Given sustained energy demand worldwide, a surge in crude oil and natural gas production, and a growing shift toward digital technologies in exploration and production activities, the energy sector seems poised for significant growth and expansion in the foreseeable future.
Thus, it could be wise to invest in fundamentally sound energy stocks Energy Transfer LP (ET), MRC Global Inc. (MRC), Cheniere Energy, Inc. (LNG), North American Construction Group Ltd. (NOA), NCS Multistage Holdings, Inc. (NCSM), Superior Drilling Products, Inc. (SDPI), and Adams Resources & Energy, Inc. (AE) for potential gains.
In the last week of January, crude oil futures settled at their highest levels in more than two months, and energy stocks scored their best week since March last year, thanks to catalysts like growing tensions in the Middle East, a Ukraine drone attack on a Russian oil refinery, larger-than-anticipated inventory drawdown, and increased prospect of economic stimulus from China.
Despite the prevailing bearish sentiment, global oil demand is expected to remain robust. For 2024, OPEC sees oil demand growth of 2.25 million barrels per day (bpd) to a record 104.36 million a day. The organization further expects global demand for oil to increase by 1.85 million bpd next year to 106.21 million bpd, backed by continued robust economic activity in China.
In its latest Short-Term Energy Outlook (STEO), the Energy Information Administration (EIA) forecasted crude oil production in the U.S. to reach 13.2 million bpd this year and more than 13.4 million bpd in 2025, both of which would be new records. Production growth would continue over the next two years, fueled by increases in well efficiency.
Meanwhile, EIA expects the Brent crude oil price to average $82 per barrel in 2024 and $79 a barrel next year, close to last year’s average of $82/b. OPEC+ production restraint will keep oil prices near current levels. The group’s recent agreement, announced on November 30, included about 2.2 million bpd of new voluntary cuts to oil production targets through March 2024.
Enhanced geopolitical instability could increase the risk of supply disruptions over the forecast, which could result in higher and more volatile crude oil prices.
According to a report by the Business Research Company, the oil and gas market size is expected to increase from $71.19 trillion in 2023 to $7.63 trillion in 2024 at a CAGR of 6.1%. Further, the market size is projected to total $9.35 trillion by 2028, growing at a CAGR of 5.2%.
The market’s growth can be attributed to expansion in the petrochemical industry, a surge in oil and natural gas production, and growing investments in oil and gas exploration. Key trends include focusing on emission reduction solutions, a shift toward digital technologies, the rising popularity of reservoir modeling, and the adoption of advanced drilling solutions.
The oilfield services market is expected to reach $153.49 billion by 2029, expanding at a CAGR of 5.1% during the forecast period (2024-2029).
Given the industry’s bright prospects, investing in quality energy stocks ET, MRC, LNG, NOA, NCSM, SDPI, and AE could be wise for substantial returns.
Let’s discuss the fundamentals of these stocks in detail:
Energy Transfer LP (ET)
ET is a leading provider of energy-related services globally. The company owns and operates nearly 11,600 miles of natural gas transportation pipeline, three natural gas storage facilities, and two natural gas storage facilities in Texas and Oklahoma. Also, it sells natural gas to electric utilities, independent power plants, local distribution companies, and industrial end-users.
For the third quarter that ended September 30, 2023, ET reported revenues of $20.74 billion. Its operating income grew 13.2% year-over-year to $2.23 billion. Its net income attributable to partners came in at $584 million, or $0.15 per common unit, respectively. Also, the company’s adjusted EBITDA rose 14.7% from the prior year’s quarter to $3.54 billion.
Analysts expect ET’s revenue and EPS for the fourth quarter (ended December 2023) to grow 7.5% and 0.6% year-over-year to $22.04 billion and $0.34, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to increase 6.6% and 28% from the prior year to $85.28 billion and $1.51, respectively.
ET’s stock has gained 2.6% over the past month and 10.6% over the past six months to close the last trading session at $14.31.
ET’s POWR Ratings reflect its solid outlook. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Value and Momentum. ET is ranked #4 out of 82 stocks in the Energy - Oil & Gas industry.
Click here to access additional ratings of ET for Growth, Stability, Sentiment, and Quality.
