Stock Screen: Steer Clear of These Energy Stocks

This week's screen uncovers energy outfits with sell or strong sell recommendations from S&P equity analysts

By Beth Piskora From Standard & Poor's Equity Research

You've seen the big drop in energy prices for yourself: it most certainly cost a lot less to fill the tank for the drive to Grandma's house for Thanksgiving than it did for the trip to the beach earlier this year. Oil hit a high of about $147 a barrel during the summer, but lately has been trading below $50. Standard & Poor's forecasts an average price of $63.12 for 2009.

S&P Equity Strategy has an "overweight" recommendation for the energy sector. Our fundamental outlook for the Integrated Oil & Gas subindustry, which represents more than half the sector's market capitalization, is positive. While prices for the benchmark West Texas Intermediate grade of crude oil dropped more than 65% since July, recent oil prices around $50 per barrel are still roughly in line with the past five-year average.

We expect the U.S. super-major oil companies to post 2008 profits up 36% from 2007. S&P analysts forecast that the sector's per-share earnings will rise 30% in 2008, compared with the 16.6% decline expected for the broader market. The sector's price-to-earnings ratio of 6 (based on estimated 2008 earnings) is well below the 11.6 p-e of the S&P 500. Energy's p-e-to-projected-five-year EPS growth rate (PEG) ratio of 0.6 is lower than the broader market's 0.8. This sector's market-weighted S&P STARS average of 4.5 (out of 5.0) is above the S&P 500's average of 3.9.

Despite the "overweight" recommendation for the sector, S&P equity analysts do not indiscriminately like all energy stocks. This week, we screened for energy stocks that garner only a one- (strong sell) or two-STARS (sell) ranking from S&P Equity Research.

Here is the list of 12 energy stocks to be avoided:

Piskora is managing editor of U.S. Editorial Operations for Standard & Poor's .