These picks could be good opportunities to reward your risk in the oil and gas sector
Investing or trading in penny stocks is really something for the risk-tolerant investor. And even then, penny stocks that cover the oil and gas sector add a risk premium. These oil stocks encompass companies involved in oil and gas production, mining, exploration or any other services related to the industry.
That said, though, this is a cyclical industry that’s not a stranger to sharp price movements in either direction. This fact has been on display for the last 18 months.
To be sure, the onset of the Covid-19 pandemic saw oil prices crater. At one point, the futures market had a barrel of oil trading in the negative. However, that pricing didn’t last and, as of this writing, oil prices are over $70 a barrel and possibly heading higher.
The reason for this is simple: although renewable energy is the future, we still need traditional fossil fuels to cover our current energy needs. That has oil stocks of all stripes rising. So, if you’ve got a speculative itch to scratch, here are 7 oil penny stocks that look like winners in light of this cycle of rising oil prices.
- Tetra Technologies (NYSE:TTI)
- Contango (NYSEAMERICAN:MCF)
- Nextdecade (NASDAQ:NEXT)
- Vaalco Energy (NYSE:EGY)
- Aemetis (NASDAQ:AMTX)
- Ring Energy (NYSEAMERICAN:REI)
- Gran Tierra Energy (NYSEAMERICAN:GTE)
Oil Penny Stocks to Buy: Tetra Technologies (TTI)
First up, Tetra makes this list of penny stocks because of its strong performance in the past 12 months. Today, the stock is up over 637% for the past one year. That said, TTI stock did sell off sharply in late June. However, investors are still sitting on a gain of over 300% year-to-date (YTD).
Bullish investors should also note that the stock is receiving a fair amount of institutional buying. On the other hand, though, the company will need to show investors that it’s beginning to build back its revenue, which was down 42% year-over-year (YOY) in its first-quarter earnings report.
As for its business, Tetra is an oil and gas services company. The Texas-based company operates as two distinct business units. Its Completion Fluids & Products unit manufactures and markets completion fluids and associated products and services (e.g. clear brine fluids) to the oil and gas industry. On the other side of things, its Water & Flowback unit provides resources for water management services for onshore oil and gas operators.
Like many of the penny stocks on this list, Contango stock is down in the last month. One reason for this is that MCF’s short interest climbed significantly in that time. However, MCF stock is still up 69% so far in 2021, in part due to the company’s announcement of its intent to purchase low decline, conventional gas assets in the Wind River Basin from ConocoPhillips (NYSE:COP).
Another reason behind the stock price growth may also be the recent announcement that Contango will conduct a $5.7 billion all-stock merger with Independence Energy LLC. Independence Energy is a diversified upstream oil and gas company managed by KKR (NYSE:KKR) The combined business will produce approximately 105,000 barrels of oil and gas equivalents per day.
MCF stock is not widely covered by analysts. However, one analyst followed by Tipranks has given Contango a “buy” rating with a price target of $5. In its most recent quarter, Contango also reported strong revenue numbers. Today, it trades at around the $3.80 level.
Oil Penny Stocks to Buy: Nextdecade (NEXT)
If you’re interested in renewable energy plays in the oil and gas sector, consider Nextdecade, our next entry on this list.
To be fair, this company is a liquefied natural gas (LNG) developer; LNG is not a true renewable energy source. However, because of how relatively easy it is to make LNG — and its significantly lower carbon emissions — the resource is considered a bridge to renewable energy and the future.
Specifically, Nextdecade has two business divisions and is currently focusing its development efforts in two areas. On the LNG front, NEXT has operations at its Rio Grande LNG terminal facility in southern Texas. It’s also focusing attention on a carbon capture and storage project (CCS) currently.
Continuing the pattern with these penny stocks, NEXT stock is down about 11% in the last month. But, it’s still up nearly 75% YTD in 2021. On Tipranks, two analysts have provided ratings for the stock, giving NEXT a consensus “buy” and an average price target of $6 per share. That would represent a gain of nearly 64% from its current level.
