Nov 23, 2022 17:12
It's no secret that stockpiles at petrol stations are proliferating. The skyrocketing price of gas is to blame. Since before Russia invades Ukraine, they've only gotten worse, and that's why it costs more money. The United States and other countries started imposing an oil embargo on Russia. ...and several other goods and services. The United States has increased its crude oil purchases from Russia, which has led to another spike in the price of oil.
We are depleting our oil stockpiles to prevent a catastrophic rise in costs. Further price increases are inevitable if this trend persists for much longer. Ultimately, gas prices have risen to an all-time high and are expected to keep going up. More people are taking vacations, which will increase costs across the board.
More encouragingly, the coronavirus situation has practically returned to normal. This is just one more factor in a long list contributing to rising gas prices. How much further prices could go up this year is entirely unpredictable. They could continue to grow, or they could stabilize at this point. Even if it seems improbable, it's not impossible.
Since higher prices encourage consumers to buy more gas and boost revenue for all businesses along the supply chain, higher prices are also suitable for gas stations. In particular, gas stations that provide the service.
This article lists the best gas station stocks for research purposes.
ConocoPhillips is an international powerhouse in the exploration and production industry. It operates in over a dozen nations and is adept at finding and extracting oil and natural gas.
ConocoPhillips can capitalize on its scale and exposure to the Permian Basin, which has some of the cheapest oil in the world. Acquiring Concho Resources and Shell's assets in 2021 bolstered its position in this inexpensive, oil-rich region. The company can generate large cash flow since its operating costs are only $40 per barrel on average, and its resources have even lower operating costs.
Despite the uncertainty surrounding oil demand forecasts, ConocoPhillips aims to return a sizable amount of its free cash flow to investors over the next five years. The company plans to use its cash surplus to pay a growing dividend, repurchase shares, and offer other variable cash returns.
The company has integrated its formerly inexpensive product with a well-regarded financial position. ConocoPhillips has maintained a high credit rating among E&P firms because of its large cash reserves and low leverage ratio. As a result of these characteristics, it is among the most reliable E&P assets.
With a focus on oil exploration and production, Devon Energy operates in several low-cost, oil-rich basins in the United States. The company's diversification has helped it generate high amounts of oil and natural gas at very low costs, accounting for a big component of its revenue stream.
The company pioneered a hybrid fixed and variable dividend structure in 2021. After covering its limited base dividend and capital expenses, it may pay out a variable compensation of up to 50% of its quarterly cash surplus. The rest of Devon's surplus funds are put toward strengthening the balance sheet and buying back shares.
Income investors will find Devon appealing because of its dividend policy. They will receive a steady income stream regardless of fluctuations in the price of oil, and they may reap significant rewards during price spikes.
PCE Energy (PDCE, $77.87) shares have gained over 60 percent year to date as of April 15, but Wall Street thinks they still have room to run.
Positive results in the fourth quarter, an optimistic outlook for 2022, and the ability to generate free cash flow have earned the E&P company plaudits from analysts (FCF, the cash remaining after costs, capital expenditures, and financial commitments are satisfied).
We maintain our Buy recommendation on PDCE given the company's excellent FCF profile and freshly declared commitment to return more than 60% of post-dividend FCF to shareholders in the form of a rising base dividend and share repurchases," says Goldman Sachs analyst Umang Choudhary.
Experts are also optimistic about PDC's $1.3 billion acquisition of Great Western Petroleum in February. Trust Securities (Buy) analyst Neal Dingmann speculates that PDCE shares could benefit from "low-cost, accretive M&A transactions" in the future.
S&P Global Market Intelligence analysts have given PDC Energy a strong buy recommendation. It has a consensus Strong Buy recommendation from 9 experts, Buy from 4 and Hold from 1.
Experts agree that PDCE shares are among a select group of oil and gas stocks with similar upside potential. The analysts' average 12-month price target of $93.14 for PDCE suggests the stock has 20% more potential growth.
To the tune of 30% of North American oil output, Enbridge operates and maintains one of the world's largest oil pipeline networks. Enbridge operates a sizable system of natural gas pipelines, a gas utility, and a renewable energy division.
The consistent revenue generated by Enbridge's pipeline operations is supported by long-term contracts and government-regulated pricing. The increased capital available enables the firm to both maintain its strong dividend yield and increase its spending on energy infrastructure.