MRC Global Inc. (MRC)
MRC, through its subsidiaries, distributes pipes, valves, fittings, and other infrastructure products and services to energy, industrial, and gas utility end markets. It offers ball, diaphragm, globe, check, needle, and plug valves; carbon steel fittings and flanges; natural gas distribution products; valve modification services; and oilfield and industrial supplies and equipment.
MRC posted sales of $888 million in the third quarter that ended September 30, 2023. Its gross profit rose 10.9% from the year-ago value to $183 million. Its operating income came in at $57 million, up 26.7% from the prior year’s period. Its net income attributable to common stockholders and EPS were $29 million and $0.33, up 61.1% and 57.1% year-over-year, respectively.
In addition, as of September 30, 2023, the company’s cash stood at $52 million, compared to $32 million as of December 31, 2022. Its total current assets were $1.23 billion versus $1.14 billion as of December 31, 2022.
Analysts expect MRC’s revenue for the fiscal year (ending December 2024) to increase 5.9% year-over-year to $3.66 billion. The consensus EPS estimate of $1.16 for the ongoing year indicates a rise of 20.3% year-over-year. Additionally, the company surpassed consensus EPS estimates in three of the trailing four quarters.
MRC’s shares have surged 12.2% over the past nine months to close the last trading session at $10.37.
MRC’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Momentum and Value. It has ranked #3 of 51 stocks in the Energy - Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see MRC’s ratings for Growth, Sentiment, Quality, and Stability here.
Cheniere Energy, Inc. (LNG)
LNG is an energy infrastructure company that primarily engages in liquefied natural gas (LNG) related businesses. The company owns and operates the Sabine Pass LNG terminal in Cameron Parish, Louisiana, and the Corpus Christi LNG terminal near Corpus Christi, Texas. Also, it owns the Creole Trail pipeline and operates the Corpus Christi pipeline.
During the third quarter that ended September 30, 2023, LNG posted total revenues of $4.16 billion. Its income from operations came in at $2.75 billion, compared to a loss from operations of $3.02 billion in the same period of 2022. Its net income was $1.70 billion, compared to a net loss of $2.39 billion in the prior year’s quarter.
Furthermore, the company’s cash and cash equivalents amounted to $3.86 billion as of September 30, 2023, compared to $1.35 billion as of December 31, 2022.
As per the full-year 2023 guidance, LNG expects consolidated adjusted EBITDA to be in the range of $8.30-$8.80 billion. The company’s distributable cash flow is projected to be between $5.80 billion and $6.30 billion.
Street expects LNG’s EPS to increase 555.1% year-over-year to $36.95 for the fiscal year that ended December 2023. In addition, for the second quarter ending June 2024, the company’s revenue is expected to grow 3.7% year-over-year to $4.26 billion. Moreover, LNG topped consensus EPS estimates in each of the trailing four quarters, which is remarkable.
Shares of LNG have gained 7.8% over the past year to close the last trading session at $159.85.
LNG’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
LNG has a B grade for Sentiment, Value, Quality, and Momentum. Within the Energy - Oil & Gas industry, it is ranked #2 among 82 stocks. Get other LNG ratings for Growth and Stability here.
North American Construction Group Ltd. (NOA)
Headquartered in Acheson, Canada, NOA offers equipment maintenance, and mining and heavy construction services. The company provides constructability reviews, budgetary cost estimates, design-build construction, project management, contract mining, reclamation services, and more. It serves resource development and industrial construction sectors.
NOA’s revenue increased 1.8% year-over-year to C$194.74 million ($144.21 million) for the third quarter that ended on September 30, 2023. Its gross profit grew 7.1% from the year-ago value to C$26.31 million ($19.48 million). Cash inflows from operating activities were C$37.51 million ($27.78 million), an increase of 19.3% from the previous year’s quarter.
Also, the company’s free cash flow came in at C$10.04 million ($7.43 million) for the quarter, up 196.2% from the prior year’s period.
Analysts expect NOA’s revenue for the fiscal year (ended December 2023) to increase 21.3% year-over-year to $697.22 million. The consensus EPS estimate of $2.09 for the same period indicates a 16.2% improvement year-over-year. Moreover, the company has surpassed the consensus revenue estimates in three of the trailing four quarters.
Further, the company’s revenue and EPS for the fiscal year 2024 are estimated to grow 43.6% and 60.7% year-over-year to $1 billion and $3.36, respectively.
