With oil trading near multi-year highs, investors are once again looking at companies that can now profit in the current price environment. Several MoneyShow.com contributors highlight their best bets in natural gas, oil exploration, energy infrastructure, drilling and offshore services.
Jim Powell, Global Changes & Opportunities Report
Energy is at the top of the list of companies that are experiencing better economic conditions. After crashing from $147 a barrel in 2008, to a low of just $30 in 2016, oil has been inching its way back up and the long-term trend seems well established.
Meanwhile, there is a potentially dangerous confrontation occurring between Saudi Arabia and Iran. If it gets out of hand, it will have serious repercussions for the global economy.
If any disruption should occur to the world's supply of Middle Eastern oil, the two leading North American energy producers -- ExxonMobil (XOM) and Diamond Offshore Drilling (DO) -- should do especially well. Both are in excellent positions to benefit from recovering oil prices.
Despite their recent upturns, ExxonMobil and Diamond Offshore have come back from such low levels that I'm continuing to recommend them. I think both stocks will at least double for long-term investors.
I also like the outlook for Suncor Energy (SU) , a secure energy stock that should deliver top returns come what may. The Canadian company pioneered the first commercial oil sand technology in 1967 and is now the world's leading oil sand processor.
Along with America's shale oil producers, Suncor is largely responsible for America's growing energy strength. The company also produces some natural gas, it has an investment in five wind power projects and it owns an ethanol plant.
With oil now selling for over $60 a barrel, the company can be profitable again. In fact, at Suncor's breakeven point of approximately $56 a barrel, every extra barrel the company produced started to go directly to profits.
Harry Domash, Dividend Detective
Economies worldwide continued to strengthen as 2017 progressed and the market reflected those fundamentals. The passing of the U.S. tax bill didn't hurt. If nothing unexpected happens, business should continue strong as effects of the federal tax cuts percolate through the economy. That probably will last around four to six months.
Core Laboratories (CLB) offers technological services to oil drillers that help them predict and optimize oil volumes achieved from drilling activities. These are increasingly important functions as oil producers are focusing more on maximizing drilling profit margins than on volumes produced (2.0% yield).
Helmerich & Payne (HP) offers land and offshore oil and gas well drilling services globally. But 80% of revenues come from land drilling in the U.S. HP recently developed a new drilling technology that substantially cuts drilling costs.
Drilling activity in the U.S. is on the rise and we expect Helmerich & Payne to capture additional market share. In 2017, HP mostly reported losses, but it has been consistently cash flow positive. Most analysts are rating HP at Hold or worse, so there's plenty of upside potential if it exceeds expectations.
Jeffrey Hirsch, Stock Trader's Almanac
Based upon the NYSE ARCA Natural Gas Index there is a seasonal tendency for natural gas companies to enjoy gains from the end of February through the beginning of June. This trade has returned 14.5%, 16.6% and 14.9% on average over the past 15, 10 and five years, respectively.
One of the factors for this seasonal price gain is consumption driven by demand for heating homes and businesses in the cold weather northern areas in the United States.
In particular, when December and January are colder than normal, we see drawdowns in inventories through late March and occasionally into early April. This has a tendency to cause price spikes lasting through mid-April and beyond.
This winter got off to a slow start in the Northeast with relatively mild temperatures lasting until around Christmas, but that quickly changed. The Times Square New Year's Eve celebrations were a perfect example as temperatures plunged into the single digits.
As a result of widespread, below-average temperatures, natural gas inventories are near the lowest they have been in five years for this time of the year and are 13% below levels from one year ago.
Natural gas prices have rebounded from their early-December lows in response to surging demand and currently trade around $3.20/MMBtu. The situation appears to be setting up well for continued strength in natural gas and the stocks of companies that supply it.
First Trust Natural Gas (FCG) is an excellent choice to gain exposure to the company side of the natural gas sector. First Trust Natural Gas could be bought below $23.95. The net expense ratio is reasonable at 0.6% and the fund has approximately $190 million in assets.
United States Natural Gas (UNG) could be considered to trade the commodity's seasonality as its assets consist of natural gas futures contracts and is highly liquid with assets of over $400 million and trades millions of shares per day. Its total expense ratio is 1.27%. United States Natural Gas could be bought on dips below $24.50. If purchased, set an initial stop loss at $22.00.
