Energy sector investment looks like a great sector for those seeking value stocks. Even though the price of Brent crude oil — the international benchmark price — has jumped 40% this past year and is above $75 per barrel, the Energy Select SPDR ETF is up less than 17% over that time frame. This could indicate that Wall Street is undervaluing oil and gas stocks and that it might be a good opportunity to buy now.
Here’s a look at three companies to watch this quarter: rig company Helmerich & Payne (NYSE:HP), pipeline company Enbridge (NYSE:ENB), and liquefied natural gas company Tellurian (NASDAQ:TELL).
Dividend Yield & Strong Demand Forecast
The oil consolidation that started in mid-2014 hurt demand for Helmerich & Payne’s drill rigs. Its active rig count in the onshore U.S. market, its most important segment, fell drastically from 297 in the first quarter of fiscal 2015 to 87 just a year and half later.
Making things worse, Helmerich & Payne has a track record of ensuring that its fleet of rigs is at the leading edge of the industry. That means spending cash on upgrades, which it did even while demand was weak. That capital spending increases costs, most importantly depreciation.
Now that need for drilling rigs is jumping again, and the company’s rig fleet is well advanced in the upgrade process, Helmerich & Payne is increasing market share as its rigs get back to work. Its active fleet is back up to 227. It has also seen the prices it can charge start to move higher. Management is justifiably optimistic, with analysts, on average, calling for a solid uptick in earnings over the next year.
Lots Of Progress But Still Undervalued?
The stock price of Canadian energy infrastructure leader Enbridge has lost 15% of its value over the past year. That drop comes even at a time when the company has made better-than-expected advancements on its strategic plan. That makes the stock a compelling bargain to consider buying this month, especially considering the growth it has coming down the pipeline.
Heading into 2018, Enbridge expects that it could grow earnings 15% this year and at a 10% compound annual rate through 2020, fueled by the roughly USD$15.3 billion of expansion jobs it had under construction. Additionally, the company expects to sell about USD$2.3 billion in noncore assets by year’s end, which would bump up its leverage ratio to a more comfortable 5.0 times debt to EBITDA.
Even with that progress, shares of Enbridge currently sell for just 10.5 times free cash flow, which is well below the 12.5 times average of its pipeline peers. Add that ultra-cheap price to the company’s 6%-yielding dividend and compelling growth prospects, and Enbridge is one of the top energy stocks to buy this month.
New Catalyst For This Energy Play?
Tellurian is a stock what could have strong potential over the next few years. Even though the company’s business plan has yet to make it off the ground, the basics are there for Tellurian to create a liquefied natural gas export terminal over the next several years. One thing that could make this stock so interesting is the fact that so much of the company’s outlook will be decided over the next few months.
Tellurian is searching for a new way to get a facility off the ground in the U.S. Previously, companies like Cheniere Energy marketed long-term takeaway contracts to customers that locked them into relatively low prices and removed commodity price risk for the exporter. Companies then used those contracts as a proof-of-concept that enabled them to go to the market for funding, mostly in the form of debt.
Obtaining that permit and announcing its equity partners in the project are two major catalysts that will determine much of its future. If both of these things happen in the next six months, then we can expect Tellurian to get the green light to build its facility. These two events could mean big things for this stock and getting in now could mean big returns for investors.
Enphase Energy (ENPH) Is The Stock Of The Year: Is It Time To Sell?
Enphase Energy Inc. (ENPH Stock Report) is poised for a promising future since it provides basic technology in the development of a final product in the solar panel industry. With the energy industry shifting into renewable energy there is much potential to leverage.
Therefore investors should be keen on Enphase stock because of the potential presented but they have to consider the following factors before making a decision to buy:
Enphase Stock Price Skyrockets On Big Catalysts
The company produces micro-inverters which are very crucial in the solar panel industry. There is huge potential in the market and according to the US Energy Information Administration, the solar industry is expected to grow by around 50% by 2050 and lead the rest of renewable energy sources.
After hitting a wall in 2016 because of operational discipline and lack of finances the company has turned a leaf by having a new CEO as well as reviewing the production and sales strategy. It had a strong 2018 with revenue increasing by 10% and adjusted earnings of $0.10 per share. The trend continued to 2019 and the company saw a 100% growth in adjusted earnings in Q1.
Performance of Enphase Stock Price
Enphase’s stock price has been performing well. So far it’s up over 460% since the beginning of this year. For investors, they have to assess the risk-reward balance of the stock. Also the possibility of Wall Street getting ahead of itself.
In terms of valuation, you can’t use price-to-earnings as your guide. That’s because the company has been profitable. This leaves them not so promising price-to-sales as a valuation metric.
