The bullish market trend over the last decade and the tech-driven market rally amid the pandemic, have led to the high price of stocks today. As a result, it has become difficult for value investors to find stocks that are still reasonably priced or undervalued. However, the solution to the problem may lie in energy stocks, which are currently trading at lower valuations, as the sector is still grappling with the impacts of the COVID-19 pandemic.
The performance of energy stocks is highly dependent on oil and natural gas prices. Investors are usually hesitant to invest in such stocks when there are economic uncertainties that could impact oil and gas prices. As a result, some of the fundamentally strong energy stocks could be available at relatively reasonable prices now. As the prices of oil and natural gas are expected to recover in 2021 and beyond, these energy stocks could deliver sufficient returns.
Williams Companies, Inc. (WMB), Cabot Oil & Gas Corporation (COG), Range Resources Corporation (RRC), and Antero Resources Corporation (AR) are four such reasonably-priced energy stocks that are expected to see growth in revenue and earnings with rising commodity prices next year.
Williams Companies, Inc. (WMB)
WMB is an energy infrastructure company that primarily operates in the United States. The company’s subsidiaries include Williams Partners, Williams NGL, Petchem Services, and others. WMB’s stock has gained 110% since hitting a low on March 18th.
WMB is working on several expansion projects. These projects are located along the Transco pipeline, the Northeast G&P, and the Deepwater Gulf of Mexico. The company expects to benefit from its natural gas capabilities as the US economy moves towards clean energy.
WMB is expected to witness revenue growth of 2.6% in 2021. The company’s EPS is estimated to grow 45.6% in 2021 and at a rate of 3.7% per annum over the next five years.
During the second quarter that ended June 2020, the company’s modified EBITDA rose 4% year-to-date in the Transmission & Gulf of Mexico segment. The company’s Northeast G&P segment modified EBITDA rose 23% during the same period.
How does WMB stack up for the POWR Ratings?
B for Buy & Hold Grade
A for Peer Grade
B for Overall POWR Rating
The stock is also ranked #2 out of 97 stocks in the Energy – Oil & Gas industry.
Cabot Oil & Gas Corporation (COG)
COG is an energy company that explores, develops, produces, and markets natural gas, natural gas liquids, and oil in the United States. The company has operations in Pennsylvania, West Virginia, and Texas. COG’s stock has returned 6.4% so far this year.
The company has strategically reduced its production of natural gas due to the prevailing low prices for Appalachian natural gas. This could work in the company’s favor when natural gas prices rebound at a later date. The company expects to see positive cash flow of $700 million in 2021.
COG is expected to witness revenue growth of 2.5% during the fiscal quarter ending December 2020, and 41.8% in 2021. The company’s EPS is estimated to grow 194.9% in 2021 and at a rate of 26.1% per annum over the next five years.
During the second quarter that ended June 2020, the company produced 2.2 billion cubic feet equivalent of 100% natural gas, which was on the high end of their guidance range. The company has managed to deliver net income of $0.08 per share, despite historically low natural gas prices caused by the spread of the coronavirus.
It’s no surprise that COG is rated a “Buy” in our POWR Ratings system, with a grade of “A” in Trade Grade and Peer Grade. In the 97-stock Energy – Oil & Gas industry, it is ranked #3.
Range Resources Corporation (RRC)
RRC explores, produces, and markets oil and natural gas in the United States. The company has operations in Appalachia and the Midcontinent region in the United States. The company’s stock has gained 77.7% so far this year.
The company has recently signed an agreement with PTTGC America for the long-term anchor supply for the development of a world-scale ethylene cracker in Appalachia. RRC has also agreed to sell its assets in North Louisiana for $245 million, with another $90 million contingent on future prices.
RRC is expected to witness revenue growth of 9.2% in 2021. The company’s EPS is estimated to grow 3,800% in 2021 and at a rate of 26.9% per annum over the next five years.
During the second quarter that ended June 2020, the company’s direct operating expense improved 31% year-over-year. The company’s well costs averaged less than $600 per lateral foot, which were the lowest in Appalachia.
It’s no surprise that RRC is rated a “Buy” in our POWR Ratings system, with a grade of “A” in Trade Grade and Peer Grade. In the 97-stock Energy – Oil & Gas industry, it is ranked #6.
Antero Resources Corporation (AR)
AR is an independent energy company involved in the acquisition, development, and production of natural gas. The company has properties in West Virginia, Ohio, and Pennsylvania. AR’s stock has returned 28.4% so far this year.
The company has recently announced the offering of $250 million in convertible senior notes due in 2026. AR is in the process of drilling 105 new wells by the end of the financial year.
During the quarter that ended June 2020, the company’s net production averaged 3,521 MMcfe/d which was an increase of 9% compared to the same period last year. The company also sold $531 million out of a planned $750 million asset sale in an effort to reduce debt. The company’s EPS is expected to grow 100% for the quarter ending December 2020.
AR’s strong fundamentals are reflected in its POWR Ratings. It has a “Buy” rating with an “A” in Trade Grade and Peer Grade. In the 20-stock Energy – Drilling industry, it is ranked #1.
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WMB shares were trading at $19.10 per share on Wednesday afternoon, down $0.32 (-1.65%). Year-to-date, WMB has declined -14.11%, versus a 3.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaryaman Aashind
Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks. More...
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