3 Oil Stocks to Offload as Prices Plunge

Stocks to sell

Some investors have already decided which oil stocks to sell after last week’s oil price plunge. In the aftermath of OPEC+’s move towards easing its production cuts, it melded with earlier calls that suggested many oil stocks had already become overvalued.

With the hope that the war in Gaza might be near its conclusion, tensions in the Middle East might abate. And the latest strong jobs numbers might indicate that the Federal Reserve will keep rates higher for longer than initially anticipated. This could keep the dollar stronger and maintain downward pressure on crude prices.

After three weeks of declining oil prices, oil companies that had experienced rapid growth during 2024 highs may now be indeed overvalued and susceptible to a price correction. This assumes the cost of crude oil continues to decrease.

The current active rig count in the U.S. is also at its lowest since early 2022. China, the world’s largest crude importer, has also witnessed slowing energy demand. Imports were down in May as the country’s consumption eased.

In such an environment of declining oil prices, firms with high production costs or engaged in exploration activities may be most suitable to divest from. Three such oil stocks to sell in advance of their share price following suit are:

Crossamerica Partners (CAPL)

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The convenience store and fuels wholesaler, Crossamerica Partners (NYSE:CAPL), could be facing difficult times ahead. For the past three years, the company has seen revenue decline year-on-year (YOY) as consumers feel the impact of higher prices at the pumps.

Forecasts from the Energy Information Administration suggest fuel prices will remain steady despite rising crude oil costs, putting pressure on Crossamerica’s profit margins. This is because the company will have increased input costs without a corresponding increase in sales revenue.

Following a large miss in quarterly earnings, analysts have flagged concerns. Some predict an overall loss for the company in the current year. The sustainability of Crossamerica’s dividend also looks questionable. It only generates enough cash to cover 59% of dividend payments. Additionally, free cash flow turned negative recently, and available cash reserves are just a quarter of the level from 12 months ago.

CAPL stock price looks high compared to fundamentals, with a price-to-earnings (P/E) ratio of 33.15x. This is more than double the energy sector average of 12.9x, which makes the stock quite overvalued. Considering these challenges, Crossamerica Partners faces an uncertain outlook and is one of the oil stocks to sell.

​Texas Pacific Land (TPL)

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Texas Pacific Land (NYSE:TPL) owns large land holdings in the Permian basin in Texas as a way to earn royalties from oil production. As a result, at least partially, its stock price has increased 37% year-to-date (YTD). It has also experienced a recent spike following the announcement of its upcoming addition to the S&P MidCap 400 index later this month.

The non-traditional method of investing in the oil industry through land ownership appears to have gained significant investor interest. However, financial performance has not kept pace with the TPL share price, resulting in a high P/E ratio of 38.45x. This overvaluation positions it as one of the oil stocks to sell.

Over the last year, TPL stock rose 60% while revenues increased only 3% and EPS 32.5%. Despite the decent bottom-line growth being normal for a company, its share price increased rapidly, and it trades dollars shy of its 52-week high of $723.26 per share.

Gran Tierra Energy (GTE)

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Gran Tierra Energy (NYSEAMERICAN:GTE) is a Canada-based company focused on oil and gas exploration, principally in South America. As rig counts for exploration are at multi-year lows due to high interest rates, more speculative exploration projects face increased pressure.

The company’s revenue relies entirely on production in Ecuador, where ongoing political unrest puts income at heightened risk. Last quarter, the company generated $19 million in free cash flow (FCF) against $510 million in net debt.

While Gran Tierra may prove promising in the medium to long term, its current share price of 109.9x its earnings would cause unease among technology and energy investors, who typically prefer lower double-digit P/E ratios and strong dividends. The company also currently has insufficient debt clearance for dividend payouts.

GTE stock is currently above analyst price targets of $9.49 per share at $9.89 per share and at a 52-week high of $9.92. This makes GTE one of the top oil stocks to sell, as several factors point to overvaluation.

On the date of publication, Stavros Tousios 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.

Stavros Tousios, MBA, is the founder and chief analyst at Markets Untold. With expertise in FX, macros, equity analysis, and investment advisory, Stavros delivers investors strategic guidance and valuable insights.

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