Concerns around demand have put pressure on oil prices recently. Amid worries over softening economic data out of the U.S. and a wider structural shift towards cleaner energy sources, October crude futures (CLV24) - the most active contract - have slumped nearly 10% in the past month alone.
However, the current oil slump could be an opportunity to invest. For starters, the presidential debate provided hints that oil is a critical component of both candidates' energy policies. Further, research from Stanford University indicates that oil is still the most-used energy resource worldwide, and provides more than 90% of global transportation energy. And while McKinsey forecasts that oil demand will decline by up to 50% by 2050, the firm still sees demand for oil remaining strong at least through 2030.
Keeping these factors in mind, it's interesting to note that Latin America's richest person has been investing heavily in two oil stocks - and just became the largest shareholder in one of them. Should investors sit up and take notice? Here's a closer look at both energy stocks.
#1. Talos Energy
Formed in 2010 through the merger of Encana Oil & Gas USA and Brigham Exploration Company, Talos Energy (TALO) is an independent energy company focused on acquiring, developing, and producing oil and natural gas (NGV24) in the Gulf of Mexico. Based out of the energy hub of Texas, Talos' operations primarily center around deepwater and shallow-water assets, with a focus on high-quality, resource-rich properties. The company's market cap currently stands at about $2 billion.
With the shares down 22.4% on a YTD basis, billionaire investor Carlos Slim has been loading up on Talos stock. According to an SEC filing, the telecom mogul in early September bought about 2.7 million shares of TALO via his Control Empresarial de Capitales SA de CV investment company for more than $30 million. This purchase followed similarly heavy buying in August, and took Slim's stake in the company to 23.8%, making him the company's largest shareholder.
In its latest results for the second quarter, Talos reported a beat on both revenue and earnings. Total revenues went up by 49.6% from the previous year to $549.2 million, aided by growth in all three segments of oil, natural gas, and natural gas liquids (NGLs). EPS fell 36.4% year over year to $0.07, while adjusted EPS arrived at $0.03.
During the quarter, Talos produced 95.5 thousand barrels of oil equivalent per day (MBoe/d) which was the higher end of the company's second-quarter guidance range.
For the six months ended June 30, TALO's net cash from operating activities was $385.8 million, compared to $277 million in the year-ago period. Overall, the company closed the quarter with an improved cash balance of $37.8 million, up from $33.6 million at the start of the year, with no short-term debt on its balance sheet. To reduce its debt, Talos sold its carbon capture business to TotalEnergies (TTE) for $148 million, allowing the company to sharpen its focus on its core business of oil exploration and production.
Notably, TALO's conservative approach to calculating its reserves suggests the company may be undervalued. Unlike most oil companies, which include "probable" reserves in their assessments, Talos only considers its "proved" reserves in its calculations.
Not only does TALO have a strong backer like Slim in its corner - and the investor actively increasing his stake around current prices - analysts have also given the stock an average rating of “Strong Buy.” The mean target price of $18.31 suggests an upside potential of about 65.8% from current levels. Out of 8 analysts covering the stock, 7 have a “Strong Buy” rating, and 1 has a “Hold” rating.
#2. PBF Energy
Formed in 2007, New Jersey-based PBF Energy (PBF) is a leading independent refiner and supplier of gasoline, diesel fuel, and other petroleum products in the United States. The company owns and operates several refineries located in key regions, allowing it to capture economies of scale and efficiently meet market demand. Its market cap is currently around $3.73 billion.
Just like TALO, PBF Energy stock has been declining in 2024, losing 25.8%. The stock also offers a dividend yield of 3.17%, backed by a sustainable payout ratio of just 14.59%.
Notably, Slim bought about 2 million shares of PBF in early August, alongside purchases of TALO. Following previous purchases of PBF earlier this year, and more than $60 million in fresh buying to start September, Slim has now upped his stake in the company north of 18%. Once again, the billionaire made these purchases through his holding firm, Control Empresarial de Capitales.
PBF reported mixed results for Q2 at the start of August. Revenues slipped by 4.6% from the prior year to $8.74 billion, which narrowly beat estimates, but the reported loss per share of $0.54 was wider than expected. The company cited difficult market conditions and higher maintenance costs in the quarter as the reasons for the disappointing results.
Over the past 10 years, PBF's revenues and EPS have clocked impressive CAGRs of 6.57% and 11.45%, respectively.
For the first six months of the year, PBF's net cash from operating activities was $441.1 million, as the company exited the quarter with a cash balance of $1.4 billion. This was higher than its total debt of $1.25 billion. The company produced 926.7 thousand barrels per day in the second quarter, down just 2% from the prior year despite increased maintenance activities in the period.
Additionally, PBF is not entirely reliant on its refineries for revenue, as its St. Bernard Renewables (SBR) operation plays a key role in oil production. The unit recently received a favorable provisional carbon intensity score, which enhances its marketability.
Moreover, gasoline and distillates account for just over 80% of PBF’s total production. This strong product mix positions the company well to benefit from an anticipated demand recovery in the near future.
Along with Slim's ongoing vote of confidence, analysts have deemed PBF stock a “Moderate Buy,” with a mean target price of $49. This indicates an upside potential of roughly 50.3% from current levels. Out of 13 analysts covering PBF Energy, 3 have a “Strong Buy” rating and 10 have a “Hold” rating.
