Stocks were mixed this morning after a sharp decline in the previous session. Inflation fears and rising bond yields have investors cautious. The Nasdaq was the big loser in yesterday’s rocky session, shedding more than 2% and closing nearly 10% off from its Feb. 12th record high. The index also went negative for the year, while the S&P 500 and the Dow are still hanging onto gains for 2021.
Energy is surging on the news that OPEC+ will not be increasing production levels. Our trade alert for today highlights a short-term play that stands to benefit from strengthening crude oil prices. It’s also a standout among its peers for several reasons. Continue reading to find out why.
Diamondback Energy (FANG) is an independent oil and natural gas company headquartered in Midland, Texas focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves primarily in the Permian Basin in West Texas.
According to business information provider IHS Markit, the Permian ‘Super’ Basin is estimated to hold a staggering 60-70 billion barrels of recoverable crude oil. Oil production in this unconventional play, meanwhile, continues to set records and currently churns out more than 4 million barrels a day, according to data from the Department of Energy. In fact, output from the Permian Basin currently makes up about a third of the total U.S. crude oil production. It is primarily because of the Permian shale that the United States has turned into the world’s biggest oil producer, ahead of Russia and Saudi Arabia.
In Nov 29, 2018, Diamondback completed its $9.2 billion buyout of Energen Corporation to boost its Permian presence.
At the end of 2020, Diamondback held 1,316 million barrels of oil-equivalent (MMBoe) in proved reserves (58% oil, 62% proved developed). Diamondback’s average daily output totaled 300 thousand barrels of oil equivalent per day (MBOE/d) in 2020, of which 60% was oil.
Diamondback also has other oil & gas-related operations through Viper Energy Partners L.P. (VNOM) (59%-owned publicly traded royalty business) and Rattler Midstream Partners L.P. (RTLR) (71%-owned publicly traded midstream business).
FANG stock currently trades with a P/E ratio of 13.63. A much more attractive number when compared to Diamondback’s top publicly traded competitors, Continental Resources, Inc. (CLR) and EQT Corporation (EQT) which both have a P/E ratio well above 30. Of the 20 analysts offering recommendations for FANG stock, 18 rate the stock a Buy and 2 rate it Hold. There are no Sell ratings for FANG stock.
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