Oil & Gas Sector Bucks the Global Downtrend: 9 Top Stock Picks

Geopolitical risks from South America to the Middle East have kept oil prices firm, bucking the recent pullback in the broader market. Several leading stock experts and contributors to MoneyShow.com see continued gains for oil and gas and highlight their current favorites. Jim Powell, Global Changes & Opportunities I think oil will go higher in the coming months; the summer driving season for the U.S. and Europe is likely to push oil above $80 a barrel. Saudi Arabia -- the world's largest oil producer -- is keeping its output flat. The reason may not only be to keep prices up. It has been confirmed that the country's oil reserves are lower than the Saudis have wanted everyone to believe. Venezuela's oil industry is on life support due to the bungling actions of the country's socialist government and the economic collapse it is causing. Washington's sanctions are putting an additional squeeze on Venezuela's oil exports, and are likely to be increased in the coming months. Iran's oil industry is also suffering under President Trump's tough sanctions that are expected to tighten now that the Revolutionary Guard has been designated a terrorist organization. Libya is gripped again by conflict. The head of the country's state oil company recently warned that output will soon decline. I expect to see a similar announcement by the government of Algeria. Although Libya and Algeria aren't major oil producers, when global supplies are already under pressure, every additional pinch will hurt. The summer driving season for the U.S. and Europe is likely to push oil above $80 a barrel -- and even higher if the trade dispute with China is resolved and the global economy ticks up. Exxon Mobil and Diamond Offshore Drilling are performing as expected. Exploration and development companies like Diamond are always the last to make gains when oil prices rise -- but when their time comes they usually make up for lost ground quickly. Cheniere Energy -- America's leading exporter of liquefied natural gas -- and Suncor Energy do nearly all of their business in North America, and almost none in the Middle East. The more threatened that energy production becomes globally, the better the outlook becomes for Cheniere and Suncor. Energy pipeline company Kinder Morgan deserves special attention due to its exceptional 30% rebound this year. It went from being a high flyer to a fallen angel when oil prices plunged from $120 to $36 five years ago. The company is now rewarding patient investors who remained onboard until oil prices turned back up. I think more gains are on the way for Kinder Morgan. The company is extending its pipelines into top-yielding oil fields in Texas and the Permian Basin. Kinder also just increased its dividend 25% -- and expects to do it again next year. It all adds up to a company that is still undervalued by investors -- a situation that seems unlikely to last much longer. Mike Larson, Safe Money Report The U.S. is experiencing an energy boom. But don't picture gushers of crude oil spraying skyward over the Texas flatlands. Instead, think LNG -- Liquefied Natural Gas. If you're not familiar with the term, LNG is simply natural gas that has been cooled to minus-260 degrees Fahrenheit. This requires special processing facilities with production lines known as trains. At such a low temperature, LNG takes up much less space than vapor gas. It's also non-flammable. This allows LNG to be safely stored and transported using tanks, docks and ships designed for the process. Because it's viewed as a lower-priced, cleaner-burning fuel, natural gas is enjoying strong demand in many parts of the world. The U.S. is also capturing a larger share of the global gas market thanks to our nation's enormous gas reserves and billions of dollars in LNG capital investments. In fact, the U.S. should have the capacity to produce 8.9 billion cubic feet per day (Bcf/d) of LNG by the end of this year, according to the Energy Information Administration. Not only would that be up sharply from around 3.6 Bcf/d in late 2018, it would also be enough to make America the third-largest LNG exporter globally (behind Australia and Qatar). Leading the way is Cheniere Energy Partners LP and its sister company Cheniere Energy . CQP owns and operates the Sabine Pass LNG receiving, processing, storage and shipping facility in Cameron Parish, La., just four miles from the Gulf of Mexico. The facility already has four fully operational trains producing approximately 4.5 million tonnes per annum (mtpa) of LNG each. A fifth is in the process of being brought online, and a sixth is permitted and undergoing initial site development. The company hasn't (yet) reached a final investment decision on that train, as it's in the process of securing financing and customer contracts. Now that CQP has transitioned from the planning and construction phase to full-scale LNG commercialization, its sales and earnings are rising nicely. The company shipped 270 cargoes of LNG in 2018, generating $6.4 billion in revenue and $2.5 billion in adjusted EBITDA. All told, Cheniere Energy Partners has sent LNG to 31 separate countries and regions worldwide. Of the two Cheniere organizations, CQP is the one that features generous dividends because it's structured as a Master Limited Partnership. Its dividend rose 27% year over year in 2018, and just hit 60 cents per share in the most recent quarter. That's equivalent to an indicated yield of around 5.6%. Throw in the fact our Weiss Ratings system has graded Cheniere Energy Partners as a Buy since August 2018, and you can see why I believe it will be an attractive addition to the Bedrock Income Portfolio. There is, however, one short-term issue I'm watching: