Constrained supplies with OPEC+ agreeing to deepen voluntary oil production cuts and growing demand worldwide are expected to push oil prices higher, driving the outlook of the energy sector. Thus, it could be wise to add quality oil & gas stocks Shell plc (SHEL), Unit Corporation (UNTC), and Adams Resources & Energy, Inc. (AE) to your portfolio now.
The oil-producing group announced yesterday that several OPEC+ oil producers agreed to voluntary output cuts totaling about 2.2 million barrels per day (bpd) for the first quarter of 2024. Saudi Arabia, the world’s largest crude exporter, will extend a voluntary output cut of 1 million bpd, previously intended till the end of December, by another three months.
Saudi’s oil production will be around 9 million bpd until the end of March next year, the state-run Saudi Press Agency said, citing “an official source from the Ministry of Energy.”
Further, the following voluntary barrel-per-day production cuts were announced: Russia by 500,000; Iraq by 223,000; the United Emirates by 163,000, Kuwait by 135,000; Kazakhstan by 82,000; Algeria by 51,000; and Oman by 42,000, OPEC+ stated. The group also announced that Brazil, another major crude oil producer, will join at the beginning of 2024.
OPEC forecasts global oil demand to rise by 2.44 million barrels per day to an average of 102.1 million bpd this year. Next year, global oil demand is expected to grow by 2.25 million bpd. Developing economies, led by China, will account for most of this year’s demand growth, OPEC said in its Monthly Oil Market Report (MOMR).
In the long term, world oil demand is expected to reach 116 million bpd by 2045, around 6 million bpd higher than anticipated in last year’s report, with demand growth led by China, India, other Asian nations, Africa, and the Middle East.
The supply-demand dynamics will likely keep oil prices higher. Also, the ongoing conflict between Israel and Hamas increases the potential for oil supply disruptions. In its Short-Term Energy Outlook, EIA forecasts the Brent crude oil price to grow from an average of $90 per barrel in the fourth quarter of 2023 to an average of $93/b in 2024.
With these favorable trends in mind, let’s take a look at the fundamentals of the three best Energy - Oil & Gas stocks, starting with number 3.
Stock #3: Unit Corporation (UNTC)
UNTC engages in exploring, acquiring, developing, and producing oil and natural gas properties. The company operates through three segments: Oil and Natural Gas; Contract Drilling; and Mid-Stream.
On August 10, UNTC’s Board of Directors approved quarterly dividends of 2.50 per share for each of the third and fourth quarters of fiscal 2023. The company pays an annual dividend of $5.00, which translates to a yield of 9.42% at the current share price. Its four-year average dividend yield is 7.28%.
Phil Frohlich, UNTC’s Chief Executive Officer, said, “We are pleased that our capital position allows us to provide shareholders with visibility of the quarterly dividend payments that the Company intends to make for the remainder of the year. It reflects our operational success, accumulated cash balance, and debt-free balance sheet.”
In terms of trailing-12-month EV/Sales, UNTC is trading at 0.89x, 56.6% lower than the industry average of 2.05x. The stock’s trailing-12-month EV/EBITDA multiple of 1.76 is 68.5% lower than the industry average of 5.59. Also, its trailing-12-month Price/Cash Flow of 3.16x is 31.4% lower than the industry average of 4.61x.
UNTC’s EBITDA has grown at a CAGR of 38.4% over the past three years. The company’s tangible book value has increased at a CAGR of 29.7% over the same period.
During the third quarter that ended September 30, UNTC reported total revenues of $80.16 million, and its revenue from the Contract Drilling segment grew 11.7% year-over-year to $44.95 million. The company’s net income came in at $28.84 million, or $2.94 per common share, respectively.
Furthermore, the company’s current liabilities were reduced to $51.11 million as of September 30, 2023, compared to $68.23 million as of December 31, 2022.
Shares of UNTC have gained 18% over the past six months and 10.6% year-to-date to close the last trading session at $53.12.
UNTC’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Value and Quality. It is ranked #14 out of 85 stocks in the Energy – Oil & Gas industry.
Click here to access additional UNTC ratings for Sentiment, Growth, Stability, and Momentum.
Stock #2: Shell plc (SHEL)
Headquartered in London, United Kingdom, SHEL is an energy and petrochemical company that operates across Europe, Asia, Oceania, Africa, the United States, and Rest of the Americas. The company functions through Integrated Gas; Upstream, Marketing; Chemicals and Products; and Renewables and Energy Solutions segments.
