As a result of the ongoing Russia-Ukraine war, the existing energy supply constraints are expected to get further escalated by the OPEC+ oil output cuts. This should serve as a tailwind for oil prices in the near term.
Despite oil prices retreating from their summer highs, investor sentiments have remained bullish around energy stocks. It is evident from the Energy Select Sector SPDR Fund’s (XLE) gains of 62.2% year-to-date, compared to the broader SPDR S&P 500 ETF Trust (SPY), which declined 18.7% over the same period.
Moreover, the oil supply could get squeezed as the European Union gears to impose a ban on Russian crude, the U.S. strategic petroleum reserve releases stop, and the U.S. shale production remains inadequate. Goldman Sachs head of commodities research Jeff Currie expects crude prices to reach $115 per barrel by April next year.
Given this backdrop, fundamentally strong oil and gas stocks TotalEnergies SE (TTE), Valero Energy Corporation (VLO), and Energy Transfer LP (ET) might be solid additions to the portfolio in the fourth quarter. These stocks have gained significant momentum and might pop in the near term.
TotalEnergies SE (TTE)
Headquartered in Courbevoie, France, TTE operates as an integrated oil and gas company worldwide. The company operates through four segments: Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services.
On October 26, TTE announced the creation of a joint venture with Casa dos Ventos (CDV), a Brazil-based renewable energy developer, to jointly develop, build, and operate the renewable portfolio of Casa Dos Ventos.
Patrick Pouyanné, Chairman and CEO of TTE, said, “With this transaction, TotalEnergies acquires not less than a leading position in the Brazilian renewable energy market, one of the most dynamic merchant markets in the world. This market fits our strategy of taking advantage of the growth of the deregulated power markets, which is crucial to the energy transition”.
On October 27, TTE announced the third interim dividend of 2022 of €0.69 per share, reflecting an increase of 5% compared to 2021 interim and final dividends. This is payable to ADS holders on April 14, 2023. This is also in accordance with the company’s aim of a shareholder return of 35% to 40% from 2022.
For the fiscal third quarter of 2022, TTE’s adjusted EBITDA increased 73.7% year-over-year to $19.42 billion. The company’s revenues from sales increased 32.4% year-over-year to $64.96 billion. Moreover, TTE’s adjusted earnings per share increased 117.6% year-over-year to $3.83.
TTE’s revenue is expected to increase 9.2% year-over-year to $60.37 billion for the fiscal fourth quarter ending December 2022. Analysts expect its EPS to increase 31.9% year-over-year to $3.36 for the same period.
The stock has gained 12.4% over the past six months and 17.7% over the past month to close its last trading session at $54.77. TTE’s stock is trading higher than its 50-day and 200-day moving averages of $50.61 and $52.42, respectively, indicating an upward momentum.
TTE’s POWR Ratings reflect a promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TTE has also rated an A in Momentum. Within the B-rated Energy – Oil & Gas industry, it is ranked #20 of 94 stocks.
To see additional POWR Ratings for Sentiment, Value, Quality, Growth, and Stability for TTE, click here.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells petrochemical products and transportation fuels. The company operates through its three broad segments – Refining; Renewable Diesel; and Ethanol.
On October 26, VLO announced a regular quarterly dividend on the common stock of $0.98 per share, payable to shareholders on December 8. This reflects upon the cash generation ability of the company.
In September, VLO announced that it had reduced its debt by approximately $1.25 billion through its previously announced tender offers for various series of VLO’s senior notes. The company also declared a collective debt reduction of approximately $3.60 billion through transactions in the second half of 2021 and the first half of 2022.
For the fiscal third quarter ended September 30, adjusted earnings per common share came in at $7.14, up 436.8% year-over-year. Adjusted net income attributable to VLO stockholders increased 413% from its year-ago value to $2.80 billion. Revenues increased 50.6% year-over-year to $44.45 billion.
The consensus revenue estimate of $44.66 billion for the fiscal fourth quarter (ending December 2022) indicates a 24.4% year-over-year improvement. The consensus EPS estimate for the same period of $6.41 indicates a 159.6% year-over-year growth.
Moreover, VLO has an impressive surprise earnings and revenue history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 67.2% year-to-date to close its last trading session at $125.55. It has gained 17.5% in the past month. VLO’s stock is trading higher than its 50-day and 200-day moving averages of $115.17 and $107.78, respectively, indicating an uptrend.
It’s no surprise that VLO has an overall A rating which translates to Strong Buy in our proprietary rating system.
VLO has a Momentum grade of A and a Quality, Value, and Growth grade of B. In the Energy – Oil & Gas industry, VLO is ranked #7.
Click here for the rest of VLO’s grades (Sentiment and Stability).
Energy Transfer LP (ET)
ET sells natural gas to independent power plants, electric utilities, local distribution, and industrial end-users. The company also owns and operates natural gas transportation pipeline, natural gas storage facilities, and an interstate natural gas pipeline.
On October 25, ET announced a quarterly distribution for the third quarter of $0.265 per common unit, which cumulates to $1.06 annually. This reflects a more than 70% year-over-year increase. The dividend is payable to unitholders on November 21 and underscores the company’s shareholder return ability.
In August, ET announced that it had entered a 20-year LNG Sale and Purchase Agreement (SPA) with Shell NA LNG LLC in relation to its Lake Charles LNG project. This might bolster the company’s topline.
During the fiscal second quarter ended June 30, ET’s revenue increased 71.8% year-over-year to $25.95 billion. ET’s net income attributable to partners and net income per common unit for the same period came in at $1.33 billion and $0.39, registering a growth of 111.8% and 95% from the prior-year period, respectively.
Analysts expect ET’s EPS and revenue for the fiscal fourth quarter (ending December 2022) to increase 33.5% and 29.5% year-over-year to $0.39 and $24.16 billion, respectively. ET has topped Street EPS estimates in three out of the trailing four quarters, which is impressive.
ET’s shares have gained 55.2% year-to-date to close its last trading session at $12.77. It has gained 6.2% over the past five days. ET’s stock is trading higher than its 50-day and 200-day moving averages of $11.73 and $10.94, respectively, indicating an upward trend.
ET’s strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of B, which translates to Buy in our proprietary rating system.
ET has a Momentum grade of A and a Value grade of B. It is ranked #27 in the same industry.
Beyond what has been discussed above, we have also given ET grades for Sentiment, Growth, Quality, and Stability. To access all of ET’s grades, click here.
TTE shares were trading at $55.95 per share on Tuesday afternoon, up $1.18 (+2.15%). Year-to-date, TTE has gained 16.52%, versus a -18.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
3 Energy Stocks That Are Ready to Pop in Q4 StockNews.com
