As the global energy demand continues to grow amid supply concerns, I present quality energy stocks BP p.l.c. (BP), Ultrapar Participações S.A. (UGP) and Transportadora de Gas del Sur S.A. (TGS) for solid portfolio returns.
The conflict between Hamas and Israel, although not yet impacting oil flows, carries significant geopolitical risks for the oil markets. The U.S. might tighten sanctions on Iran if it's implicated in Hamas' attack on Israel, potentially straining an already undersupplied oil market.
Moreover, oil prices surged more than 5% last Friday as escalating geopolitical tensions in the Middle East kept investors on edge. U.S. West Texas Intermediate (WTI) crude futures had their best day since April 3, rising by 5.8% to $87.70 per barrel.
Meanwhile, the international benchmark Brent crude futures for December delivery climbed 5.7% to $90.89 per barrel. WTI crude posted its largest weekly gain since September 1 in the previous week, increasing more than 4%.
Despite OPEC+ supply cuts, OPEC oil production increased in September, primarily led by Nigeria, Saudi Arabia, and Kuwait. In addition, OPEC+ maintains its forecast for strong oil demand growth in 2023 and 2024, citing a resilient global economy and China's expected demand increases. Demand is projected to rise by 2.44 million barrels per day (bpd) in 2023 and 2.25 million bpd in 2024.
In the natural gas sector, the U.S. is set to witness record production and demand levels this year. Furthermore, as outlined in the EIA's Annual Energy Outlook 2023, U.S. natural gas production is anticipated to grow by 15%, while LNG exports are projected to surge by 152% from 2022 to 2050. This growth trajectory is expected to lead to a total natural gas production of 42.1 trillion cubic feet (Tcf) by 2050.
With these favorable trends in mind, let's delve into the fundamentals of the three Foreign Oil & Gas stock picks, beginning with the third choice.
Stock #3: BP p.l.c. (BP)
Headquartered in London, United Kingdom, BP produces natural 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 October 4, 2023, BP’s Archaea Energy officially launched its Archaea Modular Design (AMD) renewable natural gas (RNG) plant in Medora, Indiana. Situated adjacent to a landfill owned by Rumpke Waste and Recycling, this marks the first plant to be operational since BP's acquisition of Archaea in December 2022.
With the ability to process 3,200 cubic feet of landfill gas per minute, the plant has the potential to heat around 13,026 homes annually. This initiative represents a significant step with plans to bring multiple AMD plants online in the coming year.
BP pays a $1.74 per share dividend annually, translating to a 4.34% yield on the current share price. Its four-year average dividend yield is 6.13%.
During 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 and operating cash flow stood at $6.29 billion.
BP’s revenue and EPS are expected to be $219.12 billion and $5.41, respectively, in the fiscal year 2023.
Shares of BP have gained 32.6% over the past year to close the last trading session at $40.22. It surged 15.1% year-to-date.
BP’s POWR Ratings reflect this promising outlook. 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, each weighted optimally.
BP also has an A grade for Momentum and a B for Quality. It is ranked #9 among 44 stocks in the B-rated Foreign Oil & Gas industry.
To access BP’s grades for Growth, Value, Stability, and Sentiment, click here.
Stock #2: Ultrapar Participações S.A. (UGP)
Headquartered in Sao Paulo, Brazil, UGP primarily stores and distributes automotive fuel. The company operates through five segments: Gas distribution (Ultragaz); Fuel distribution (Ipiranga); Chemicals (Oxiteno); Storage (Ultracargo); and Drugstores (Extrafarma).
On August 16, UGP received approval from the Administrative Court of the Administrative Council of Economic Defense (CADE) for the consortium agreements between Ultragaz and Supergasbrás Energia Ltda.
The consortium will share part of its operations and infrastructure for LGP storage and filling bases, aiming to enhance supply security and service levels for customers and resellers in the regions they serve. The agreement is expected to provide financial benefits through rationalized investments, expanded presence, operating synergies, and cost reduction.
The company pays an annual dividend of $0.07, which translates to a yield of 1.82% on the current market price.
In the fiscal second quarter that ended June 30, 2023, UGP’s net revenue from sales and services from continuing operations stood at R$36.88 billion ($7.28 billion). Its selling and marketing expenses declined 25.1% year-over-year to R$523.80 million ($103.46 million).
The company’s recurring adjusted EBITDA from continuing operations for the Ultragaz segment rose 55.2% from the prior-year quarter to R$405.20 million ($80.03 million).
Analysts expect UGP’s EPS to increase 180.8% year-over-year to $0.23 in the fiscal year 2023. Its revenue is likely to stand at $24.42 billion in the current year.
The stock has gained 72.3% over the past year and 33.1% over the past six months to close the last trading session at $3.98.
UGP’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It also has a B grade for Value, Stability, and Sentiment. UGP is ranked #5 in the same industry.
Click here for additional POWR Ratings for UGP’s Growth, Momentum, and Quality.
Stock #1: Transportadora de Gas del Sur S.A. (TGS)
Headquartered in Buenos Aires, Argentina, TGS primarily engages in public natural gas transportation and natural gas liquids production and sales. The company operates through four segments, Natural Gas Transportation Services; Liquids Production and Commercialization; Other Services; and Telecommunications.
On October 16, TGS launched its Prediktor PowerView™ platform in the U.S., an enterprise asset management solution for utility-size solar plants and portfolios. This platform empowers solar companies in the U.S. to access high-quality operational data, convert it into actionable insights, and optimize performance, productivity, and profitability. This comprehensive solution simplifies operations and enhances asset-centric insights to maximize asset utilization.
In the second quarter that ended June 30, 2023, TGS’ POC revenues increased 77.9% year-over-year to $241.17 million. Its POC EBITDA grew 28.5% from the year-ago quarter to $131.95 million, while its POC EBIT amounted to $39.25 million.
As of June 30, 2023, the company’s total assets stood at $1.95 billion, compared to $1.52 billion as of June 30, 2022.
With a positive market outlook, TGS remains committed to its 2023 guidance, which includes multi-client investments exceeding $350 million, early sales representing at least 70% of multi-client investments, and a continued focus on maintaining an industry-leading return on capital.
Moreover, TGS anticipates strong financial performance for the third quarter based on preliminary reports from operating units. IFRS revenues are projected to reach approximately $225 million, a significant increase from the $135 million reported in the same quarter last year. Also, POC revenues are expected to surge to approximately $293 million, marking a substantial rise from the $119 million in the year-ago quarter.
The consensus revenue estimate of $996.01 million for the fiscal year 2023 reflects a 36.6% rise year-over-year.
The stock has gained 56.6% over the past year to close the last trading session at $11.76. It has soared 4.1% over the past month.
TGS’ sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our proprietary rating system.
TGS has a B grade for Value, Momentum, Sentiment, and Quality. It is ranked #4 in the Foreign Oil & Gas industry.
In addition to the POWR Ratings highlighted above, one can access TGS’ ratings for Growth and Stability 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.
BP shares were trading at $40.65 per share on Tuesday morning, up $0.43 (+1.07%). Year-to-date, BP has gained 20.15%, versus a 15.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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