Enbridge has spent a lot of money in recent years on renewable energy infrastructure. This includes hydrogen energy infrastructure, natural gas pipelines, and European offshore wind farms. Despite Enbridge's sustained significance in the oil market, these investments set the corporation up for the future of energy.
Among the largest oil companies in the world is ExxonMobil, which also happens to be a "supermajor" in the sense that it does everything itself. It operates in all areas of the oil and gas business, from exploration and production through midstream operations, petrochemical production, refining, and marketing.
ExxonMobil has recently taken steps to boost efficiency and decrease overhead. The returns on these expenditures will become apparent around 2022. By prioritizing its highest-return assets and taking steps to better harness its massive size, the company has significantly lowered the cost of oil production over the past few years. When oil prices are high, this results in a considerable amount of extra money.
ExxonMobil's dividend and its position as a Dividend Aristocrat should be secure with this level of cash flow. Because of the progress in alternative energy, many investors are staying away from oil stocks. ExxonMobil has invested in carbon capture, storage, and biofuels, all of which will allow the company to keep supplying fuel to the economy for the foreseeable future with reduced emissions.
According to analysts, rising oil and gas prices will help E&P to play Ovintiv (OVV, $53.18) to "right-size" its financial sheet, letting it pay even more cash to shareholders.
Goldman Sachs analyst Neil Mehta says, "We retain our Buy recommendation on OVV due to its better FCF profile relative to its peers and the company's expected shareholder returns inflection to 50 percent or more of FCF (from 25 percent today) as the balance sheet strengthens."
OVV's growing free cash flow, cash return to shareholders, and debt reduction actions have all been met with optimism from Trust Securities analyst Neal Dingmann (Buy). More than that, he writes, the company "could undertake a slightly accretive acquisition in the future months without dramatically affecting its shareholder return goals."
Those who believe in OVV's potential say it's a turnaround story that's finally starting to turn. The oil and gas stock's shares have already gained almost 60% this year, so there is still room for further gains.
With a consensus target price of $64.90, OVV stock has a 22% upside potential over the next year, according to market analysts.
Ten analysts at S&P Global Market Intelligence rate OVV a Strong Buy, nine rate it a Buy, and five rates it a Hold. That's the equivalent of a 100% Buy recommendation from an informed panel.
Phillips 66 is a significant player in the oil refining industry in the US and Europe. Additionally, through its partnership with Chevron, CPChem, has holdings in midstream operations and petrochemicals (NYSE: CVX). Ultimately, it's the marketing and specialty department responsible for moving refined products and creating lubricants and other niche items.
Because of its massive size and vertical integration, Phillips 66 has the industry's lowest operating costs. This is due to the company's strategy of investing in projects with higher product margins and using its integrated midstream network to purchase the cheapest crude for refining and petrochemical feedstocks.
Financially, Phillips 66 is in excellent shape, with an investment-grade balance sheet and deficient debt levels. Also, it has plenty of money sitting in the bank. Because of its low debt and significant cash reserves, the company has sufficient capital to invest in growth initiatives, such as renewable energy.
It has been an industry leader in dividend growth and share repurchases over the past decade. By prioritizing smart investments and returning cash to shareholders, Phillips 66 should be able to grow shareholder value over the coming years sustainably.
Among these oil and gas companies, Chesapeake Energy (CHK, $94.36), a natural gas E&P business, has the highest growth potential, according to UBS Global Research's 2022 Top Picks. This is happening because of several factors, including the price of natural gas.
Strategic acquisitions have been very successful for both PDCE and Chesapeake. Starting in early March, the company completed its $2.6 billion acquisition of privately held Chief E&D Holdings. As of late 2021, this is the company's second major acquisition. Additionally, it paves the way for CHK to distribute additional cash to its shareholders.
As UBS analyst Lloyd Byrne puts it, "basic dividends will grow to 50 cents per share" (Buy). Keep in mind that CHK increased its annual dividend by nearly 14 percent in January, to $2.00 per share, while keeping its stock repurchase program at $1 billion. (The corporation also distributes variable dividends based on free cash flow after adjustments.)
Although favorable gas market conditions have driven CHK to a year-to-date gain of more than 45 percent through April 15, experts believe it is still cheap. In fact, with an average price objective of $116.70, analysts see a 24 percent potential for CHK stock over the next year or so.
