Amid various economic and geopolitical hurdles permeating multiple sectors, the energy industry has tenaciously demonstrated robust resilience. The sector is poised to maintain its performance and thrive in the forthcoming quarters, bolstered by the recent surge in oil demand and concurrent supply constraints that fuel a climb in oil prices.
Therefore, in this piece, I have discussed oil stocks BP p.l.c. (BP), YPF Sociedad Anónima (YPF), Koninklijke Vopak N.V. (VOPKY), and Transportadora de Gas del Sur S.A. (TGS), which have the potential to capitalize on the industry tailwinds and deliver solid returns.
Before we delve deeper into the fundamentals of these stocks, let us discuss the recent developments in the oil and gas sector.
The strength of global oil demand is expected to intensify in the third quarter of 2023, with increased international air travel and the high-traffic summer driving season being significant contributors. Additionally, oil demand growth is likely to be boosted by China and India, currently the world's largest and third-largest oil importers, respectively. Goldman Sachs analysts anticipate a record-breaking rise in global oil demand, reaching 102.8 million barrels per day (bpd) in July.
Moreover, according to Goldman Sachs, the resilience of this demand could lead to a larger-than-anticipated deficit of up to 1.8 million bpd in the second half of 2023 and a 600,000-bpd deficit in 2024.
However, constrained oil supply due to considerable production cuts by leading oil-exporting nation Russia, Saudi Arabia’s extension of voluntary oil production cuts, and unforeseen supply disruptions from Angola, Libya, and Nigeria might enhance oil prices. These dynamics are making the remainder of the year look highly bullish.
Many commodity analysts believe that the momentum in oil prices will continue. Standard Chartered analysts expect the highest global supply deficits of the year to occur in August and September, with deficits persisting into the first quarter of 2024. They also anticipate a decline in global inventory which may push oil prices further up. According to the experts, Brent's price could climb to $93/bbl for the fourth quarter of 2023.
Furthermore, in a recent gathering in Goa, India, the G20 Energy Transitions Working Group assembled that represented nations are collectively responsible for more than 75% of global emissions and economic yield. While certain delegates amplified the urgency to transition away from unchecked fossil fuels, the meeting concluded without reaching a consensus on a phase-out plan.
The lack of concurrence manifests against the backdrop of an unstable geopolitical environment, hinting that fossil fuels will persist as a cornerstone in the global energy composition.
Given this backdrop, August would be an opportune time for investors to add quality oil stocks, BP, TGS, VOPKY, and YPF, to their portfolios.
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 May 15, BP’s wholly-owned indirect subsidiary, BP Products North America Inc., announced the completion of its $1.3 billion acquisition of TravelCenters of America Inc. (TA), one of the country’s leading full-service travel center operators.
The purchase could unlock growth avenues for four of BP’s five transition growth engines: BP Pulse’s electric vehicle charging, convenience services, biofuels and RNG, and hydrogen. This addition would immediately increase EBITDA, projected to reach approximately $800 million by 2025.
For the second quarter, BP has announced a dividend per ordinary share of $0.727, an increase of 10%. BP pays a $1.74 per share dividend annually, translating to a 4.84% yield on the current share price. Its four-year average dividend yield is 6.25%.
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 27.23% and 16.72% are 20.9% and 57.7% higher than the industry averages of 22.52% and 10.60%, respectively. Its trailing-12-month cash from operations of $35.77 billion is significantly higher than the industry average of $638 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 attributable to BP shareholders per ADS came in at $1.95 billion and $0.60, respectively. Moreover, its adjusted EBITDA amounted to $9.77 billion.
BP’s operating cash flow stood at $6.29 billion. Also, as of June 30, 2023, its current liabilities were $81.47 billion, compared to $99.02 billion as of December 31, 2022.
BP’s revenue and EPS are expected to be $223.48 billion and $5.14, respectively, in the fiscal year ending December 2023.
Shares of BP have gained 22.8% over the past year to close the last trading session at $36.46. Over the past six months, it gained 3.7%.
BP’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
BP also has an A grade for Momentum and a B for Quality. It is ranked #17 out of 42 stocks in the B-rated Foreign Oil & Gas industry.
To see BP’s grades for Growth, Value, Stability, and Sentiment, click here.
YPF Sociedad Anónima (YPF)
Headquartered in Buenos Aires, Argentina, YPF engages in the oil and gas upstream and downstream activities in Argentina. The company had interests in 116 oil and gas fields; approximately 606 million barrels of oil; and about 2,826 billion cubic feet of gas.
YPF’s trailing-12-month CAPEX /Sales and asset turnover ratio of 23.62% and 0.73x are 75.7% and 12.5% higher than the industry averages of 13.45% and 0.65x, respectively.
YPF’s revenue grew at CAGRs of 59.8% and 61.1% over the past three and five years, respectively. In addition, its EBIT grew at 147.1% and 92.4% CAGRs over the past three and five years, respectively.