Bob Ciura, Wyatt Research's Daily Profit
Royal Dutch Shell (RDS.B) is an integrated oil and gas giant, based in Europe. Shell is a prime example among international dividend stocks that could be more attractive than U.S.-based industry peers.
It has maintained its hefty dividend, even amid the oil and gas industry downturn that took place from 2014-2016. In response to plunging commodity prices, Shell cut $20 billion from capital spending.
Shell's integrated structure also helped it survive the downturn. In addition to exploration and production businesses, which are highly reliant on the price of oil and gas, Shell has a large refining business. Refining activities are not highly exposed to the price of oil, which helped Shell remain profitable through the downturn.
And, now that oil prices are rising once again, Shell is a major beneficiary. By the end of next year, the company expects $10 billion of new cash flow each year from its project lineup.
Best of all, Shell has a 5.2% dividend yield, and the company generates more than enough cash flow to sustain the current payout. As Shell realizes growth from new projects, there could even be room to increase its dividend payout.
Crista Huff, Cabot Undervalued Stocks Alert
After reviewing a dozen attractive exploration and production (E&P) companies, I decided to add ConocoPhillips (COP) to our model growth portfolio. As long as global energy demand is "raging," I want to remain positioned to capitalize on it.
Here are the earnings per share numbers from 2016 through 2018: (-$2.66), $0.53 and $1.71. The market's essentially expecting 236% earnings per share growth in 2018, and the P/E is 32.1. Meanwhile, the stock offers a nice dividend yield of 1.9%.
I admit that you could practically throw darts at a list of energy stocks and enjoy attractive capital gains in 2018. The interesting thing about this stock is that it also has features that would also qualify for our "buy low opportunity" portfolio. The stock rose as high as $77.5 in July 2014, then proceeded to lose more than half its value.
Similar to stocks throughout the sector, the rebound has long since begun. I would buy now, and not hem and haw and try to save a dollar per share. There's 40% upside as the stock retraces its former high. I rate the stock a Strong Buy.
Tim Plaehn, The Dividend Hunter
The energy infrastructure sector requires a lot of capital to develop assets such as pipelines, processing plants and terminals.
This is not a sector that you might expect to benefit from the new corporate income tax rates. However, recent changes in the sector will allow dividend income investors to reap some better than expected yields and dividend growth.
The energy sector bear market that started in 2015 and lasted into 2017 forced many master limited partnerships (MLPs) to restructure as, or into, corporate entities. Now it appears that these companies are poised to see significant benefits from the lower corporate income tax rate.
Here are three energy infrastructure companies organized as corporations. These businesses are likely to pass lower corporate income tax expense through to investors as higher dividends or faster dividend growth.
Williams Companies Inc. (WMB) operates primarily as the general partner of Williams Partners LP (WPZ) . Williams Partners owns and operates one of North America's largest natural gas gathering, processing and pipeline networks.
Williams Companies currently does not pay much corporate income tax, but that bill will grow as growth projects start to generate revenue between now and 2020. After several years of restructuring, the dividend is poised to resume growth. The lower corporate tax rate could allow the dividend to grow by 20% plus per year. Williams Companies currently yields 3.7%.
ONEOK, Inc. (OKE) completed the absorption of its controlled master limited partnership on June 30, 2017. By eliminating the MLP's overhead and other costs, ONEOK is better positioned to pay an attractive and growing dividend.
The company is a leader in the gathering, processing, storage and transportation of natural gas. It operates in the Mid-Continent, Williston, Permian and Rocky Mountain regions.
Before the lowering of the corporate income tax rate, ONEOK was expected to grow its dividend by 10% per year. With a lower tax bill, that growth rate could move into the low-teens to mid-teens. ONEOK yields 5.3%.
Targa Resources Corp. (TRGP) rolled up its controlled MLP in early 2016, one of the first energy infrastructure corporations to "roll up" its publicly traded partnership. Targa is focused on natural gas liquids processing and transport.
The company also owns extensive Texas Gulf Coast energy product export terminals. Targa Resources has not increased its quarterly dividend since the fall of 2015. The lower corporate tax rate should allow it to soon return to a policy of dividend growth. Targa Resources yields 7.2%.