Amid the ongoing geopolitical unrest, robust oil demand, optimistic industry projections, and OPEC+ production cuts, an escalation in crude prices is anticipated. This prospect is stoking investors’ attention toward the industry, specifically targeting companies well-positioned to yield substantial profits.
Given this backdrop, fundamentally strong oil and gas stocks Cheniere Energy Partners, L.P. (CQP), Ampol Limited (CTXAY), and Scorpio Tankers Inc. (STNG) could be solid portfolio additions this month to capitalize on the industry tailwinds.
Energy holds a central place in global dialogues. Experts predict a considerable rise in the Earth's temperature unless pivotal actions, like transitions toward greener energy alternatives, are initiated. Over 140 nations have established objectives for net zero emissions, driving the acceleration toward renewable energy resources.
Despite the global push toward sustainability, oil and gas demand has demonstrated resilience, with future estimates suggesting an upsurge in the consumption of non-renewable resources.
The International Energy Agency (IEA) has boosted its 2023 oil demand growth forecast to 2.4 million barrels per day (bpd), with a 930,000 bpd anticipated for 2024. OPEC foresees oil demand soaring by 2.5 million bpd in 2023, potentially rising by 2.25 million bpd by 2024.
Geopolitical upheavals and the imposed supply cuts from Saudi Arabia and Russia could maintain buoyant oil prices. Goldman Sachs' (GS) Asset & Wealth Management Investment Strategy Group (ISG) predicts that during most of 2024, the oil price per barrel might fluctuate between $70 and $100. JPMorgan forecasts stable market conditions for next year, anticipating an average Brent crude oil price of $83 per barrel.
Given the industry tailwinds, it's time to examine the fundamentals of the three stocks to buy in the oil and gas industry.
Cheniere Energy Partners, L.P. (CQP)
CQP provides liquefied natural gas (LNG) to integrated energy companies, utilities, and energy trading companies worldwide. It owns and operates a natural gas liquefaction and export facility at the Sabine Pass LNG production terminal.
On November 29, CQP announced that Sabine Pass Liquefaction Stage V, LLC (SPL Stage 5) entered into a long-term Integrated Production Marketing (IPM) gas supply agreement with ARC Resources U.S. Corp., Canada's leading natural gas producer.
Under the IPM agreement, ARC Resources would sell 140,000 MMBtu per day of natural gas to SPL Stage 5 for 15 years, commencing with commercial operations of the first train of the SPL expansion project. This agreement will enable CQP to deliver increased quantities of Canadian natural gas to Europe, where energy security has never been more crucial.
On November 14, CQP paid the unitholders a cash distribution of $1.03 per common unit. Its annualized dividend rate of $3.10 per share translates to a dividend yield of 5.09% on the current share price.
Its four-year average yield is 7.19%. CQP’s dividend payments have grown at CAGRs of 6.5% and 7.2% over the past three and five years, respectively.
CQP’s trailing-12-month cash from operations of $3.90 billion is 466.8% higher than the industry average of $688.14 million. Its trailing-12-month ROTC and ROTA of 29.37% and 32.42% are 215.4% and 332.9% higher than the industry averages of 9.31% and 7.49%, respectively.
In the fiscal third quarter that ended September 30, 2023, CQP’s total revenues and adjusted EBITDA stood at $2.13 billion and $793 million, respectively. Moreover, its income from operations stood at $988 million, compared to a loss from operations of $299 million in the year-ago quarter.
For the same quarter, net income came at $791 million, compared to a net loss of $514 million in the prior year quarter, while net income per common unit stood at $1.19, compared to a net loss per common unit of $1.49 in the year-ago quarter.
Street expects CQP’s revenue and EPS for the fiscal fourth quarter ending December 2023 to be $2.52 billion and $1.08, respectively.
The stock has gained 40.1% over the past six months to close the last trading session at $60.85. Over the past nine months, it has gained 25.1%.
CQP’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Momentum and Quality. Within the A-rated MLPs – Oil & Gas industry, it is ranked #10 out of 26 stocks.
To see additional POWR Ratings for Growth, Value, Stability, and Sentiment for CQP, click here.