Vaalco Energy (EGY)
Vaalco Energy is a reminder that investing in the oil sector is not for the faint of heart. This company is an oil and gas exploration and production firm based in Houston, Texas. For the past few years, it has been focusing its drilling efforts off the coast of West Africa. That fact could be a key reason to consider buying EGY stock.
Why? Well, it comes down to regulation — or, more specifically, which countries are going to provide fewer environmental regulations to reach oil deposits. With some African countries still developing their infrastructure and the like, the region could fit that description and become a strong catalyst for EGY stock.
In the last month, EGY stock is down over 14%. However, Vaalco is up 58% YTD on news of higher earnings and revenue. True, the company missed on analysts’ expectations for 20 cents earnings per share (EPS) in the last quarter. However, by posting EPS of 17 cents, it was still higher YOY. Vaalco also beat on revenue.
Like many oil penny stocks, EGY is trading on lighter volume at this time. But, as a stock that’s grown over 141% in the last year, it’s definitely a name to watch.
Oil Penny Stocks to Buy: Aemetis (AMTX)
If you’re interested in story stocks, then you might be intrigued by the opportunity with Aemetis, the next name on this list of penny stocks. This oil and gas refining company has a subsidiary that is building a niche in the liquid and gel sanitizer market. As you would expect with the pandemic, that has helped AMTX stock climb over 1100% in the past year.
Moreover, while hand sanitizer is no longer a victim of supply-chain disruptions, the demand for hand sanitizer is not likely to go away. Adding to the bullish story, Aemetis recently announced that it’s hiring Chevron’s (NYSE:CVX) former Environmental Technical Expert to head up its “Carbon Capture and Renewable Jet/Diesel Projects.” That should interesting for investors who want to ensure this is more than just a one-trick pony.
Right now, AMTX stock is firmly in oversold territory. With that said, investors should be mindful of the short interest in AMTX, which currently sits at around 17%. This was a key reason why the stock popped to over $20 earlier this year.
Ring Energy (REI)
Currently, REI stock is up an eye-popping 317% YTD. The stock is also bucking the trend of oil penny stocks being down in the last month — Ring Energy has managed to eke out a gain of around 4%. Moreover, Ring entered 2021 with proven reserves of 76.5 million barrels of oil and oil equivalents.
Like Aemetis, there is a high amount of short interest in Ring Energy at the time of this writing (approximately 19%). That may make it difficult to get accurate price discovery. Nevertheless, the company’s revenue is back up to pre-pandemic levels.
Yet, despite those revenue gains, Ring posted a significant 112% decline in earnings according to Benzinga. This has some analysts concerned that the company is not using its capital effectively. The company’s return on capital employed (ROCE) was just 0.6%. However, it’s only fair to note that Ring beat EPS estimates by 4 cents in the last quarter.
Oil Penny Stocks to Buy: Gran Tierra Energy (GTE)
Last on this list of penny stocks is Gran Tierra Energy, which trades at just 67 cents at the time of this writing. It appears that GTE stock got caught up in a bit of the meme-stock action earlier this year. However, short interest has dropped considerably, which gives investors an opportunity to evaluate the stock on its own merits.
As a company, Gran Tierra Energy operates in South America, specifically Colombia and Ecuador. Recent protests and blockades caused a temporary shut-in of the company’s oil wells. Of course, this has only added to the risk that comes with oil and gas stocks in the first place.
Maybe more importantly, though, GTE was forced to lower its guidance from between 28,000 to 30,000 barrels of oil per day to between 27,500 and 28,500 barrels. Because of this, investors should pay close attention to see if the lower guidance changes analysts’ opinions. Today, GTE stock is being covered by two analysts on Tipranks and has been given a potential upside of over 65% from its current level.
Note: This article originally appeared at InvestorPlace.
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On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.