Therefore, it is not surprising that the analyst consensus rating is Strong Buy. Seven of the eleven analysts polled by S&P Global Market Intelligence covering the stock rated as a Strong Buy, three as a Buy, and one as a Hold.
Diamondback Energy (FANG, $138.44), an oil and gas E&P company, with a Buy consensus recommendation. Even though shares are up more than 28 percent yearly through April, experts assert that investors can still enjoy outsized returns in the next year.
In fact, with an average 12-month price target of $168.25, Wall Street sees an upside of 22% for FANG companies.
Again, the investment thesis relies on a steady stream of cash being returned to shareholders while keeping costs low.
Raymond James analyst John Freeman said, "Management is focused on capital discipline, FCF creation, and shareholder returns" (Strong Buy).
According to Freeman, FANG has increased its annual basic dividend by 20% to $2.40 per share.
According to the analyst, "FANG's goal will be a continuous and expanding base dividend." To return 50% of FCF to shareholders, the company will augment its base dividend with share repurchases or variable dividends.
For example, Stewart Glickman, an analyst at CFRA Research, argues that FANG stock is worth buying because of the rising dividend and the improving macroeconomic climate.
"With tighter markets predicted in 2022, which should result in robust pricing, we believe FANG is ready for a solid year," Glickman continues.
Seventeen analysts recommend buying the oil and gas stock, ten recommend buying, and five recommend holding.
Canadian oil and gas explorer and producer Baytex Energy. Its primary focus is on the exploration for and production of oil and natural gas. Specifically, the Eagle Ford in Texas and the Western Canadian Sedimentary Basin are two of its most crucial oil resource plays. Baytex announced on April 1, 2022, that the company's revolving credit facilities will be extended for two years through April 2026. The extension increased that company's credit line by $850 million. In Canada, Baytex Energy is listed under the ticker name BTE.TO.
Oil industry investments have a high level of risk. The oil market as a whole is cyclical and volatile, but many industries have their unique risks.
Oil consumption tends to increase as economies grow, and a thriving economy may help increase oil prices and oil producers' profitability. However, capital allocation and geopolitics are essential factors in the industry.
The Organization of the Petroleum Exporting Countries (OPEC) is a cartel whose members work together on oil policy. Oil prices are susceptible to OPEC's actions, as the organization can limit supply to increase costs or expand output to drop them. Oil prices have fluctuated dramatically due to OPEC's efforts over the years.
Oil companies not affiliated with OPEC also have the oil to set market pricing. Spending too much on new ventures could lead to an oversupply of inventory and price competition. On the other hand, prices could rise if they don't release enough. Companies can't quickly respond to growing demand by increasing oil and gas output because these assets are constructed over long periods.
To weather the inevitable industry downturns caused by oil price volatility, an oil company must have the following three characteristics:
Profile indicative of sound financial health; for example, an "investment grade" bond rating, a large cash reserve or ready access to cheap credit, and a debt maturity schedule that is both manageable and well-structured.
Few running costs and a steady flow of cash flow. Companies in the E&P sector must be profitable at oil prices of less than $40 per barrel. However, midstream businesses should have more than 85% of their cash flow coming from predictable sources like fee-based contracts. Subsequently, based companies ought to have lower operating costs than their competitors.
Diversification. Companies in the oil industry should have a global presence or at least be heavily diversified.
The oil market can quickly become out of control if even a tiny disparity exists between supply and demand. The COVID-19 pandemic outbreak in early 2020 made this very evident. On the other hand, if demand increases and reserves decrease, oil prices might skyrocket. Starting in early 2022, crude oil prices soared as the economy began to recover from the pandemic and supplies were stressed due to Russia's invasion of Ukraine.
Because of this dynamic, buyers of oil stocks need to be wary. Businesses that are resilient in the face of hardship will be in the best position to grow and thrive once the market rebounds. Thus, this is an area where policymakers should place their focus.
Although oil and gas stocks have performed well recently, it seems plausible that the most accessible gains have already been earned. As of April 15, the energy sector was up approximately 44% year-to-date, while the S&P 500 was down around 8%. (For example, utilities saw a 6.3% increase, while consumer staples saw a 2.5% increase.)
When stock prices rise by such a large amount so rapidly, further increases are typically (or at least potentially) limited. Analysts have good reason to be worried as present earnings are factored into prices, and valuations get stretched. Wall Street, though, is optimistic about at least a few oil and gas stocks.