Ampol Limited (CTXAY)
Headquartered in Alexandria, Australia, CTXAY purchases, refines, distributes, and markets petroleum products in Australia, New Zealand, Singapore, and the U.S. The company operates through Convenience Retail; Z Energy; and Fuels and Infrastructure segments.
On October 31, CTXAY, Hyundai Australia, Pacific Energy, and Toyota Australia signed a Memorandum of Understanding (MOU) to jointly develop hydrogen refueling infrastructure, to combine the expertise and capabilities of each of the partners to help develop stations for fuel cell electric vehicles (FCEVs) in Canberra.
Both Hyundai and Toyota currently have FCEV fleets operating in Australia, while CTXAY and Pacific Energy are heavily investing in energy solutions to support customers through the energy transition.
CTXAY’s annualized dividend rate of $2.41 per share translates to a dividend yield of 5.30% on the current share price. Its four-year average yield is 4.89%. CTXAY’s dividend payments have grown at CAGRs of 39.1% and 6.9% over the past three and five years, respectively.
CTXAY’s trailing-12-month cash from operations of $937.86 million is 36.3% higher than the industry average of $688.14 million, while trailing-12-month asset turnover ratio of 2.89x is 428% higher than the industry average of 0.55x.
In the six months that ended June 30, 2023, CTXAY’s revenue increased 6.4% year-over-year to AUD 18.45 billion ($12.12 billion), while gross profit stood at AUD 1.12 billion ($735.69 million).
For the same period, profit attributable to equity holders of the parent entity and earnings per share from continuing operations stood at AUD 79.10 million ($51.98 million) and 33.10 cents, respectively. As of June 30, 2023, CTXAY’s total current liabilities stood at AUD 4.98 billion ($3.27 billion), compared to AUD 5.47 billion ($3.59 billion) as of December 31, 2022.
Street expects CTXAY’s revenue for the fiscal year ending December 2023 to be $23.50 billion.
The stock has gained 8.9% over the past nine months to close the last trading session at $45.58. Over the past year, it has gained 25.3%.
CTXAY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
CTXAY has a B grade for Momentum and Stability. Within the A-rated Foreign Oil & Gas industry, it is ranked #13 out of 44 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Sentiment, and Quality. Get all ratings of CTXAY here.
Scorpio Tankers Inc. (STNG)
Headquartered in Monaco, STNG provides marine transportation of refined petroleum products in the shipping markets worldwide. It currently owns, leases finances or bareboat charters in 112 product tankers (39 LR2 tankers, 59 MR tankers, and 14 Handymax tankers) with an average age of 7.8 years.
On November 9, STNG’s board of directors declared a quarterly dividend of $0.35 per common share, payable to all shareholders on December 15. Its annualized dividend rate of $1.40 per share translates to a dividend yield of 2.55% on the current share price.
Its four-year average yield is 1.97%. STNG’s dividend payments have grown at CAGRs of 38% and 21.3% over the past three and five years, respectively.
Additionally, the board replenished the 2023 Securities Repurchase Program to purchase up to an aggregate of $250 million of the company’s securities, which, in addition to its common shares, also consist of its Senior Unsecured Notes Due 2025.
STNG’s trailing-12-month cash per share of $7.45 is 725.1% higher than the industry average of $0.90. Its trailing-12-month net income and levered FCF margins of 46.07% and 48.27% are 234.3% and 723.5% higher than the industry averages of 13.78% and 5.86%, respectively.
In the fiscal third quarter that ended September 30, 2023, STNG’s revenue and operating income stood at $291.18 million and $141.41 million, respectively. Moreover, its adjusted EBITDA stood at $200.28 million. For the same quarter, adjusted net income and adjusted net income per share stood at $99.24 million and $1.91, respectively.
Street expects STNG’s revenue and EPS for the fiscal fourth quarter ending December 2023 to be $335.13 million and $2.69, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 18.4% over the past six months to close the last trading session at $54.93. Over the past three months, it has gained 13.4%.
STNG’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
STNG has an A grade for Sentiment and Quality and a B for Momentum. It is ranked #18 out of 85 stocks within the Energy – Oil & Gas industry.
Click here for the additional POWR Ratings for STNG (Growth, Value, and Stability).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CQP shares were unchanged in premarket trading Wednesday. Year-to-date, CQP has gained 15.99%, versus a 20.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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