China. It's a major player in the global LNG market. There's always a chance that policymakers there could respond to U.S. trade pressure with, say, punitive tariffs on U.S. LNG imports. Bryan Perry, Cash Machine Sunoco L.P. is a trusted American brand built on innovation and quality; this superbly managed enterprise is well recognized among racing enthusiasts worldwide. The company is the world's largest manufacturer and marketer of racing fuels, distributing gasoline to more than 500 race tracks worldwide. It is the official fuel of NASCAR, NHRA, INDYCAR and 50 other racing series in the United States. The company's footprint is dense within the entire East Coast from Maine to Florida. Sunoco LP, together with its subsidiaries, engages in the distribution and retailing of motor fuels in the United States. The firm purchases motor fuel from independent refiners and major oil companies, then supplies it to independently operated dealer stations, distributors and other consumers of motor fuel, and partnership operated stations, as well as to commission agent locations. Its retail stores offer motor fuel, merchandise, foodservice and other services that include car washes, lottery, automated teller machines, money orders, prepaid phone cards and wireless services. It also leases and rents real estate properties. Every service station is highlighted by its APlus convenience stores that provide everything from freshly brewed coffee to all manner of snacks, craft beers and groceries for all classes of travelers. With any MLP where investors are required to file a K-1 tax return, it's my view the investment better fall into the darn well worth it category. In this case, I believe SUN is right in the zone of what I require for an asset to be listed in our Aggressive High Yield Portfolio. The shares have a time-tested yield of 10.63% as illustrated by the rich history of distribution increases over the past seven years. In the income investing business, this is where the rubber meets the road. Current distribution coverage is 1.32 times. The partnership is set to see top-line revenues grow from $15.53 billion to $16.39 billion in 2019 with earnings forecast to grow by 16.54% for the next five years. Let's get long in one of America's premier service station franchises in front of summer driving season. Gavin Graham, The Income Investor We stick to more conservative securities with proven histories of sound financial stewardship, profitability, and dividend growth. As such, my Top Pick this month is a beneficiary of lower or stable interest rates, while still having the potential for decent revenue growth. And, unlike many new-era stocks, it is profitable and pays a dividend. AltaGas Canada (Toronto: ACI) was spun off from its parent AltaGas (Toronto: ALA) in October 2018 as part of the latter's debt reduction program after it doubled its size by acquiring U.S. utility WGL. AltaGas retains a 36.8% stake in AltaGas Canada. ACI owns or operates regulated natural gas utilities in three provinces (Alberta, B.C., and Nova Scotia) with 130,000 customers and a rate base of $885 million. It also owns the 102 MW Bear Mountain Wind Park and 10% of the 303 MW North West Hydro Facilities in B.C. ACI's assets provide low-risk stable earnings and cash flow, through its regulated natural gas utilities and long-term contracted renewable power assets. All of its earnings before interest, tax, depreciation and amortization (EBITDA) is regulated or long-term contracted, giving excellent visibility of earnings. The natural gas distribution utilities are provincially regulated under cost of service and performance-based frameworks, with return on equity of between 8.5% and 11%. Bear Mountain and the Northwest Hydro assets are contracted with AAA-rated BC Hydro for 25 and 60 years respectively, and their Power Purchase Agreements (PPAs) are 50% and 100% indexed to CPI. AltaGas sold 55% of the Northwest Hydro Facilities to institutional investors in January this year for $1.37 billion, which values ACI's 10% stake at $249 million, equivalent to 45% of its $558 million market capitalization. It sells for 0.92 of its book value. For the year to Dec. 31, ACI reported normalized net income of $41.8 million ($1.39 per share), which is equivalent to $40.5 million ($1.35 per share) adjusted for ACI's new independent capital structure. Revenue from the combined utilities rate base grew 6%, to $885 million, and ACI anticipates $330 million in capital expenditures between 2019 and 2023, which should support 5% annual normalized net income growth over that period. The stock has risen 30% from its IPO, leaving it on a reasonable 12.3 price/earnings ratio. ACI may not be able to invest all of the $330 million in capital expenditure it has planned for the next five years, although its Alberta utility is authorized to invest $200 million under its existing regulated agreement. Heritage Gas has only one-third penetration of its Nova Scotia base. Otherwise the 100% regulated nature of its operations makes weather factors (e.g., low water levels or less wind) the major risk for its renewable power assets. ACI pays a quarterly dividend of $0.2375, equivalent to a 4.75% yield. The distributions count as qualified dividends to a Canadian resident shareholder. ACI is suitable for conservative investors looking for a reasonable yield with low volatility, with some possibility of moderate growth.

Oil & Gas Sector Bucks the Global Downtrend: 9 Top Stock Picks

Several geopolitical factors could result in continued gains for the energy sector.

Columnist Conversation

Large CEO buy in Affiliated Managers Group (AMG)

Fibocall: Is MO Ready to 'MO've Higher?

Insider Buying in a Few of My Faves Last Week

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.