As the push for a green-energy transition gains popularity, producers of traditional fossil fuels have a disincentive to invest in production growth. Coupled with recently surging profits and attractive money-market rates spurred by the Fed’s fight against inflation, major energy companies are building sizable cash piles. As shown below, two U.S. majors- XOM and CVX, have shifted to a preference for returning excess cash to shareholders in recent years.
This week’s screen attempts to find large energy companies with a high potential for returning capital to investors through share buybacks. We look at Price/Free Cash Flow for the ability to generate cash on a continuing basis, P/S for a low valuation, and LT Debt/Equity for a favorable leverage ratio. A reasonable leverage ratio is vital since companies with high leverage, like Buffet’s OXY, may prioritize paying down debt over returning cash to shareholders.
This week’s screen only returned four stocks.
- Market Capitalization >$50B
- Price/Free Cash Flow <10
- Price/Sales <1.5
- LT Debt/Equity <0.5
Exxon Mobil Corporation (XOM)
Shell plc (SHEL)
TotalEnergies SE (TTE)
Equinor ASA (EQNR)
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.