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When it comes to investing in the oil sector, it’s crucial to assess the market landscape. Sometimes, selling oil stocks may be prudent, especially when dealing with high-risk and potentially overvalued options. Recognizing the need for caution, this article highlights certain oil stocks that investors may consider selling or avoiding. By exercising caution and staying vigilant, investors can navigate the oil market with a more strategic approach.
While the oil sector can offer significant opportunities for growth, it is best to avoid high-risk oil stocks. These stocks often have increased volatility and uncertainties that can impact investment returns. In such cases, it is advisable to consider divesting from these high-risk oil stocks and redirecting investments toward more stable and reliable options.
So, here are three high risk oil stocks to consider selling in June.
APA Corporation (APA)
APA Corporation (NASDAQ:APA), previously known as Apache, is facing downward pressure on its shares amidst the recent natural gas selloff. Despite APA’s reliance on natural gas, concerns have arisen in the market due to the company’s substantial debt burden.
Long-term borrowings remain high despite material debt repayments of around $1.3 billion in 2021 and $1.4 billion in 2022. With a debt-to-equity ratio of 8.22 times, investors are understandably concerned.
Despite the prevailing uncertainties, an intriguing factor warrants attention when considering this stock. APA has recently made an exciting announcement regarding the successful drilling and flow testing of an appraisal well in Suriname’s offshore area.
Collaborating with TotalEnergies (NYSE:TTE) in a 50-50 partnership, APA has already accomplished two appraisal wells in Suriname’s Block 58, with plans for two more wells in the near future.
Devon Energy Corp. (DVN)
Devon Energy Corp. (NYSE:DVN) is witnessing a decline in its shares following a disappointing earnings report, which included weak guidance for 2023 production and higher-than-anticipated capital expenditures. These factors have contributed to concerns surrounding the stock’s performance and valuation.
Furthermore, Devon provided guidance indicating higher capital spending from $3.6 billion to $3.8 billion. The company clarified that this increase is temporary and is primarily driven by adding a fourth frac crew in the Delaware Basin, aiming to compensate for production losses.
A saving grace for the energy company is its high dividend yield of 9.01%. At first glance, one is tempted to invest in Devon solely based on its higher dividend yield. However, investors must consider additional factors before making a final investment decision.
However, the downside of investing in Devon Energy lies in the sustainability of its current high dividend yield. The fact that the company has reduced its dividend for three consecutive quarters suggests that the current yield is in trouble. In the third quarter of 2022, the dividend peaked at $1.55 per share but fell to $0.72 per share in the second quarter of 2023, halving the dividend in less than a year.
ConocoPhillips (NYSE:COP) is under fire for its Willow project on Alaska’s North Slope. The project has reached a significant milestone as the Biden administration has completed its environmental review, paving the way for potential approval next month. It would mark the largest oil development on public lands in the United States if approved.
Concerns are rising about the project. Bloomberg reports that some opponents want it scaled back. This news is causing alarm. An American Petroleum Institute official worries about a potential project denial or delay. The U.S. Interior Department also has “substantial concerns” about the Willow project.
Given these developments, investors should evaluate ConocoPhillips’ risks. They need to determine if it’s a high-risk or overvalued oil stock. The project’s approval uncertainty and economic viability make careful analysis essential. Knowing how to avoid oil stocks and when to sell high-risk ones can guide investors effectively.
On the publication date, Faizan Farooque did not hold (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.