CNPC expects Chinese oil demand to climb to 15.26 million bpd in Q3 and rise to 15.37 million bpd in Q4 – up 4.1% and 6.7% year-over-year, respectively.

It's no secret that oil-related stocks tend to have a high correlation with the price of crude oil. Higher oil prices are good news for oil company margins and profits. These instances of commodity price gains provide investors with opportunities. And with crude prices continuing to move higher, investors would be wise to consider an allocation to these stocks if they haven't already done so.

After years of underperformance and underinvestment, last year was the first year in some time in which we saw the energy sector lead all sector returns. Much has been said and written in recent weeks about the Fed tightening and how it will bring down inflation, with energy prices coming down along with it. One thing we know for sure is that price trends tend to continue for longer than most people expect, and it wouldn't be too shocking to see oil prices continue their rise in the short-term.

Quantitative research studies suggest that approximately half of a stock's future price appreciation is due to its industry grouping. This industry group has started out the year strong with a greater than 50% return, while the S&P is currently down more than 8%. The two oil and gas companies we will discuss below are part of this leading group and are both significantly outperforming the market.

MRO is a global, independent company that is engaged in the exploration, production, and marketing of crude oil and natural gas. MRO owns and operates 32 gathering and treatment facilities as well as a 42-mile natural gas pipeline known as the 'Sugarloaf' gathering system. Marathon Oil was founded in 1887 and is headquartered in Houston, TX.

MRO has surpassed earnings estimates in each of the past seven quarters. The oil and gas producer most recently reported Q4 EPS back in February of $0.77, a +40% surprise over the $0.55 consensus estimate. Over the past four quarters, MRO has delivered an average earnings surprise of +37.39%. The stock has followed suit, advancing over 160% in the past year.

Despite the impressive performance, MRO trades a relatively undervalued 6.45 forward P/E compared to its industry (13.38). First-quarter EPS estimates for MRO have been revised upward in the past 60 days by 19.74%. MRO is scheduled to report the Q1 results on May 4th.

COP is a global exploration and production company. COP explores for, produces, transports, and markets crude oil, bitumen, and natural gas. The company is primarily engaged in the production of shale gas, heavy oil, liquefied natural gas, and oil sands operations. ConocoPhillips was founded in 1917 and is also based in Houston, TX.

COP has exceeded earnings estimates in each of the past five quarters. The company has posted a trailing four-quarter average earnings surprise of +12.59%. COP most recently reported Q4 earnings back in February of $2.27, a +3.18% beat over the $2.20 consensus. The stock has more than doubled in the past year, but still trades at a relatively undervalued 8.0 forward P/E.

Source: Yahoo