As inflation shows signs of cooling, the Fed has significantly slowed its aggressive rate hike policy. At the FOMC’s first meeting of 2023, the Federal Reserve raised interest rates by 25 basis points, marking the smallest rate hike since March 2022. Market participants are expecting that the Fed would slow its rate-hiking campaign over the next few months.
Moreover, the U.S. job market remains astonishingly tight. Non-farm payrolls increased by 517,000 in January, snapping a five-month string of slowing employment growth and pushing the unemployment rate down to a 53-year low.
Given the strength of the labor market, U.S. Treasury Secretary Janet Yellen believes the U.S. economy could avoid a recession. She said, "What I see is a path in which inflation is declining significantly and the economy is remaining strong."
Moreover, in its latest report, the International Monetary Fund (IMF) reversed its skepticism from late 2022. Globally, the IMF expects consumer inflation to decelerate from 8.8% last year to 6.6% in 2023 and 4.3% in 2024. Given the simultaneous cooling of an overheated economy, the Federal Reserve could engineer a soft landing.
Amid the rising optimism, we think fundamentally sound stocks Marathon Petroleum Corporation (MPC), HF Sinclair Corporation (DINO), and Overseas Shipholding Group, Inc. (OSG) are ready to explode higher in 2023. So, these could be ideal buys now.
Marathon Petroleum Corporation (MPC)
MPC operates as an integrated downstream energy company through two segments: Refining & Marketing; and Midstream.
MPC’s total revenues and other income rose 12.6% year-over-year for the fourth quarter that ended December 31, 2022, to $40.09 billion. The company’s adjusted net income increased 291.9% year-over-year to $3.11 billion, while its adjusted EPS grew 411.5% from the prior-year quarter to $6.65. Also, its adjusted EBITDA came in at $5.80 billion, up 107.6% year-over-year.
In terms of forward non-GAAP P/E, MPC is trading at 6.39x, 20.6% lower than the industry average of 8.04x. Its forward EV/Sales multiple of 0.55 is 68.8% lower than the industry average of 1.75. In addition, its forward Price/Sales ratio of 0.38 is 71.2% lower than the industry average of 1.30.
Street expects MPC’s EPS to increase 258% year-over-year to $5.19 in the fiscal fourth quarter (ending March 31, 2023). It surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
Shares of MPC have gained 48.9% over the past year to close the last trading session at $116.41. It is trading higher than its 200-day moving average of $103.84.
MPC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and Quality and a B for Growth and Value. In the 93-stock B-rated Energy – Oil & Gas industry, it is ranked #3. To see additional POWR Ratings for MPC for Stability and Sentiment, click here.
HF Sinclair Corporation (DINO)
DINO operates as an independent energy company. It produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others.
In terms of forward non-GAAP P/E, DINO’s 3.55x is 55.4% lower than the 7.96x industry average. Likewise, its 3.27x forward EV/Sales multiple of 0.36 is 79.7% lower than the 1.78x industry average.
For the fiscal third quarter that ended September 30, 2022, DINO’s sales and other revenues increased 126.2% year-over-year to $10.60 billion. Net income attributable to DINO stockholders grew 239.9% year-over-year to $954.41 million. In addition, its adjusted EBITDA increased 267.9% year-over-year to $1.50 billion, while EPS came in at $4.45, representing a 160.2% increase from the prior-year quarter.
Analysts expect DINO’s EPS for the quarter ending March 31, 2023, to increase 116.4% year-over-year to $2.14. Its revenue for the quarter that ended December 31, 2022, is expected to increase 56.9% year-over-year to $8.82 billion. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 43.4% to close the last trading session at $52.40. It is trading higher than its 200-day moving average of $51.77.
DINO’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
It has an A grade for Growth and Momentum and a B for Value and Quality. Within the same industry, it is ranked #17 out of 93 stocks.
Beyond what we’ve stated above, we’ve also rated DINO for Stability and Sentiment. Get all DINO ratings here.
Overseas Shipholding Group, Inc. (OSG)
OSG is the owner and operator of a fleet of oceangoing vessels engaged in transporting crude oil and petroleum products in the U.S. flag trade. The company serves independent oil traders, refinery operators, and government entities.
On December 8, 2022, OSG announced that it had exercised options to extend its six bareboat charter agreements with American Shipping Company ASA for an additional three-year term commencing in December 2023.
“We believe the market continues to support attractive commercial opportunities for these vessel leases to supplement the strong and stable cash flow generation from our niche businesses,” said Sam Norton, OSG’s President and CEO.
On November 15, 2022, the company’s Board of Directors announced the purchase of $5 million shares of its common stock from Cyrus Capital at a price of $2.86 per share. The price paid in this share purchase equates to an enterprise value of roughly 4.5 times the expected adjusted EBITDA for 2022, an implied valuation considered very attractive for OSG.
OSG’s shipping revenues increased 30.9% year-over-year for the third quarter that ended September 30, 2022, to $123.06 million. The company’s net income came in at $13.25 million, compared to a net loss of $16.01 million in the year-ago period. Also, its EPS came in at $0.15, compared to a loss per share of $0.18 in the prior-year period.
In terms of trailing 12-month EV/Sales, OSG is trading at 1.70x, 9% lower than the industry average of 1.87x. Its trailing 12-month Price/Sales multiple of 0.66 is 50.3% lower than the industry average of 1.33. In addition, the stock’s trailing 12-month Price/Book ratio of 0.81x compares to the industry average of 1.76x.
Over the past year, the stock has gained 93.7% to close the last trading session at $3.41. It is trading higher than its 50-day moving average of $3.14 and its 200-day moving average of $2.71.
OSG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and Quality and a B for Growth, Value, and Sentiment. In the 46-stock A-rated Shipping industry, it is ranked first. Click here to see OSG’s rating for Stability.
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MPC shares were trading at $120.82 per share on Tuesday afternoon, up $4.41 (+3.79%). Year-to-date, MPC has gained 3.81%, versus a 7.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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