Step Into September With 3 Strong Energy Buys
Forecasts by industry professionals indicate an upswing in oil prices due to increased demand and supply constraints. The rising price trends could significantly strengthen the energy sector in the near term. Therefore, entering September, fundamentally strong energy stocks BP p.l.c. (BP), Transportadora de Gas del Sur S.A. (TGS), and GeoPark Limited (GPRK) could be solid additions to your portfolio. Read on….
Escalating demand for crude oil, accompanied by restricted supply, is projected to bolster crude oil prices even further. This trend harbors the potential to enable enduring growth within the energy sector. Therefore, it could be worth investing in quality energy stocks BP p.l.c. (BP), Transportadora de Gas del Sur S.A. (TGS), and GeoPark Limited (GPRK) now.
Before a comprehensive analysis of these stocks, it is prudent to familiarize ourselves with what’s shaping the energy sector’s prospects.
Despite various economic and geopolitical challenges affecting most sectors, the energy sector has demonstrated remarkable resilience. The third quarter of 2023 is predicted to see increased global oil demand, owing predominantly to a surge in international air travel and the intensive summer driving season.
Goldman Sachs predicts that the robustness of this demand could create an unexpected deficit of up to 1.8 million barrels per day (bpd) in the second half of 2023 and a deficit of 600,000 bpd in 2024.
In addition to rising demand, declining U.S. inventories and additional OPEC+ output cuts are expected to provoke supply chain bottlenecks, subsequently elevating crude oil prices.
Alongside these market dynamics, concerns spring from the recent military coup in OPEC member country Gabon, which produces around 200,000 bpd of oil. Although these production volumes might be small, any disruption in the already strained oil market could significantly affect crude oil prices.
Amid these conditions, a bullish sentiment is growing in oil markets. On September 1, the per-barrel price for West Texas Intermediate (WTI) crude oil reached $85, representing this year’s peak.
Moreover, Standard Chartered anticipates that efficient output restraint by producers, led by Saudi Arabia, will pave the way for a price rally that will push Brent prices above the peak of $89.09/bbl achieved earlier this year, with their average fourth-quarter forecast at $93/bbl and a probable intra-quarter high surpassing $100/bbl.
Investor enthusiasm for energy stocks is evidenced by SPDR S&P Oil & Gas Exploration & Production ETF’s (XOP) 3.8% returns in the past five days, outperforming the broader S&P 500’s 1.8% increase.
Considering these favorable trends, we will now delve into the fundamentals of the three quality stocks from the B-rated Foreign Oil & Gas industry, starting with the third choice.
Stock #3: BP p.l.c. (BP)
Headquartered in London, United Kingdom, BP produces natural gas and integrated gas and power, gas trading, onshore and offshore wind power operation, and hydrogen and carbon capture and storage facilities. The company operates through Gas & Low Carbon Energy; Oil Production & Operations; and Customers & Products segments.
On August 15, BP led a $12.5 million Series A financing, with additional investors including Clean Energy Ventures, Mitsubishi Heavy Industries, and GVP Climate in Low-Cost Hydrogen Electrolyzer Innovator, Advanced Ionics. This should bode well for the company.
Also, on August 3, BP made a £4 million investment in Dynamon, a UK-based software company specializing in developing advanced data analytics and simulation tools for commercial transport and logistics companies.
Along with the investment, Dynamon and BP have signed a commercial agreement to utilize ZERO or similar tools. Working together will help BP pulse diversify its fleet proposition and further develop its premium customer offer, supporting customers as they increasingly adopt EV solutions.
BP has announced a dividend per ordinary share of $0.727. BP pays a $1.74 per share dividend annually, translating to a 4.58% yield on the current share price. Its four-year average dividend yield is 6.20%.
BP also intends to execute a further $1.5 billion share buyback before reporting third quarterly results, following $4.5 billion in share buybacks already announced and completed this year.
BP’s trailing-12-month ROCE and ROTC of 27.2% and 16.72% are 26.3% and 57.7% higher than the industry averages of 21.57% and 10.60%, respectively. Its trailing-12-month cash from operations of $35.77 billion is significantly higher than the industry average of $653.45 million.
BP’s EBITDA grew at CAGRs of 35.4% and 11.6% over the past three and five years, respectively. In addition, its levered free cash flow grew at 42.3% and 30% CAGRs over the past three and five years, respectively.
For the fiscal second quarter that ended June 30, 2023, BP’s total revenues and other income stood at $49.48 billion. Its profit and profit…