The energy sector has soared this year, with the S&P 500 energy index up as much as 65%. So the question for investors is whether the sector has more room to grow? According to Wall Street professionals, the answer to that is yes.
Selling an essential product, energy companies are widely seen as hedges against inflation, often offering a combination of corporate profits and shareholder dividends. In the US, the price of crude oil has risen 15% so far this year and the government estimates it will continue to rise from its current $86 a barrel to $95 a barrel in the first half of next year.
With this in mind, we used TipRanks database to identify two energy stocks that show clear opportunities for investors. According to the analyst community, these are Strong Buy tickers, and although both have already seen significant growth this year, they are poised to continue climbing higher. Let’s take a closer look.
Cheniere Energy, Inc. (LNG)
The first energy stock on our list is Cheniere Energy, a Houston-based firm that specializes in the liquefaction of natural gas prior to export. The company controls a network of pipelines and natural gas liquefaction facilities valued at $38 billion, including major export terminals in Corpus Christi, Texas, and Sabine Pass, Louisiana. The export terminals include 9 liquefaction plants between them and can handle a total of 45 million tonnes of LNG for export per year. Cheniere is the largest natural gas liquefaction company operating in the United States and one of the largest in the world.
Along with leading the U.S. gas export market, Cheniere has also shown solid earnings gains since the third quarter of 2020. The company’s latest report, from 3Q22, showed $8.85 billion at the top, up from an impressive 177 %. year after year. Cheniere found support for its earnings from the rising price of natural gas on global markets, along with increased exports to Europe in recent weeks. Total gas exported in 3Q22 was 559 trillion Btu, compared with 500 trillion a year earlier, a gain of 12%.
However, the company’s net income was at a loss of $2.38 billion. That was a sharp reversal from recent gains and was driven by derivative losses of approximately $2.2 billion and settlements of $6 billion.
Regardless, Cheniere shares are up 67% this year, far outperforming the overall market.
Cheniere has many fans in the analyst community. Among them is analyst Jefferies Lloyd Byrne, which rates the stock a Buy, while its $210 price target suggests a one-year upside of 25%. (To watch Byrne’s record, Press here)
Backing up his position, the analyst wrote: “We like Cheniere because its first-mover advantage gives it an advantage in contracting and self-funding growth projects, which should help maintain its position as the largest liquefaction player in the US , generating strong returns on capital and consistent cash flows. Aided by this virtuous cycle, we believe Cheniere will be well positioned to return cash to shareholders through cost and commodity cycles. The recent guidance increase and capital allocation update reinforces our view.”
The Street is generally bullish on Cheniere stock, as indicated by a consensus consensus rating of Strong Buy based on 13 positive analyst reviews. The stock trades at $167.32 and its average price target of $210.69 suggests a ~26% gain ahead. (Check out Cheniere’s stock forecast at TipRanks)
Schlumberger Limited (SLB)
From natural gas exports, we will move to oilfield services, another important niche. Oil exploration companies wouldn’t be able to get their product out of the ground if it weren’t for the services offered by Schlumberger and its peers. Schlumberger provides drilling companies with the expertise they need in well completions, drilling and other engineering tasks essential to oil production.
The oil industry as a whole has benefited in recent quarters from increases in crude oil prices on global markets, along with continued strong demand, and Schlumberger has had some of that. The company’s revenue has been solid, with the recent 3Q22 report showing a top line of $7.5 billion. That’s a 28% increase over the year-ago quarter and includes a 26% year-over-year rise in international revenue and an even stronger 37% year-over-year jump in North American revenue.
The company reported GAAP EPS of 63 cents per share, up 62% year over year. These gains were accompanied by strong cash flows—cash from operations totaled $1.6 billion and free cash flow was reported at $1.1 billion. The company also boasted current liquid assets of $3.6 billion. In short, Schlumberger is swimming in money.
For investors, that’s important because the cash funds the dividend, which was announced on Oct. 20 at 17.5 cents per common share, to be paid on Jan. 12. At the current declared rate, the dividend pays 70 cents a year and yields 1.32%. Although yields are low, Schlumberger has a solid track record of maintaining payments.
Schlumberger shares have gained an impressive 79% this year, far outperforming the broader market.
analyst Roger Reid, in Schlumberger’s coverage of Wells Fargo, sees the company in a strong position to continue its gains. He wrote: “SLB reported positive EPS/EBITDA on the impressive performance of well construction and production systems, supported by continued net price improvements. In our view, the increased activity in the offshore and international markets is an advantage for strong international services, which is why SLB remains our top pick in the sector.”
Reid’s comments support his Overweight (i.e., Buy) rating on these shares, and he sets a $69 price target, suggesting 30% upside over the next 12 months. (To watch Read’s record, Press here)
Overall, no fewer than 17 Wall Street analysts weighed in on SLB shares and they are unanimously positive, giving the stock a consensus rating of Strong Buy. Schlumberger shares are valued at $53.10 and their average target of $58.38 indicates ~10% upside for one year. (See the SLB stock forecast at TipRanks)
To find good ideas for trading energy stocks at attractive valuations, visit TipRanks The best stocks to buya tool that brings together all of TipRanks equity insights.
Rebuttal: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.