During the fiscal first quarter that ended March 31, 2023, YPF’s revenues increased 12.7% year-over-year to $4.24 billion. The company’s operating profit stood at $335 million for the same quarter.
Its net profit increased 27.7% year-over-year to $341 million. Earnings per share attributable to shareholders of the parent company stood at ARS149.60, up 121% year-over-year.
Street expects YPF’s revenue and EPS to come in at $15.65 billion and $3.42, respectively, in the fiscal year ending December 2023. It surpassed the consensus revenue and EPS estimates in each of the four trailing quarters, which is impressive.
The stock has gained 276.3% over the past year to close the last trading session at $14. Over the past three months, it gained 31.8%.
YPF’s positive outlook is reflected in its POWR Ratings. It has an overall B rating, equating to Buy in our proprietary rating system.
It has an A grade for Value and Momentum and a B for Quality. It is ranked #11 within the Foreign Oil & Gas industry.
Beyond what is stated above, we’ve also rated YPF for Growth, Stability, and Sentiment. Get all YPF ratings here.
Koninklijke Vopak N.V. (VOPKY)
Headquartered in Rotterdam, the Netherlands, VOPKY is an independent tank storage company that stores and handles liquid chemicals, gasses, and oil products worldwide. The company owns and operates terminals, including storage tanks, jetties, truck and rail loading stations, and pipelines, and provides access to road, rail, and pipeline networks.
The stock’s trailing-12-month gross profit margin of 96.20% is 103.2% higher than the industry average of 47.34%. Its trailing-12-month CAPEX/Sales of 28.04% is 108.6% higher than the industry average of 13.45%.
VOPKY’s revenue grew at CAGRs of 6.1% and 2.6% over the past three and five years, respectively. In addition, its total assets grew at 1.8% and 5.5% CAGRs over the past three and five years, respectively.
For the fiscal second quarter that ended June 30, 2023, VOPKY’s revenue stood at €359 million ($392.65 million), up 6.2% year-over-year, while its EBITDA increased 11.8% from the prior-year quarter to €245.20 million ($268.18 million). Its net profit attributable to holders of ordinary shares and earnings per ordinary share stood at €103.50 million ($113.20 million) and €0.83, up 93.5% and 97.6% year-over-year.
VOPKY’s total current liabilities stood at €918.60 million ($1 billion) as of June 30, 2023, compared to €1.16 billion ($1.27 billion) as of December 31, 2022.
For the fiscal years ending December 2023 and December 2024, the consensus revenue estimates of $1.60 billion and $1.62 billion represent 9.2% and 1.8% year-over-year improvements, respectively.
The stock has gained 65.9% over the past year to close the last trading session at $37. Over the past six months, the stock gained 17%.
It is no surprise that VOPKY has an overall rating of B, equating to a Buy in our POWR Ratings system.
VOPKY has a B grade for Momentum, Stability, and Quality. It is ranked #3 within the same industry.
In addition to the POWR Ratings highlighted above, one can see VOPKY’s Growth, Value, and Sentiment ratings here.
Transportadora de Gas del Sur S.A. (TGS)
Headquartered in Buenos Aires, Argentina, TGS transports natural gas, produces, and commercializes natural gas liquids in Argentina. The company has four segments: Natural Gas Transportation Services; Liquids Production and Commercialization; Other Services; and Telecommunications.
The stock’s trailing-12-month EBIT and EBITDA margins of 27.41% and 39.34% are 11% and 1.7% higher than the industry averages of 24.70% and 38.69%, respectively. Its trailing-12-month CAPEX/Sales of 18.10% is 34.6% higher than the industry average of 13.45%.
TGS’ revenue grew at CAGRs of 29.1% and 42.5% over the past three and five years, respectively. In addition, its total assets grew at 70.8% and 98.8% CAGRs over the past three and five years, respectively.
TGS’ revenues stood at ARS46.44 billion ($167.19 million) for the fiscal first quarter that ended March 31, 2023, while its operating profit came at ARS14.09 billion ($50.73 million). Its total comprehensive income and earnings per share were ARS5.66 billion ($20.39 million) and ARS7.52, respectively.
The company’s total current assets stood at ARS125.48 billion ($451.77 million) as of March 31, 2023, compared to ARS94.04 billion ($338.59 million) as of December 31, 2022.
TGS’ revenue is expected to increase 16.5% year-over-year to $849.35 million for the fiscal year ending December 2023. The company’s EPS for the same period is expected to be $0.68. Moreover, it surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 103.9% over the past year to close the last trading session at $11.54. Over the past six months, it gained 10.2%.
TGS’ POWR Ratings reflect a positive outlook. The stock has an overall B rating, which indicates a Buy in our proprietary rating system.
TGS has a B grade for Value, Momentum, and Quality. Within the Foreign Oil & Gas industry, it is ranked #6.
Click here for TGS’ additional POWR Ratings (Growth, Stability, and Sentiment).
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BP shares rose $0.26 (+0.71%) in premarket trading Friday. Year-to-date, BP has gained 6.53%, versus a 18.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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