The energy sector is set to grow substantially, driven by rising crude oil prices. So, I present quality energy stocks Permianville Royalty Trust (PVL), CVR Energy, Inc. (CVI), and TotalEnergies SE (TTE) that could power one’s portfolio with impressive returns.
The rising global energy demand can be attributed to population growth, increased industrialization, economic development, and the expanded utilization of energy-intensive technologies and processes.
Moreover, Saudi Arabia and Russia will extend their voluntary oil output cuts until the end of the year due to concerns about demand and economic growth impacting crude markets. They will review these cuts next month to potentially deepen or extend them. Saudi Arabia will also maintain an additional 1 million barrels per day (bpd) cut, resulting in a December production of around 9 million bpd.
In addition, OPEC has increased its long-term oil demand outlook to 116 million barrels a day by 2045, up more than 6 million barrels from the previous year. This revision is primarily driven by OECD countries, where energy and economic-related developments have led to a reevaluation of energy transition policies, prioritizing energy security and socio-economic development.
Besides, the EIA expects crude oil prices to rise in the coming months due to tightening world oil market balances and the potential for disruptions in oil supply caused by the ongoing conflict between Israel and Hamas.
In the October Short-Term Energy Outlook, the agency predicts the Brent spot price to average $91 per barrel in the fourth quarter. Furthermore, the EIA forecasts the Brent spot price in 2024 to average $95 per barrel, which is $7 higher than the previous month’s projection.
Also, as per EIA, dry gas production in the U.S. is projected to increase to 102.69 billion cubic feet per day (bcfd) this year and 104.93 bcfd in 2024, up from the 2022 record of 98.13 bcfd. Domestic gas consumption is forecasted to rise from 88.56 bcfd in 2022 to 89.72 bcfd in 2023.
Considering these favorable trends, let’s take a look at the fundamentals of the three best Energy – Oil & Gas stock picks, starting with number 3.
Stock #3: Permianville Royalty Trust (PVL)
PVL operates as a statutory trust. It acquires and holds net profits interest, representing the right to receive 80% of the net profits from the sale of oil and natural gas production from properties in Texas, Louisiana, and New Mexico.
PVL’s trailing-12-month gross profit and EBIT margins of 100% and 94.22% are favorably higher than the industry averages of 47.34% and 22.81%.
On November 6, 2023, PVL announced a special cash distribution to the holders of its units of beneficial interest of $0.077250 per unit, payable on November 22, 2023. This special distribution is a part of the proceeds from the sale of oil and gas properties in the Permian Basin.
On October 16, PVL announced a cash distribution of beneficial interest of $0.006000 per unit to the holders, payable on November 13, 2023.
The company pays an annual dividend of $0.33, which translates to a 17.37% yield on the current market price, higher than a four-year average dividend yield of 13.50%. It has raised its dividend payouts at a CAGR of 26.5% over the past three years.
During the six months that ended June 2023, PVL’s total gross profits stood at $25.53 million. Its income from net profits interest rose 1.5% year-over-year to $7.25 million. Distributable income increased 16.4% and 16.6% from the previous-year period to $6.47 million and $0.20 per unit.
The stock soared 3.7% intraday to close its last trading session at $1.96.
PVL’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
PVL has a grade of B for Momentum, Sentiment, and Quality. It ranks #12 within the 85-stock Energy – Oil & Gas industry.
Click here for additional POWR Ratings for PVL (Value, Growth, and Stability).
Stock #2: CVR Energy, Inc. (CVI)
CVI is a diversified energy company that primarily engages in the renewable fuels, petroleum refining and marketing business, and the nitrogen fertilizer manufacturing business through its interest in CVR Partners, LP. The company operates in two segments: Petroleum and Nitrogen Fertilizer.
CVI’s trailing-12-month asset turnover ratio of 2.25x is 299.7% higher than the industry average of 0.56x. Its trailing-12-month ROTC of 30.13% is 212.6% higher than the industry average of 9.64%.
On October 30, CVI declared a third-quarter cash distribution of $1.55 per common unit, which will be paid on November 20, 2023. With a four-year average dividend yield of 12.84%, the company pays an annual dividend of $2, that yields 6.14% on the current market price. Its dividend payouts have grown at a CAGR of 2.1% over the past three years.
During the fiscal third quarter that ended September 30, 2023, CVI reported net sales of $2.52 billion. Its operating income rose 332% year-over-year to $445 million. Its adjusted EPS amounted to $1.89. The company’s free cash flow increased 241.9% from the year-ago quarter to $318 million.
Analysts expect CVI to report an EPS and revenue of $5.89 and $9.48 billion in the fiscal year 2023. Moreover, the company surpassed the consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.
CVI’s shares have gained 36.1% over the past six months to close the last trading session at $31.70.
CVI’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
CVI has an A grade for Quality and a B for Value. It is ranked #5 in the same industry.
In addition to the POWR Ratings highlighted above, one can access CVI’s Momentum, Sentiment, Growth, and Stability ratings here.
Stock #1: TotalEnergies SE (TTE)
Headquartered in Courbevoie, France, TTE a multi-energy company, produces and markets fuels, natural gas, and electricity in France, rest of Europe, North America, Africa, and internationally. It operates in four segments: Integrated Gas; Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services.
TTE’s trailing-12-month levered FCF margin of 11.93% is 103.3% higher than the 5.87% industry average. Its trailing-12-month asset turnover ratio of 0.71x is 26.5% higher than the 0.56x industry average.
On November 6, TTE disclosed that it had repurchased a total of 4,731,355 shares at an average purchase price of EUR63.41 ($67.81) per share, resulting in total transactions amounting to EUR299,999,873.94 ($320.82 million) across various markets from October 30 to November 3, 2023.
On November 3, TTE extended its partnership with Oman LNG, a liquefied natural gas (LNG) joint venture in which it holds a 5.54% stake. The extension includes prolonged interests in Oman LNG and Qalhat LNG, along with commitments to reduce greenhouse gas emissions. TTE had also signed an agreement to offtake 0.8 Mtpa of LNG from Oman LNG from 2025, aligning with its goal to increase LNG production and purchases by 50% by 2030.
TTE pays $3.07 annually, which translates to a dividend yield of 4.76% on the prevailing price level. Its four-year average dividend yield is 6.67%.
In the fiscal third quarter that ended September 30, TTE reported an adjusted net income of $6.45 billion and EUR2.41 per share.
For the nine months that ended September 30, 2023, TTE’s total current liabilities came in at $94.43 billion, compared to $109.78 billion for the period that ended December 31, 2022. Its total liabilities & shareholders’ equity came in at $290 billion, compared to $303.86 billion for the same period.
TTE’s revenue and EPS are expected to reach $50.82 billion and $2.57 in the fiscal fourth quarter ending December 2023.
TTE’s shares have gained 15.2% over the past year to close the last trading session at $65.49.
TTE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Stability, Sentiment, and Quality. It is ranked first in the same industry.
To see TTE’s additional ratings for Growth and Value, click here.
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TTE shares were trading at $65.38 per share on Wednesday morning, down $0.11 (-0.17%). Year-to-date, TTE has gained 8.37%, versus a 15.58% 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. More...
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