The energy sector’s outlook looks positive, with rising oil prices fueled by inadequate supply and high worldwide demand for crude oil and natural gas. Also, geopolitical factors such as ongoing disputes in oil-rich countries contribute to the energy sector's optimistic outlook. Therefore, it could be wise to own fundamentally strong energy stocks Shell plc (SHEL), Energy Transfer LP (ET) and TotalEnergies SE (TTE).
The World Bank warns that escalating Israel-Hamas conflict could lead to a 75% surge in oil prices, and exacerbated by Russia's war in Ukraine. This could lead to a global energy shock, a concern for economists and policymakers trying to combat inflation.
According to OPEC’s 2023 World Oil Outlook, global oil demand might reach 116 million barrels per day (bpd) by 2045, a 6 million bpd rise from last year's forecast. This increase in global oil demand is primarily driven by the growing transportation sector and emerging economies. OPEC predicts that developing countries will account for a significant portion of this rise as their populations continue to grow and their energy needs expand.
Also, natural gas output and demand in the United States are expected to set new records this year. The EIA predicted that dry gas output will increase to 103.72 bcfd in 2023 and 105.13 bcfd the following year, up from 99.60 bcfd in 2022. Domestic gas consumption is expected to rise to 89.17 billion cubic feet per day this year, up from a record 88.46 billion cubic feet per day in 2022, according to the government.
In addition, the US oil & gas infrastructure market is expected to grow at a 6.6% CAGR through 2032.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Energy - Oil & Gas stocks, starting with number 3.
Stock #3: Shell plc (SHEL)
Headquartered in London, the U.K., SHEL operates as an energy and petrochemical company in Europe, Asia, Oceania, Africa, the U.S., and the rest of the Americas. The company operates through Integrated Gas; Upstream; Marketing; Chemicals and Products; and Renewables and Energy Solutions segments.
SHEL’s trailing-12-month EV/Sales of 0.76x is 66% lower than the industry average of 2.22x. Its trailing-12-month EV/EBIT of 5.65x is 42.1% lower than the industry average of 9.77x.
SHEL’s trailing-12-month ROTC of 12.74% is 29.9% higher than the 9.80% industry average. Its trailing-12-month levered FCF margin of 9.63% is 62.3% higher than the 5.94% industry average.
During the fiscal third quarter that ended September 30, 2023, SHEL’s total revenue and other income stood at $78.01 billion. Also, its income attributable to SHEL shareholders increased 4.5% year-over-year to $7.04 billion, while adjusted earnings per share per ADS stood at $1.84.
As of September 30, 2023, total current liabilities stood at $94.35 billion, compared to $119.92 billion as of December 31, 2022.
Analysts expect SHEL’s revenue to increase marginally year-over-year to $342.90 billion for the year ending December 2024. Its EPS is expected to grow at 7% year-over-year to $8.63 for the same period. Shares of SHEL have gained 18.7% over the past year to close the last trading session at $66.14.
SHEL’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SHEL also has an A grade for Momentum and a B for Quality. It is ranked #10 out of 85 stocks in the Energy - Oil & Gas industry. Click here for the additional POWR Ratings for Growth, Value, Stability, and Sentiment for SHEL.
Stock #2: Energy Transfer LP (ET)
ET is involved in natural gas operations, midstream activities, and intrastate transportation and storage of natural gas. Its segments include intrastate transportation and storage; interstate transportation and storage; midstream; NGL and refined products transportation and services; crude oil transportation and services; investment in Sunoco LP; investment in USAC; and all other.
ET’s trailing-12-month Price/Sales of 0.51x is 67.3% lower than the industry average of 1.56x. Its trailing-12-month Price/CashFlow of 3.78x is 27.1% lower than the industry average of 5.19x.
ET’s trailing-12-month asset turnover ratio of 0.74x is 28.8% higher than the 0.57x industry average. Its trailing-12-month levered FCF margin of 6.13% is 3.2% higher than the 5.94% industry average.
For the fiscal third quarter that ended September 30, 2023, ET’s adjusted EBITDA increased 14.7% year-over-year to $3.54 billion. Its current assets came in at $13.42 billion for the period that ended September 30, 2023, compared to $12.08 billion for the period that ended December 31, 2022. Its total assets came in at $107.57 billion, compared to $105.64 billion for the same period.
Street expects ET’s revenue to increase marginally year-over-year to $84.52 billion for the year ending December 2024. Its EPS is expected to grow at 19.6% year-over-year to $1.50 for the same period. The stock gained 15.1% year-to-date to close the last trading session at $13.66.
It’s no surprise that ET has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value, Growth and Momentum. It is ranked #7 in the same industry.
Beyond what is stated above, we’ve also rated ET for Stability, Sentiment and Quality. Get all ET ratings here.
Stock #1: TotalEnergies SE (TTE)
Headquartered in Courbevoie, France, TTE a multi-energy company, produces and markets fuels, natural gas, and electricity in France, rest of Europe, North America, Africa, and internationally. It operates in four segments: Integrated Gas, Renewables & Power, Exploration & Production, Refining & Chemicals, and Marketing & Services.
TTE’s forward EV/Sales multiple of 0.83 is 62.5% lower than the industry average of 2.22. Its forward Price/Sales multiple of 0.70% is 54.9% lower than the industry average of 1.56.
TTE’s trailing-12-month ROTC of 14.22% is 45.1% higher than the 9.80% industry average. Its trailing-12-month levered FCF margin of 11.93% is 100.9% higher than the 5.94% industry average.
TTE’s total current liabilities came in at $94.43 billion for the period that ended September 30, 2023, compared to $109.78 billion for the period that ended December 31, 2022. Its total liabilities & shareholders’ equity came in at $290 billion, compared to $303.86 billion for the same period.
The consensus EPS estimate of $10.55 for the year ending December 2024 represents a 7.5% increase year-over-year. TTE’s shares have gained 21.6% over the past year to close the last trading session at $66.45.
TTE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked first in the same industry. It has an A grade for Momentum and a B for Stability, Sentiment, and Quality. To see additional TTE’s ratings for Growth and Value, click here.
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SHEL shares were trading at $67.32 per share on Monday morning, up $1.18 (+1.78%). Year-to-date, SHEL has gained 21.74%, versus a 15.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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