The global oil & gas market is experiencing growth due to robust demand, strong end-user preferences, and geopolitical instability. Thus, investors could consider investing in top oil & gas stocks Cheniere Energy, Inc. (LNG), Plains All American Pipeline, L.P. (PAA), and Hess Midstream LP (HESM).
The U.S. Energy Information Administration (EIA) predicts Brent crude oil prices to average $82/barrel in 2024 and $79/barrel in 2025, close to 2023 averages. OPEC+ production restraint, with expected crude oil production averaging 36.40 million barrels per day in 2024, contributes to price stability.
Moreover, global petroleum consumption is forecasted to increase by 1.40 million barrels per day in 2024 and 1.20 million barrels per day in 2025.
Besides, the EIA issued a cautionary note regarding potential disruptions to trade flows and the possibility of increased oil prices in response to heightened tensions in the Middle East and attacks on ships in the Red Sea.
Although the EIA forecasts natural gas prices to stay relatively low, demand growth is expected to outpace supply growth. U.S. demand for natural gas is set to increase this year and beyond, with liquefied natural gas exports expected to increase by 4% in 2024 and 17% in 2025.
In addition to increasing natural gas demand, a shift to clean energy is driving global growth in the gas pipeline infrastructure market, with the United States leading due to government investments and shale gas production. The global gas pipeline infrastructure industry is expected to grow at a CAGR of 3.4% by 2027.
Considering these conducive trends, let’s examine the fundamentals of the three oil and gas stock picks.
Cheniere Energy, Inc. (LNG)
LNG operates liquefied natural gas terminals in Louisiana and Texas, along with natural gas pipelines. The company is actively involved in liquefied natural gas and natural gas marketing.
On November 29, 2023, LNG signed a 15-year deal with ARC Resources Ltd. (AETUF) for 140,000 MMBtu/day of Canadian natural gas for the Sabine Pass Liquefaction Expansion Project.
Additionally, LNG signed an agreement with OMV Aktiengesellschaft (OMVKY) for up to 12 LNG cargoes per year, contributing to the project's total capacity of around 20 mtpa.
During the third quarter, which ended September 30, 2023, LNG reported total revenues of $4.16 billion. The company's total operating costs and expenses decreased 88.2% year-over-year to $1.40 billion.
Its net income and net income per share attributable to common stockholders amounted to $2.09 billion and $7.03, respectively, compared to its previous-year quarter's net loss and net loss per share attributable to common stockholders of $2.64 billion and $9.54.
LNG’s EPS is expected to grow 552.5% year-over-year to $36.80 for the fiscal year ended December 2023. Its revenue for the same year is expected to be $19.86 billion. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
LNG’s shares increased 14.1% over the past year to close the last trading session at $167.14.
LNG’s POWR Ratings reflect its positive prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
LNG has a B grade for Value, Momentum, Sentiment, and Quality. Within the Energy - Oil & Gas industry, it is ranked first among 84 stocks.
In addition to the POWR Ratings stated above, one can access LNG’s additional Growth and Stability ratings here.
Plains All American Pipeline, L.P. (PAA)
PAA operates in the United States and Canada, specializing in the transportation and storage of crude oil and natural gas liquids through pipelines. The company has Crude Oil and Natural Gas Liquids segments, providing various services in the energy sector.
On January 8, 2024, PAA declared a regular quarterly dividend of $0.3175 per common share, payable on February 14, 2024. The company pays $1.27 annually, which translates to a yield of 8.20% on the prevailing price level.
Its four-year average dividend yield is 9.05%. The company has raised its dividend payouts at a CAGR of 5.9% over the past three years. Moreover, the company boasts a 21-year record for consecutive years of dividend payments.
In the third quarter that ended September 30, 2023, PAA’s revenues and net income stood at $12.07 billion and $279 million, respectively. The company's adjusted EBITDA attributable to PAA rose 6.3% from the prior-year quarter to $662 million. Moreover, it reported adjusted net income per common unit of $0.35, up 6.1% year-over-year.
For the fiscal year 2023, the company expects its adjusted EBITDA to be in the range of $2.60 billion to $2.65 billion.
Analysts expect PAA’s revenue is expected to grow 11.7% year-over-year to $12.97 billion for the second quarter ending June 2024. Its EPS for the same quarter is expected to be $0.24. The company surpassed the EPS estimates in three of the trailing four quarters.
The stock has gained 29.6% over the past year to close the last trading session at $15.50.
PAA’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.
It has a B grade for Value and Momentum. Within the A-rated MLPs - Oil & Gas industry, it is ranked #11 among 26 stocks.
To see PAA’s additional POWR Ratings for Growth, Stability, Sentiment, and Quality, click here.
Hess Midstream LP (HESM)
HESM owns and operates midstream assets, including natural gas and crude oil gathering systems, processing plants, storage facilities, and terminal assets across three segments: Gathering; Processing & Storage; and Terminaling & Export.
On November 14, 2023, HESM announced that it was set to repurchase approximately $100 million worth of Class B units through its subsidiary from sponsors Hess Corporation and Global Infrastructure Partners.
The move aims to enhance distributable cash flow per Class A share and supports the ongoing return of capital to shareholders, with $1.55 billion returned through unit repurchases since 2021. The transaction closed on November 16, 2023.
In the fiscal third quarter ended September 2023, HESM generated total revenues of $363.10 million, up 8.5% year-over-year. The company's net income and adjusted EBITDA grew 3.4% and 4.3% from the previous-year quarter to $164.80 million and $271 million, respectively. Net income attributable to HESM per Class A share increased 7.5% from the prior-year quarter to $0.57.
For the fourth quarter of 2023, the company expects net income to be around $160 million and adjusted EBITDA to be approximately $270 million.
Street expects HESM’s revenue and EPS to grow 13.1% and 28.6% year-over-year to $355.68 million and $0.63, respectively, for the fourth quarter ended December 2023.
HESM’s shares have gained 6.6% over the past year to close the last trading session at $31.29. It gained marginally intraday.
HESM’s POWR Ratings reflect an optimistic outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Growth, Momentum, and Quality. Within the A-rated MLPs - Gas industry, it is ranked first of two stocks.
Click here for HESM’s additional Value, Stability, and Sentiment ratings.
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.
LNG shares were trading at $165.56 per share on Thursday afternoon, down $1.58 (-0.95%). Year-to-date, LNG has declined -3.02%, versus a -0.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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