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Two energy stocks that make a strong case for warranting positions in investors' portfolios for the new year are Arch Resources (ARCH - Free Report)  and Murphy USA (MUSA - Free Report).  

To that point, Arch Resources and Murphy USA’s stock both sport a Zacks Rank #1 (Strong Buy) and have an overall “A” VGM Zacks Style Scores grade for the combination of Value, Growth, and Momentum. Let’s see why now is an ideal time to invest in these energy giants.
 

Robust Bottom Lines

As one of the largest coal producers in the United States, Arch Resources' annual earnings are now expected at $26.63 a share in fiscal 2023 following a record year that saw EPS at a whopping $63.88 per share. Still, FY24 earnings are expected to rebound and rise 8% to $28.76 per share. Plus, over the last 30 days, FY23 earnings estimates have soared 10% while FY24 EPS estimates have risen 6%.

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Similarly, the trend of earnings estimate revisions is very compelling for Murphy USA which continues to have a stronghold as a leading independent retailer of motor fuel and convenience merchandise.

Also following a tough-to-compete-against year, Murphy USA’s annual earnings are expected to dip -13% in FY23 to $24.35 per share and be virtually flat in FY24. However, FY23 and FY24 EPS estimates have risen 5% in the last month respectively.

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Reasonable Valuations

Making their strengthening outlooks more attractive is that Arch Resources and Murphy USA trade at very reasonable P/E valuations with positive earnings estimate revisions offering further support.

Arch Resources stock makes a strong case for being undervalued at just 6.3X forward earnings which is roughly on par with the Zacks Coal Industry average but a steep discount to the S&P 500’s 22.4X.

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Murphy USA’s stock trades at a 14.6X forward earnings multiple which is above the Zacks Oil and Gas-Refining and Marketing Industry average of 7.1X but the company is a leader in its space and trades pleasantly below the benchmark as well. It’s also noteworthy that Murphy USA trades 47% below its decade-long high of 28X forward earnings and at a slight discount to the median of 16.4X. 

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Takeaway  

Simply put, it would be no surprise if Arch Resources and Murphy USA’s stock were two of the top movers at the beginning of the new year. Both stocks are up over +20% in 2023 but should have much more upside from their current levels considering such robust bottom lines and reasonable P/E valuations

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