Due to the Russia-Ukraine war and COVID-19 lockdowns in China, the deepening global supply shortage has pushed commodity prices to multi-year highs of late. Amid the supply shortage, the growing demand for energy, metals, and other commodities from several industries is driving price surges.
Since the Fed’s planned interest rate increases are not expected to tame inflation soon, rising prices should benefit companies dealing with essential commodities. Investors’ interest in this space is evident in the iShares GSCI Commodity Dynamic Roll Strategy ETF’s (COMT) 34.2% gains year-to-date versus the SPDR S&P 500 ETF Trust’s (SPY) 12% loss.
Therefore, Wall Street analysts expect the stocks of fundamentally sound commodity companies W&T Offshore, Inc. (WTI), TransGlobe Energy Corporation (TGA), Weatherford International plc (WFRD), and Vale S.A. (VALE) to deliver more than a 25% gain in the near-term.
W&T Offshore, Inc. (WTI)
WTI in Houston, Tex., is an independent oil and natural gas producer that engages in acquiring, exploring, and developing oil and natural gas properties in the Gulf of Mexico. As of December 31, 2021, the company had working interests in 43 fields in federal and state waters and approximately 606,000 gross acres under lease.
On April 5, 2022, WTI announced that it acquired the remaining working interests in the oil and gas producing properties purchased earlier this year, located in Federal shallow waters in the central region of the Gulf of Mexico at Ship Shoal 230, South Marsh Island 27/Vermilion 191, and South Marsh Island 73 fields. It will add internally estimated proved reserves of approximately 1.4 million Boe (70% oil) and proved and probable reserves of 2 million Boe (75% oil) as of Dec. 31, 2021, and an average of 20% working interest in more than 50 gross producing wells. Also, the company estimates a net sales rate of approximately 900 Boe per day (80% oil).
For its fiscal 2022 second quarter ended Dec. 31, 2021, WTI’s total revenues increased 74.8% year-over-year to $165.69 million. The company’s operating income came in at $68.30 million for the quarter, up 475% from the prior-year period. Its adjusted net income came in at $14.81 million, compared to a $6.66 million loss in the prior-year period. WTI’s adjusted EPS came in at $0.10 versus a $0.05 loss per share in the year-ago period. As of Dec. 31, 2021, the company had $245.80 million in cash and cash equivalents.
The $1.32 consensus EPS estimate for its fiscal 2022 ending Dec. 31, 2022, represents a 473.9% year-over-year improvement. It surpassed the consensus EPS estimates in three of the four trailing quarters. Analysts expect the company’s revenue to reach $708.56 million for the same fiscal year, indicating a 27% rise from the prior-year period.
The stock has gained 47.1% in price year-to-date and closed yesterday’s trading session at $4.76. Wall Street analysts expect the stock to hit $7.85 in the near term, representing 64.9% upside potential.
WTI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates 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 an A grade for Momentum and a B grade for Growth, Value, Sentiment, and Quality. Click here to see the additional ratings for WTI’s Stability. WTI is ranked #5 of 97 stocks in the B-rated Energy - Oil & Gas industry.
TransGlobe Energy Corporation (TGA)
Headquartered in Calgary, Canada, TGA acquires , explores for, develops, and produces crude oil and natural gas in Egypt and Canada. The company holds interests in various production sharing concessions (PSC) in Eastern Desert Egypt and Western Desert Egypt. It also owns approximately 100 % working interest in Harmattan property. The property covers approximately 42,183 gross acres of developed land and more than 38,732 gross acres of undeveloped land.
In its 2022 first quarter, TGA’s production averaged 12.4 MBoepd, drilled and cased three Egypt Eastern Desert development wells, and restored production at the South Ghazalat SGZ-6X well. The company had $37 million in cash at the end of the first quarter.
For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, TGA’s petroleum and natural gas sales increased 83.2% year-over-year to $2.07 billion. The company’s net earnings came in at $6.56 million, compared to a $2.86 million loss in the prior-year period. TGA’s EPS came in at $0.09, versus a $0.04 loss per share in the year-ago period. TGA had cash and cash equivalents of $37.93 million as of Dec. 31, 2021.