NOA’s shares have gained 6.4% over the past month and 50.6% over the past year to close the last trading session at $22.07.
NOA’s bright outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Momentum and Sentiment. Among the 51 stocks in the Energy - Services industry, NOA is ranked #4.
To access additional POWR Ratings for Growth, Value, Stability, and Quality for NOA, click here.
NCS Multistage Holdings, Inc. (NCSM)
NCSM provides engineered products and support services that enable oil and natural gas operators to optimize well completions and field development strategies internationally. It offers fracturing systems, enhanced recovery products, repeat precision products, chemical and radioactive tracer diagnostics services, and well construction products.
In the third quarter that ended on September 30, 2023, NCSM reported total revenues of $38.28 million. Its adjusted net income attributable to NCSM came in at $4.74 million, or $1.91 per share, up 4.8% and 4.9% from the prior year’s quarter, respectively. The company’s total assets were $141.70 million as of September 30, 2023, compared to $138.60 million as of December 31, 2022.
The consensus revenue estimate of $152.40 million for the fiscal year (ending December 2023) indicated a 3.7% increase year-over-year. The consensus EPS estimate of $0.40 for the ongoing year, compared to a loss per share of $15.62 in the previous year. Further, NCSM’s EPS is expected to grow 100% per annum over the next five years.
Over the past three months, the stock has climbed 17.2% to close the last trading session at $15.97.
NCSM’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Sentiment, Quality, and Value. In the B-rated Energy - Services industry, NCSM is ranked #5 out of 45 stocks.
Click here to access the other ratings of NCSM for Growth and Stability.
Superior Drilling Products, Inc. (SDPI)
SDPI is a drilling and completion tool technology company. It designs, engineers, manufactures, sells, rents, and repairs drilling and completion tools internationally. The company’s drilling solutions include Drill-N-Ream, Strider, and V-Stream. Also, it engages in the manufacture and refurbishment of polycrystalline diamond compact drill bits for an oil field services company.
For the third quarter that ended September 30, 2023, SDPI reported total revenues of $5.05 million. Its net income came in at $14 thousand for the quarter. In addition, the company’s cash stood at $4.31 million as of September 30, 2023, compared to $2.16 million as of December 31, 2022. Its current assets were $10.81 million versus $7.99 million as of December 31, 2022.
According to 2023 guidance, SDPI expects revenue to be between $22 million and $24 million. The company’s adjusted EBITDA is expected to be between $5.50 million and $6.50 million.
Analysts expect SDPI’s revenue for the fourth quarter (ended December 2023) to increase 5.7% year-over-year to $5.55 million and its EPS is estimated to grow 100% year-over-year to $0.02. For the fiscal year 2024, the company’s revenue and EPS are expected to increase 15.5% and 50% year-over-year to $25.71 million and $0.12, respectively.
SDPI’s stock has declined 4.2% over the past five days to close the last trading session at $0.71.
SDPI’s POWR Ratings reflect its rosy prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and Sentiment. It also has a B grade for Quality and Value. SDPI is ranked #2 out of 16 stocks in the Energy - Drilling industry.
Click here to access additional ratings of SDPI (Growth and Stability).
Adams Resources & Energy, Inc. (AE)
AE, through its subsidiaries, engages mainly in the marketing, transportation, terminaling, and storage of crude oil and related products. The company operates through four segments: Crude Oil Marketing; Transportation; Pipeline and Storage; and Logistics and Repurposing.
AE posted total revenue of $760.61 million for the third quarter that ended September 30, 2023. Its net earnings came in at $2.30 million, or $0.88 per common share, respectively. Its cash and cash equivalents were $16.30 million as of September 30, 2023, compared to $9 million as of June 30, 2023. Liquidity was $55.90 million versus $48.60 million on June 30, 2023.
Street expects AE’s revenue for the fiscal year (ending December 2024) to increase 1.7% year-over-year to $2.76 billion. Shares of AE have declined marginally over the past five days to close the last trading session at $24.03.
AE’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
AE has a B grade for Growth, Momentum, and Value. Within the Energy – Oil & Gas industry, it is ranked #3 among 82 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see AE’s ratings for Sentiment, Quality, and Stability here.
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.
ET shares were unchanged in premarket trading Tuesday. Year-to-date, ET has gained 3.70%, versus a 3.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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