Energy stocks aren’t done yet.

The market’s only winning sector (by a wide margin) in 2022 is showing signs of life again following a modest summer swoon. 

Leading the charge are oil and gas producers big and small that are all but locks to finish the year as the S&P 500’s top industry group. Incredibly, 14 of the 15 best performers in the index year-to-date reside in the energy sector. Most are explorers & producers, or E&P’s.

The catalyst this time around is a familiar one. Brent crude oil has surged from approximately $84 to $98 over the last two weeks amid an escalation of the Russia-Ukraine war. Russia has repeatedly warned that it won’t sell oil to countries that back the U.S. initiative to cap Russian oil prices. Slashed output by OPEC+ nations threatens to further limit supply, a dangerous development with the cold winter months ahead.

The outlook isn’t any brighter on the demand side of the oil price equation. Concerns that the Fed will raise interest rates to a point where borrowing is prohibitive reflect a slowdown in economic activity. Put it all together and oil prices appear to be on a path back to the triple digits.

So, not great news for the political and geopolitical landscapes, but good news for oil stock investors. These are a few names to keep on the radar as the oil market flares back up.

What Makes Transocean a Speculative Stock? 

In the high-risk, penny stock category, Transocean Ltd. (NYSE: RIG) has bounced 30% off its $2.33 intraday low, a mark it has hit twice in the last couple of months. This is significant from a technical analysis perspective because the daily chart has a double bottom pattern that could serve as a springboard for an uptrend. With trading volume on the rise, the stock could have $4.00 in its sights, a key near-term resistance level.

From a fundamental perspective, the world’s largest offshore oil driller has a massive $6 billion backlog that is perhaps the most attractive aspect of the investment. A move to ditch old drillships with more modern rigs also bodes well for efficient cash flow.

The caveats here, though, include a highly levered balance sheet that stems from the 2018 acquisition of Cyprus-based Ocean Rig. This bolstered the company’s fleet but did so at a hefty price. Nearly four years later, Transocean sits on five-times as much debt as cash, which will make it hard to borrow more money—especially with rates climbing.

Overall, the risk-reward seems to be slightly skewed to the positive here. Most Wall Street analysts are bullish on the stock and even the most skeptical have targets above the current price. 

Is Marathon Oil a Good Earnings Play?

Marathon Oil Corporation (NYSE: MRO) doubled five months into the year before cooling off during the oil price slide. It’s been one of the fastest energy sector rebounders, up 30% from its late-September low. The company trails only E&P peers Occidental Petroleum, EQT Corporation, and Hess Corporation in year-to-date returns in the S&P 500. 

Jumping at a stock that’s already up 70% this year may seem foolish, but there could be much more to this momentum story. Marathon is coming off a record Q2 performance in which ramped production and higher commodity prices generated nearly $1 billion in profits. Management didn’t budge from its 2022 free cash flow (FCF) forecast of $4.5 billion, which gives it the second highest forward FCF yield in the entire S&P 500.

Despite the downturn in crude prices, management said it would increase production in the third quarter—a move that could prove costly for Q3 results but beneficial for Q4 results. Marathon’s low breakeven costs enable it to be profitable anywhere above $35 a barrel. 

For Q3, analysts are expecting EPS of $1.25, which is roughly on par with Q2. Considering Marathon has topped Street earnings estimates for seven straight quarters, the stock is shaping up to be an intriguing Q3 earnings play.

What Are Halliburton’s Growth Drivers?

A different way to play the energy resurgence is Halliburton Company (NYSE: HAL), a leading global provider of energy drilling equipment and services. When oil prices and drilling activity rise, the demand for Halliburton does the same.

Halliburton shares went on an impressive five-day run last week that ignored the market’s late-week plunge. This is a stock that’s trading 33% off its post-Covid peak and only 11x the consensus 2023 EPS estimate. By comparison, the S&P 500 is trading around 15x next year’s earnings projection. 

What makes Halliburton a unique energy investment is the fact that it is involved in every aspect of the oilfield lifecycle—from exploration and well construction to production and abandonment. This gives it a full slate of revenue streams that are diversified by product type and geography. Roughly half of Halliburton’s revenue comes from outside North America.

The Street’s forecast of 38% earnings growth in 2023 is largely tied to oil price assumptions, but also partially to Halliburton’s technology initiatives. Through the Halliburton 4.0 program, new digital and automation services that help customers be more efficient are expected to create even more revenue streams. The valuation, dividend, and potential for growth acceleration point to more upside for this oil stock.