Analysts expect TGA’s EPS to improve 710.5% year-over-year to $1.23 in its fiscal year 2022, ending Dec. 31, 2022. The $339.50 million consensus revenue estimate for the same fiscal year indicates a 100.9% year-over-year improvement.
The stock has gained 48.2% in price year-to-date and ended yesterday’s trading session at $4.36. Wall Street analysts expect the stock to hit $6.31 in the near term, representing a 44.7% upside potential.
It is no surprise that TGA has an overall A rating, which translates to Strong Buy in our POWR Ratings system. It also has an A grade for Sentiment and Momentum and a B grade for Quality and Value. Click here to see the additional ratings for TGA (Stability and Growth). TGA is ranked #5 of 42 stocks in the A-rated Foreign Oil & Gas industry.
Weatherford International plc (WFRD)
WFRD is an energy services company that provides equipment and services for the drilling, evaluation, completion, production, and intervention of oil, geothermal, and natural gas wells worldwide. The Houston, Tex., company operates through Drilling and Evaluation; Well Construction and Completions; and Production and Intervention segments. It offers drilling solutions, gas well unloading, restoration, and other related activities.
On Dec. 1, 2021, WFRD was awarded a three-year digital oilfield contract from Kuwait Oil Company (KOC), one of the digital leaders in the upstream industry, to support its digital transformation strategy in the North Kuwait Heavy Oil field to deploy its Integrated Enterprise Excellence Platform across KOC. By leveraging advanced analytics, artificial intelligence, and machine learning, the Weatherford ForeSite production optimization platform synthesizes data from across the operator’s business to prioritize production-uplift opportunities, identify bottlenecks, detect and predict failures, and plan and execute workovers. These capabilities continuously improve production performance for wells, reservoirs, and surface facilities. This contract should help WFRD to maintain a long-standing relationship with KOC.
For its fiscal year 2022 first quarter ended, March 31, 2022, WFRD’s total revenues increased 12.7% year-over-year to $938 million. The company’s non-GAAP operating income came in at $57 million for the quarter, compared to a $13 million loss in the year-ago period. As of March 31, 2022, the company had $841 million in cash and cash equivalents.
The $4.11 billion consensus revenue estimate for its fiscal year 2022, ending Dec. 31, 2022, represents a 12.6% year-over-year improvement. The stock has gained 19.9% in price year-to-date and ended yesterday’s trading session at $33.24. Wall Street analysts expect the stock to hit $56 in the near term, representing 68.5% upside potential.
WFRD’s POWR Ratings reflect its solid prospects. It has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B grade for Growth, Value, and Sentiment. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for WFRD’s Stability and Quality here. WFRD is ranked #4 in the B-rated Energy - Oil & Gas industry.
Vale S.A. (VALE)
Based in Rio de Janeiro, Brazil, VALE operates as a metal and mining company and is engaged primarily in producing iron ore and nickel. The company also produces iron ore pellets, manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals (PGMs), gold, silver, and cobalt. It has a distribution center to support the delivery of iron ore worldwide and, through associates and joint ventures, also has investments in energy and steel businesses.
On April 26, 2022, VALE and Nippon Steel Corporation (NPSCY), a Japanese railway steel wheels and axles manufacturer, agreed to pursue ironmaking solutions focused on the carbon neutral steelmaking process. The companies intend to jointly study and explore metallics usage solutions, such as direct reduced iron (DRI) and pig iron produced by Tecnored technology, and use of VALE’s green briquettes in the ironmaking process and other lower carbon footprint products such as pellets. This initiative should help VALE reduce 33% of absolute Scope 1 and 2 emissions by 2030 and net Scope 3 emissions by 2035.
The company had $9.06 billion in cash and cash equivalents as of March 31, 2022. Wall Street analysts expect the stock to hit $19.80 in price in the near term, representing 20.7% upside potential. The stock has gained 17% year-to-date and ended yesterday’s trading session at $16.41.
VALE’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Quality and Value. Click here to see the additional ratings for VALE (Sentiment, Growth, Stability, and Momentum). VALE is ranked #8 of 37 stocks in the Industrial - Metals industry.
Click here to check out our Industrial Sector Report for 2022
WTI shares were trading at $4.96 per share on Thursday afternoon, up $0.21 (+4.42%). Year-to-date, WTI has gained 53.56%, versus a -9.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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