On November 28, SHEL announced that it was nearing the completion of extensive maintenance of its Prelude liquefied natural gas (LNG) facility located off the coast of Australia. The company plans to resume exports, per industry sources and shipping data.
This step comes at a crucial time, aligning well with the consumption peak in markets like China and Europe, driven by the heightened demand during winter.
On November 22, SHEL’s subsidiary, Shell Egypt announced the significant natural gas discovery in the North East El-Amriya block of the Mediterranean Sea. This achievement marks the culmination of drilling operations at the Mina West-1X exploratory well, the first of three wells planned for the Mina West exploration project.
This discovery highlights the company’s commitment to growth and its role in Egypt’s energy sector.
In terms of forward Price/Sales, SHEL is trading at 0.63x, 53.7% lower than the industry average of 1.36x. Likewise, the stock’s forward Price/Book multiple of 1.14 is 30.6% lower than the industry average of 1.64. Also, its forward Price/Cash Flow of 4.43x is 5.43% lower than the industry average of 4.69x.
For the third quarter that ended September 30, 2023, SHEL reported revenue of 76.35 billion. Its gross profit grew 14.4% year-over-year to $14.91 billion. Its operating income was $10.76 billion, up 17.5% from the prior year’s quarter. The company’s free cash flow increased marginally year-over-year to 7.51 billion.
As per its outlook for the fourth quarter, SHEL’s total production is expected to range between 1,750-1,950 (kboe/d) and marketing sales volumes are expected to be 2,250-2,750 (kb/d).
Street expects SHEL’s revenue and EPS for the fiscal year (ending December 2024) to increase 1.3% and 5.8% year-over-year to $343.04 billion and $8.62, respectively. Moreover, the company surpassed the consensus revenue estimates in three of the trailing four quarters.
SHEL’s shares have gained 14.5% over the past six months and 17.5% year-to-date to close the last trading session at $65.80.
SHEL’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Momentum and Quality. Within the Energy – Oil & Gas industry, SHEL is ranked #10 of 85 stocks.
In addition to the POWR Ratings we’ve stated above, we also have SHEL ratings for Growth, Value, Stability, and Sentiment. Get all SHEL ratings here.
Stock #1: Adams Resources & Energy, Inc. (AE)
AE engages in the marketing, transportation, terminalling, and storing of crude oil and other related products. It operates through four segments - Crude Oil Marketing; Transportation; Pipeline and Storage; and Logistics and Repurposing. It purchases crude oil and offers sales and deliveries to refiners, transporting liquid chemicals, pressurized gases, asphalt, etc.
On November 9, AE declared a quarterly cash dividend of $0.24 per common share. The company has consistently paid a dividend since 1994.
AE pays an annual dividend of $0.96, which translates to a yield of 3.46% at the current share price. Its four-year average dividend yield is 3.20%. Also, the company’s dividend payouts have increased at a CAGR of 1.76% over the past five years. AE has raised its dividends for five consecutive years.
AE’s forward EV/EBITDA of 4.93x is 10.1% lower than the industry average of 5.48x. Moreover, the stock’s forward Price/Sales of 0.03x is 98% lower than the industry average of 1.36x.
AE’s revenue and EBITDA have grown at CAGRs of 32.2% and 26.9% over the past three years, respectively. The company’s total assets have increased 17.0% over the same timeframe.
During the third quarter that ended September 30, 2023, AE’s total revenues were $760.61 million. The company’s operating earnings increased 31.1% year-over-year to 3.93 million. Additionally, the company’s net earnings rose 3.1% from the prior year’s quarter to $2.26 million. Its EPS came in at $0.88, up 76% year-over-year.
Analysts expect AE’s revenue for the first quarter (ending March 2024) to increase 4.1% to $695.88 million. The company’s EPS is expected to be $0.13 for the same period, compared to a loss per share of $0.79 in last year's quarter.
AE’s stock declined 12.6% over the past month to close the last trading session at $28.01.
AE’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has a B grade for Value and Growth. AE is ranked #3 of 85 stocks within the Energy – Oil & Gas industry.
To see additional POWR Ratings of AE for Stability, Sentiment, Quality and Momentum, click here.
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.
SHEL shares rose $0.13 (+0.20%) in premarket trading Friday. Year-to-date, SHEL has gained 20.19%, versus a 20.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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