Energy stocks surged in March, hinting at a further bullish rally ahead.
The resurgence of energy as the top-performing sector in March took investors by storm, sparking speculations of continued upswings. Energy stocks, the underdogs of many portfolios, are poised to escalate as capital flows into the sector, propelling them to new heights.
The surprising surge in demand has outpaced even the U.S. Energy Information Administration’s projections, with global oil demand purportedly set to soar by 1.4 million barrels daily across 2024 and 2025. Geopolitical tensions, particularly in the volatile Middle East, have further fanned the flames, propelling the price of Brent crude oil beyond $90 per barrel in recent times. These soaring prices are expected to lend a robust buoyancy to energy stocks.
As industry analysts gear up to revise their estimates for energy stocks amidst escalating oil values, the sector remains a beacon of allure for investors due to its undervaluation at under 12 times forward earnings. Highlighted within are three energy powerhouses boasting strong buy ratings, presenting an irresistible bargain for discerning investors.
ConocoPhillips: The Energy Vanguard
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Regaled as a maestro amongst U.S.-focused exploration and production giants, ConocoPhillips (NYSE:COP) emerges as a leading light in the realm of energy stocks. With a resounding 20 buy ratings, the drummer beats to an optimistic tune for this titan.
ConocoPhillips’ oil portfolio boasts unparalleled depth and quality. The Permian-based Lower 48 portfolio acts as a stalwart pillar for steadfast production. Alaska adds a touch of high-margin legacy business with the promising project Willow — a 600 million-barrel resource in the making. International expeditions encompass Canada, Qatar, Norway, Libya, and the Asia Pacific blend to forge a diverse and resilient pipeline.
Aptitude meets altitude as ConocoPhillips scales heights by maintaining a low supply cost, balancing approximately 20 billion barrels equivalent with an enviable average supply cost of $32. These premium assets ensure a steadfast course for ConocoPhillips to sustain its current production rates across three decades.
Venturing into the meandering waters of the energy transition, ConocoPhillips has navigated by expanding its liquefied natural gas (LNG) repertoire. The coveted Qatargas 3 plays a pivotal role in furnishing LNG to the discerning Asian and European markets. In tandem, strides are being made to broaden its LNG portfolio in Qatar, encompassing North Field South and North Field East.
With eyes set on the horizon at $60, the management at West Texas Intermediate readies itself to unfurl a tapestry of $115 billion in free cash flow over the ensuing decade, awaiting distribution. A windfall beckons as the company earmarks returning over two-thirds of its market capitalization to investors within a decade.
Cheniere Energy: A Beacon in the Night Sky
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Standing tall amongst the throng as one of the largest U.S. liquefied natural gas exporters, Cheniere Energy (NYSE:LNG) holds the baton to lead the way in energy resilience. Operating liquefaction plants and supplying LNG to the shores of Europe and Asia, it epitomizes steadfastness amidst shifting landscapes.
In the grand scheme, Cheniere Energy perches itself as a prime beneficiary of the burgeoning LNG adoption phase. As the world pivots towards cleaner energy sources from the likes of coal, the clarion call for natural gas across Europe and Asia grows louder. Shell (NYSE:SHEL) projects a more than 50% surge in LNG demand by 2040, fueled by the fervent industrial coal-to-gas switching trend, particularly in Asia.
Evidencing this shift, the U.S., perched atop a throne adorned with surging Asian demand and shrouded Russian gas sanctions, has donned the mantle of the foremost global LNG exporter. Cheniere steps up to the plate, supplying entrancing natural gas through its facilities, orchestrating the delivery of 637 cargoes in 2023, with Europe honored with 73% of this bounty.
The future beckons with tantalizing prospects as the company advances on expansion avenues like Corpus Christi Stage 3 to bolster export capacity. Anticipating the completion of these outbound terminals, management has deftly inked long-term agreements with counterparts in Europe, Canada, and Asia.
In the annals of 2023, Cheniere unfurled an adjusted EBITDA of $8.8 billion and a net income of $9.9 billion. Eminent drivers such as coal-to-gas conversions and gas-fired power plants shadowing intermittent renewables portend a radiant future. This energy stalwart plays a pivotal role in shepherding U.S. LNG towards the blooming global energy marketplace.
Enterprise Products Partners: Navigating the Currents
Exploring the Unique Assets of Enterprise Products Partners
One-of-a-Kind Energy Assets
When it comes to energy stocks, few can hold a candle to the pipeline, storage facilities, and export terminal operator known as Enterprise Products Partners (EPD). Its pipelines form an intricate web, linking all major shale regions and most refineries east of the Rockies. Additionally, it boasts ownership of vital export facilities on the Gulf Coast.
Extensive Network of Assets
Enterprise Products Partners doesn’t just stop at pipelines. With over 50,000 miles of natural gas and crude oil pipelines stretching across Texas, New Mexico, Oklahoma, and Louisiana, the company dominates the infrastructure landscape. These pipelines are the arteries that connect demand points to the 300 million barrels of liquid storage capacity it commands. Moreover, its petrochemical unit churns out high-margin products from hydrocarbons, ready to be exported to eager markets.
Financial Powerhouse
Through its network of pipelines, processing plants, storage facilities, and export terminals, Enterprise Products Partners is a cash flow juggernaut. Locked-in contracts spanning 15-20 years ensure a steady stream of revenue. Furthermore, the company’s marketing acumen shines as it strategically exploits price differentials across markets, wielding its inventory to optimize profits.
Investor Appeal
With an adjusted Free Cash Flow (FCF) of $4.8 billion in 2023 and a whopping $4.5 billion returned to shareholders, Enterprise Products Partners stands tall as a dividend darling. EPD stock tantalizes investors with a juicy 6.9% yield, while analysts shower it with accolades, boasting 15 buy ratings and 5 overweight ratings.
On the date of publication, Charles Munyi did not hold (either 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.
