These energy stocks are cheap and poised for a breakout

Published Wed, Jan 17 20241:41 PM ESTUpdated Wed, Jan 17 20242:05 PM EST

The energy sector is under pressure, but some stocks within the space are poised for an upside breakout. Energy is the second worst-performing sector in the S & P 500, behind only materials, as falling oil prices weigh on oil and gas companies. Among the biggest laggards are shares of APA and Baker Hughes, which are down 13% and 10% this year, respectively. Oil prices, which were last trading below $80 per barrel , have remained suppressed this year even as ongoing conflicts in the Red Sea raise concerns that oil shipments will be delayed. At the same time, lackluster economic data out of China has dimmed the outlook for crude demand. Given this backdrop, we used the CNBC Pro Screener Tool for energy stocks that could still do well. These names are cheap, are expected to rise more than 10% to their average price targets and are trading below where they have been historically. Here is the full criteria. Market cap of more than $2 billion. Forward price-to-earnings ratio of less than 11, the sector aggregate. Upside to average price target of more than 10%. Trading more than 5% below their 200-day moving average. These are the stocks that surfaced. APA made our screen. The company, which is trading 16% below its 200-day moving average, could surge more than 40% to its average price target, according to the CNBC Pro Screener Tool. It's trading at a forward price-to-earnings ratio of 6.6, suggesting shares are undervalued. Norwegian energy company Equinor ASA also came up. The U.S-listed shares, which are trading 5% below their 200-day moving average, have a forward price-to-earnings ratio of 8.6. It's expected to rise 12% to its consensus price target. In December, Bank of America's Christopher Kuplent upgraded the stock to buy from neutral, saying Equinor's strong balance sheet make the oil company a defensive pick. "We believe Equinor will be able to rely on more sources of resilience in what we believe will be a year of rangebound oil & gas prices," Kuplent wrote. "Equinor also fits into our relative preference for Upstream > Downstream — with its earnings momentum inflecting from a trough in 2Q23 toward 11% EPS growth y/y in 2024." The U.S.-listed shares of oil and gas major BP are trading 7% below their 200-day moving average. It's set to surge 26% to its average price target and is trading at a forward P/E of just 7.6. BP shares are down more than 3% this year and underperformed last year, up just 5%. On Wednesday, BP appointed Murray Auchincloss as permanent CEO . Auchincloss replaced Bernard Looney, who stepped down last year, citing past personal relationships with colleagues prior to becoming CEO.