Enphase Energy might have turned a new leaf. It’s expected to have a strong 2019 if the performance in Q1 is anything to go by. However, ENPH stock is already showing overbought technical indicators.
This, of course may be worrying considering this upturn happened in a short span. There is so much hype regarding the stock without focusing on underling numbers. As an investor, would you rather sit and watch the stock or jump in at all time highs? The choice is yours.
Oil Stock Prices Soar: Is Crude Oil Back In The Bull Trend
On Tuesday, the prices of some of the better known offshore oil drilling stocks soared and some of the stocks managed to gain as much as 10%. Some of the biggest gainers in the sector included Transocean, Diamond Offshore Drilling (DO Stock Report), Transocean Ltd (RIG Stock Report) and Noble Corporation (NE Stock Report).
There are some factors which are responsible for the rise in these stocks. One of those is the improved outlook among investors about the economy, while the other factor is related to Transocean’s financial results, which managed to beat analysts’ estimates comfortably.
Oil Prices Jump 2%
The rise in oil prices usual has a big effect on offshore oil drilling stocks. On Tuesday, the price of oil rose by a hefty 2%. Oil traders across the world now have a positive outlook about oil prices since the Federal Reserve cut rates. That is almost certainly going to turbocharge economic activities.
Consequently, oil demand is going to rise and the price of oil could rise further. Oil producers are going to spend more on drilling activities on the back of better margins. With higher demand, it’s only natural that offshore drilling companies’ shares have gone up.
Major Trigger For A True Bull Market?
On the other hand, the better than expected results posted by Transocean also proved to be a major trigger. Analysts believe that the company could do even better in the upcoming quarters. That has created optimism about the wider offshore drilling industry.
Analysts now believe good times might be approaching for some of the main offshore oil drilling companies. This could result from the rate cut by the Federal Reserve and the expected rise in oil prices, . However, oil prices can be extremely fickle. Therefore many other factors could end up affecting prices negatively.
Solar Energy Stock Prices See Brighter Future
The future for solar energy plants and industry looks bright (no pun intended). Even after the government’s inclination towards fossil fuels and the high tariff rates levied, Q1 of 2019 saw a 10% rise in the installation digits to 2,674 megawatts of Solar.
A report- Solar Market Insight Report 2019 Q2 – was published by SEIA and Wood Mackenzie Power & Renewables. It shows how solar power has set a record for itself, strengthening the residential and utility-scale projects. States have been actively installing solar; take, for instance, Florida, which installed the biggest percentage of solar in Q1.
NextEra Energy (NEE – Stock Info)’s subsidiary, Florida Power and Light was one of the major reasons for this high installation rate. This happened after the announcement of procurement of 1,500 MW of solar. The company plans to expand this installation number to 10,000 MW by 2030. This implies a new market development possibility.
The Increasing Sales Figure Might Set Another Record
On the other hand, California used to lead for solar installations, but it reported a 538 MW installation figure in Q1. While in 2017 and 2018, California had accounted for 2,599 MW and 3,396 MW solar installations respectively, Florida had installed a total of 758 MW in 2017 and 857 MW in 2018.
Thus, the sudden boost in the Floridian install came as a pleasant surprise but the residential and commercial solar is yet to show such progress in Florida. With the solar leasing being pushed to next year and the push back on net metering by utilities, Florida still has a long way to go.
Residential solar installation alone rose by 6% as compared to the previous years’ figures. A total of 603 MW of solar was installed in Q1. This helped companies like Sunrun (RUN – Stock Info) and Vivint Solar (VSLR – Stock Info) make it through its difficult conditions. Utility Solar, on the other hand, with installation count of 1,633 MW, is also skyrocketing.
Florida seems to have been a significant contributor to this figure. The boom in utility-solar has changed the projected installations for the state. This went from 6,000 MW to 9,000 MW expected over the next five years. Meanwhile, nationwide the forecasted figure increased by 1,200 MW in 2019.
What Does The Future Hold?
The sales and marketing cost have been high and been one of the major roadblocks in the industry’s growth. The commercial solar, however, remains a major concern. With the policy changes in California, Minnesota, and Massachusetts affecting the industry, the installation of solar decreased by 18%. This total was only 438 MW.
The increased demand for solar is a benefit for the companies. Solar-panel provider giants like First Solar (FSLR – Stock Info) and SunPower (SPWR – Stock Info) could greatly benefit. The companies look forward to an enthusiastic surge in demand. Even companies like Sunrun, Vivint Solar and SunPower have gained with the growing volumes of residential installing solar.
After two hard years of policy headwinds, this came as a hopeful rescue for the companies. The higher volumes promise a better future for the stocks of the companies.
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