- Despite falling commodity prices, Q1 earnings season provided many positive surprises for the oil sector
- Using InvestingPro tools, we used a set of criteria to shortlist the best oil stocks to buy
- Among those, Marathon Petroleum stands out from the pack with its strong financials
- Sector: Energy
- Capitalization: Over $10 billion
- Country of listing: USA
- P/E Ratio: Below 5
- Overall Financial Strength: Above 3
- Upside potential (analysts): More than +30%.
- Upside potential (Fair Value): Greater than +30%.
Occidental Petroleum's (NYSE:OXY) disappointing quarterly results earlier this week were the exception in a Q1 earnings season where positive surprises have generally been the norm for oil stocks in terms of earnings and revenue.
Indeed, despite lower oil prices, ten of the eleven mid- and large-cap oil companies that reported results last week exceeded expectations in earnings and nine in revenue.
Against this backdrop, we chose to take a closer look at the oil sector to identify the best oil stock to invest in for the rest of the year, using InvestingPro's advanced stock screener.
InvestingPro users can do the same by signing up using this link. Start your 7-day free trial to unlock must-have insights and data!
What Is the Best Oil Stock to Bet on for the Rest of the Year?
We wanted to find large-cap U.S. energy stocks that are financially strong, inexpensive in terms of their P/E ratios, and have strong upside potential in terms of both the average analyst target and the InvestingPro Fair Value, which uses several valuation models based on various financial metrics.
Below is the list of filters we used, so you can replicate the research on the InvestingPro screener:
Source: InvestingPro
This fairly strict search found only four stocks that met the criteria: Tenaris SA (BIT:TENR), EQT Corporation (NYSE:EQT), Marathon Petroleum Corp (NYSE:MPC), and Imperial Oil Ltd (NYSE:IMO). 
Source : InvestingPro, Screener Results screen
As you can see above, the InvestingPro screener provides us with a result that gives us several critical pieces of information at a glance.
The first column describes the upside potential according to the average analyst target, while the second column expresses the average analyst opinion on the valuation of each stock.
The next column shows the upside potential according to the InvestingPro Fair Value, which summarizes the results of several recognized financial models.
The column after that shows the Fair Value Label, which provides a visual indication of whether a stock is over- or undervalued according to the InvestingPro models.
Finally, the last column, and perhaps the most important, provides an overall financial health score for each company based on an analysis of 5 key financial metrics such as cash flow, growth, or profitability.
Going back to the results of our stock picking: Marathon Petroleum, the largest operator of refining facilities in the U.S. and one of the leading downstream energy companies was of particular interest.
Marathon Petroleum: Strong Financial Health With Several Key Strategic Advantages
We were interested in Marathon Petroleum because the stock fell sharply last week in the face of strong results.
Source: InvestingPro, Earnings Results screen
Indeed, EPS came in at $6.09, beating the consensus by 8.7%, but these strong earnings were ignored, given the slightly below-consensus revenues.
The stock fell more than 10% the day after the release and continued to fall over the next two days, ultimately falling more than 14% over three sessions.
This punishment seems harsh given that the company issued strong guidance and announced it expanded its share buyback program.
We will take a closer look at Marathon Petroleum's financial health and performance, as well as its strategic advantages, in the remainder of this analysis.
A Dividend Stock That Ignores Oil's Volatility
First, investors should note that as a refiner of petroleum products, Marathon Petroleum is a smart energy choice because its business is profitable regardless of the price of oil or gas.
While WTI oil is down nearly 29 percent over the past year, Marathon Petroleum stock is up nearly 22 percent, significantly outperforming the 3.7 percent gain for the S&P 500 over the same period.
Another benefit of Marathon Petroleum stock is its dividend, which has been paid regularly since 2011 and has generated an annual yield of 2.7% to date.
Source: InvestingPro, Dividends screen
However, investors should note that the dividend has not increased since 2021, as the company prefers to focus on share buybacks, which is another key strength of the company, as detailed in InvestingPro's summary of strengths.
Source: InvestingPro
Significant Upside Potential With Limited Risk
Since the beginning of 2021, Marathon Petroleum's free cash flow has skyrocketed in terms of financial performance and profitability.
Source: InvestingPro, Charts screen
The level of leveraged free cash flow has now reached $13.941 billion. This represents a free cash flow yield of 24.7%.
As shown in the chart below from InvestingPro, the trend for EBITDA and EBITDA margin since 2021 is also very positive:
Source: InvestingPro, Charts screen
According to the latest published results, EBITDA reached $25.295 billion with an EBITDA margin of 14.5%, which is very solid.
Debt also looks healthy, with total debt stabilizing at around $28 billion for over a year, currently 37.4% of capital.
Source: InvestingPro, Charts screen
Finally, InvestingPro's data indicates significant upside potential for Marathon Petroleum stock.
Source: InvestingPro, Overview screen
In fact, the average target price of the 18 professional analysts following the stock is $147.22. That's a potential upside of 31.7% from the May 10 closing price.
Marathon Petroleum's InvestingPro Fair Value is even more ambitious at $163.28, or 46.2% above the current price.
Conclusion
After a steep decline last week that was partially offset by a bounce this week, Marathon Petroleum stock deserves a look from investors due to its solid financials.
In fact, it is an oil stock that can be considered one of the least risky ones, mainly because of its solid health scores from InvestingPro, but also because the nature of its business makes it a stock with little correlation to the price of oil, which is inherently volatile.
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Disclosure: The author does not own any of the securities mentioned.