As you know by now, the energy sector got hammered in 2015 (the second straight year of declines).

The Energy Select Sector SPDR ETF (XLE), the exchange-traded fund (ETF) that tracks the S&P 500 Energy Index, has declined 31% since 2014. And earlier this week, crude oil tested an 11-year low.

Yet in spite of the doom and gloom, we’re now seeing signs of recovery.

One hundred and fifty-three rigs have been taken offline around the world – a 16.9% decline in utilization from this time last year.

[ad#Google Adsense 336×280-IA] OPEC nations are swallowing huge budget deficits in their effort to squeeze out American producers – but that can’t last forever.

Translation: We’re much closer to a bottom in oil than a top.

And for investors who can stand some risk for a potentially fat payoff, it might be time to fuel up.

It’s All About the Fundamentals
The current opportunity is Marathon Petroleum Corp. (MPC), an independent refiner with seven refineries in the United States. It was spun off from a larger oil producer, Marathon Oil, in 2009 and began trading publicly in June 2011.

As of December 2014, the company owned and operated 2,750 gasoline and convenience stores in 22 states in America. At that time, Marathon Petroleum also had a lucrative ownership interest in more than 8,000 miles of pipeline.

Since it began trading, Marathon has outperformed the S&P 500 by a fat margin. With dividends excluded, shares are up 172%, compared to the S&P 500’s 59% gain.

Over the last five years, Marathon has grown earnings per share by 5.3%, much better than the peer average of -10.8%.

Currently, shares trade at just 8.7 times trailing earnings – a healthy discount to peers (10.4 times) and the broader market (18.6 times). Using 2016 estimates, MPC also has an attractive forward price-to-earnings ratio of 9.5 times.

Best of all, Marathon sits on a treasure trove of cash. At the moment it has $1.8 billion in free cash flow (FCF) at its disposal.

Compared to S&P 500 Energy Index competitors, MPC ranks fifth in free cash flow on a list of 40 companies. And it trades at a price to free cash flow of 5.5 times, which also represents a discount to peers.

Finally, using EV/EBITDA – a capital structure neutral metric that takes a company’s debt structure into account and is more difficult to manipulate than P/E – Marathon trades at 5.1 times forward EV/EBITDA.

That’s a 23% discount to its sector peers.

The Tide Is Turning
On the technical side, shares have flashed several bullish signals. For one, Marathon shares emerged from oversold territory in December and their RSI (relative strength index) is on the rise.

You’ll also recall that energy stocks have been stuck in a downtrend for the last two years.

Well, since last year’s flash crash on August 24, Marathon has rallied 16% – sailing past both the S&P 500 Energy Index and the broader market.

And when stocks sold off in December, shares bounced back to the upside off a three-and-a-half year support line.

Now, energy stocks are sure to be volatile in the near term as crude attempts to stabilize. But if you can brave some risk, Marathon is gushing with value – whether you trade on fundamentals or charts.

Good investing,

Jonathan Rodriguez

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Source: Wall Street Daily