Josh Brown says this energy Best Stock is moving higher, but poised for an even bigger breakout

Netflix was removed from a "Best Stocks" list following a Q3 earnings miss attributed to a one-time Brazilian tax charge, despite otherwise positive guidance. Conversely, the energy sector demonstrates strength amidst volatile oil prices, with Baker Hughes (BKR) and Valero (VLO) both exceeding Q3 earnings expectations; BKR reported 9% net income growth, improved EBITDA margins, and raised guidance, while VLO achieved record refinery utilization and significant shareholder returns. Upcoming earnings from Marathon Petroleum (MPC) and Phillips 66 (PSX) are also anticipated, with both trading near 52-week highs, signaling potential continued positive momentum in refining.

Analysis

Netflix (NFLX) was removed from a "Best Stocks" list following a Q3 earnings miss, primarily attributed to a one-time Brazilian tax charge. Without this charge, NFLX would have beaten Street estimates, and its guidance remained positive with an upbeat management tone. Despite significant year-to-date gains, the stock no longer met statistical criteria.

The energy sector faces volatility, with oil prices fluctuating between $56 and $66 due to conflicting supply signals from Russian sanctions and demand concerns. This dynamic has created a challenging but opportunistic environment for energy stocks as earnings season progresses.

Baker Hughes (BKR) and Valero (VLO) delivered robust Q3 earnings, exceeding expectations. BKR reported 9% net income growth, improved EBITDA margins to 17.7%, and raised full-year guidance, targeting a 20% EBITDA margin by 2028, bolstered by its Chart Industries acquisition. VLO achieved record 97% refinery utilization and returned $1.3 billion to shareholders.

Upcoming earnings from Marathon Petroleum (MPC) and Phillips 66 (PSX) are anticipated to continue this positive trend. Both stocks trade near 52-week highs and key moving averages. UBS recently raised PSX's price target, expecting $2.29 EPS on over $30 billion in quarterly revenue, reinforcing a bullish outlook for the refining segment.

Key Decisions for Investors

• Monitor Netflix (NFLX) for signs of operational recovery post-one-time tax issue, as underlying guidance remained positive despite the Q3 earnings miss.
• Evaluate increased exposure to the energy sector, particularly refining and oilfield services, given strong Q3 performance from BKR and VLO, and positive outlooks for MPC and PSX.
• Consider initiating or maintaining positions in Marathon Petroleum (MPC) and Phillips 66 (PSX) ahead of their earnings, supported by strong technicals, positive analyst sentiment, and robust industry utilization.
• Implement disciplined risk management, including stop-loss orders, especially for positions in volatile sectors or stocks trading near 52-week highs, to mitigate potential downside.