Top 3 U.S. Upstream Stocks to Consider Now Despite Headwinds

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24-04-2025

The Zacks Oil and Gas - Exploration and Production - United States industry is facing a mixed outlook. On one hand, OPEC's recent downward revision of its 2025 oil demand growth forecast — now pegged at 1.3 million barrels per day — reflects growing uncertainty tied to sluggish global consumption and escalating U.S. tariffs. These headwinds could weigh on oil prices in the near term. On the other hand, natural gas remains a bright spot. After soaring 44% in 2024, prices rose another 13% in Q1 2025, buoyed by cold weather, tight supply and robust global demand. Still, the clean energy transition looms large, threatening long-term fossil fuel demand as renewables and EVs continue to gain traction. Despite these challenges, select players remain compelling. Companies like EQT Corporation EQT, Antero Resources AR and HighPeak Energy HPK stand out for their strong asset base, strategic positioning and ability to capitalize on near-term opportunities in a changing energy landscape.
About the Industry
The Zacks Oil and Gas - US E&P industry consists of companies primarily based in the domestic market, focused on the exploration and production (E&P) of oil and natural gas. These firms find hydrocarbon reservoirs, drill oil and gas wells, and produce and sell these materials to be refined later into products such as gasoline, fuel oil, distillate, etc. The economics of oil and gas supply and demand are the fundamental drivers of this industry. In particular, a producer's cash flow is primarily determined by the realized commodity prices. In fact, all E&P companies' results are vulnerable to historically volatile prices in the energy markets. A change in realizations affects their returns and causes them to alter their production growth rates. The E&P operators are also exposed to exploration risks where drilling results are comparatively uncertain.
3 Key Trends to Watch in the Oil and Gas - US E&P Industry
OPEC Revises Oil Demand Outlook: The latest monthly report from OPEC shows that the cartel has revised its global oil demand growth forecast for 2025 downward for the first time since December, now projecting an increase of 1.3 million barrels per day (bpd) — 150,000 bpd less than previous estimates. The revision stems largely from slower-than-expected consumption and new U.S. tariffs that have rattled trade dynamics and economic sentiment globally. As President Trump ramps up tariff measures, including a 125% levy on Chinese imports, investors are growing increasingly wary about how this might dampen energy demand, particularly in emerging markets.Natural Gas Fundamentals Reflect Tight Supply and Strong Demand: Natural gas prices have enjoyed a phenomenal run of late. Following a dramatic 44% annual increase in 2024, the commodity surged more than 13% in the first quarter of 2025, as a mix of cold weather, supply disruptions and global demand has kept the market strong. The United States and Europe both experienced record storage withdrawals this winter, tightening supply conditions and supporting higher price levels for the commodity that recently hit a two-year high of $4.491.Clean Energy Shift Poses Long-Term Risk: The global energy transition is gaining momentum, with renewables and electric vehicles (EVs) steadily positioning themselves as viable alternatives to fossil fuels. As EV adoption accelerates and technological advancements drive down clean energy costs, traditional oil demand could face a structural decline. While renewable infrastructure is still scaling and high upfront costs remain a barrier, steady policy support and innovation are narrowing the gap. If these trends continue, oil consumption could see material erosion over the next 5 to 10 years.
Zacks Industry Rank Indicates Bearish Outlook
The Zacks Oil and Gas - US E&P industry is a 35-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #192, which places it in the bottom 22% of 246 Zacks industries.The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates challenging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.The industry's position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group's earnings growth potential. As a matter of fact, the industry's earnings estimates for 2025 have gone down 33.7% in the past year.Despite the dull near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it's worth taking a look at the industry's shareholder returns and current valuation first.
Industry Underperforms Sector & S&P 500
The Zacks Oil and Gas - US E&P industry has fared worse than the broader Zacks Oil - Energy Sector as well as the Zacks S&P 500 composite over the past year.The industry has moved down 32.9% over this period compared with the broader sector's decrease of 15.8%. Meanwhile, the S&P 500 has gained 2.1%.
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of noncash expenses.On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 10.70X, significantly lower than the S&P 500's 15.58X. It is, however, well above the sector's trailing 12-month EV/EBITDA of 4.36X.Over the past five years, the industry has traded as high as 15.45X, as low as 3.56X, with a median of 5.94X.
3 Stocks to Buy
HighPeak Energy: HighPeak Energy is a fast-growing independent oil and gas producer with a premier position in the heart of the Midland Basin, primarily in Howard County, Texas. With over 100,000 net contiguous acres and greater than 90% operated, the Zacks Rank #1 (Strong Buy) company benefits from exceptional scale, high oil cut, and industry-leading margins. Its strong infrastructure and efficient capital deployment support consistent operational performance and a deep inventory of drilling opportunities. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. The Zacks Consensus Estimate for the company's 2025 earnings suggests an impressive 92.5% increase. Notably, over the past 60 days, the Zacks Consensus Estimate for HighPeak Energy's 2025 earnings has jumped 45%.
EQT Corporation: EQT is the largest natural gas producer in the domestic market based on average daily sales volumes. With a primary emphasis on the Appalachian Basin, spanning Ohio, Pennsylvania and West Virginia, the Zacks Rank #2 (Buy) company's share of natural gas in its overall production/sales is more than 90%.EQT's expected EPS growth rate for three to five years is currently 51.2%, which compares favorably with the industry's growth rate of 19.3%. Notably, over the past 60 days, the Zacks Consensus Estimate for EQT's 2025 earnings has moved up 11%.
Antero Resources: It is one of the leading natural gas producers in the United States. Antero Resources has more than two decades of premium low-cost drilling inventory in the prolific Appalachian Basin, indicating a strong production outlook. AR churned out 316 billion cubic feet equivalent (Bcfe) in the most recent quarter, of which more than 60% was natural gas.The Zacks Consensus Estimate for Antero Resources' 2025 earnings per share indicates an astounding 1,514.3% year-over-year growth. Over the past 60 days, the Zacks Rank #2 operator has seen its 2025 EPS projection move up around 11%.
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EQT Corporation (EQT) : Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).
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