As the price of crude oil continues to hit multi-year highs, the Street is staunchly focused on energy stocks these days. The oil and gas rally continued during the third quarter, implying stronger margins and cash flows for the category.
According to the U.S. Energy Information Administration (EIA), “Brent crude oil spot prices averaged $74 per barrel […] in September, up $4 […] from August and up $34 from September 2020.” Given the current momentum in the Q3 earnings season, the stock market is paying close attention to the energy sector. The sector’s prospects in Q4 continue to depend primarily on the price of oil, which is estimated to remain strong in the coming months.
So, with that information, here are seven energy stocks that are primed to gain traction in November. Aside from traditional energy picks, this list will also include leading names in the transition to clean energy. As the 26th United Nations Climate Change Conference of the Parties — also known as COP26 — gets underway, green energy picks should enter the limelight as well.
- ChargePoint (NYSE:CHPT)
- Chart Industries (NYSE:GTLS)
- Halliburton (NYSE:HAL)
- NextEra Energy (NYSE:NEE)
- Schlumberger (NYSE:SLB)
- USCF Midstream Energy Income Fund (NYSEARCA:UMI)
- Valero Energy (NYSE:VLO)
Energy Stocks to Buy: ChargePoint (CHPT)
52-week range: $12.80 – $49.48
First up on this list of energy stocks is California-based ChargePoint, a developer of networked electric vehicle (EV) charging infrastructure and cloud-based services. The company offers a platform for consumers to locate and transact EV charging sessions. It currently has over 18,000 charging locations.
ChargePoint released Q2 2022 results back in early September. Revenue increased 61% year-over-year (YOY) to $56.1 million. Further, non-GAAP net loss came in at $40.4 million, compared to a $22.6 million net loss in the prior-year period. Lastly, cash and equivalents ended the period at $618.5 million. On the results, CEO Pasquale Romano remarked the following:
“We achieved record revenue, significantly grew our commercial, fleet and residential businesses, launched a charging integration with Mercedes, announced our agreement to acquire e-mobility technology provider has·to·be and acquired eBus and commercial vehicle management provider ViriCiti.”
ChargePoint is the market leader in the EV charging space right now, boasting a market share of more than 65%. What’s more, the need for charging stations is estimated to grow considerably along with accelerated EV adoption, especially in North America and Europe. Moreover, President Joe Biden’s infrastructure plan involves a $7.5 billion investment in charging stations, implying significant top-line growth over the next few years.
Management has raised full-year revenue outlook to between $225 million and $235 million. CHPT stock hovers just under $25 today, about half of its 52-week high in late December. The stock is down 39% year-to-date (YTD) but has gained about 84% over the past one year. Interested readers might find value around these levels.
Chart Industries (GTLS)
52-week range: $82.94 – $206.29
Based in Georgia, Chart Industries is the next pick on this list of energy stocks. The company provides engineered equipment used in the production, storage and end-use of hydrocarbon gases.
Chart Industries issued Q3 results on Oct. 21. For the period, revenue surged 20% YOY to $328.3 million. However, net income fell 31% YOY to $14.9 million, or 36 cents per diluted share. That’s compared to $21.7 million in the prior-year quarter. Finally, cash and equivalents ended the period at $103.1 million. CEO Jill Evanko remarked:
“While near-term cost pressures challenged our margins in the third quarter, the structural pricing and cost reduction steps taken, combined with our year-to-date trend of broad-based demand, fourth consecutive record backlog quarter and our expectation of traditional markets returning, set the stage for anticipated meaningful profitable growth in 2022 and beyond.”
Although Chart Industries increased prices for its products, it wasn’t enough to compensate for surging raw material, container and freight costs. Hence, net income declined despite solid top-line growth. Additionally, orders increased in Q3, pushing the YTD backlog to a record $1.2 billion.
Some of the revenue this company was expected to recognize in Q3 has now shifted to 2022. Thus, management has lowered the fiscal 2021 revenue guidance. The company now anticipates revenue to come in between $1.31 billion and $1.33 billion, down from the prior outlook of between $1.38 billion and $1.43 billion.
GTLS stock currently trades at around $175 per share. It has returned 48% YTD and 105% over the past one year. Shares are trading at 4.94 times trailing sales, according to Seeking Alpha. Potential investors could regard the $170 level or below as a better entry point.
Energy Stocks to Buy: Halliburton (HAL)
52-week range: $11.48 – $26.75
Dividend yield: 0.70%
Based in Houston, Texas, Halliburton is a leading oilfield-services company and the next entry on this list of energy stocks. This company has also evolved into an engineering name, with business lines in cementing, completion equipment and pressure pumping.
Halliburton released Q3 results on Oct. 19. For the period, total revenue came in at $3.9 billion, compared to $3.7 billion in the previous quarter. Further, net income was $236 million, or 26 cents per diluted share. That was a quarter-over-quarter increase from Q2 net income of $227 million. Lastly, Halliburton saw $469 million in free cash flow (FCF), retired $500 million in debt and sported a cash balance of $2.6 billion at the end of the quarter. CEO Jeff Miller noted the following:
“Total company revenue increased 4% sequentially, and adjusted operating income grew 6% with solid margins in both divisions.”
Due to declining drilling operations during the pandemic, Halliburton narrowed its focus to stay profitable over the past two years. Meanwhile, HAL stock has significantly benefited from increasing oil prices. Miller added:
“I see a multiyear upcycle unfolding. Structural global commodity tightness drives increased demand for our services, both internationally and in North America. I believe Halliburton is uniquely positioned in both markets to benefit from this improving environment.”
HAL stock hit a 52-week high of $26.75 on Oct. 25 and is currently up nearly 33% YTD. Shares are currently trading at 24.15 times forward earnings and 1.6 times trailing sales. Interested readers could consider buying the dips.
NextEra Energy (NEE)
52-week range: $68.33 – $87.69
Dividend yield: 1.78%
Next up on this list, NextEra Energy owns and operates regulated utility Florida Power & Light, which distributes power to more than 5 million customers across its namesake state. The company’s consolidated generation capacity includes natural gas, nuclear and wind as well as solar assets.
NextEra announced Q3 results in mid-October. On an adjusted basis, net income came in at $1.48 billion, or 75 cents per share, compared to $1.31 billion or 67 cents per share in the prior-year quarter. This represents a 12% YOY increase on a per-share basis, an impressive growth rate for a large-scale utility. Finally, cash and equivalents ended the period at around $1 billion. Following the announcement, CEO Jim Robo cited:
“NextEra Energy delivered strong third-quarter results and remains well-positioned to meet our 2021 and longer-term growth expectations […] We grew adjusted earnings per share by approximately 12% year-over-year, reflecting continued strong financial and operational performance across all of the businesses.”
Thanks to its focus on renewable energy, this pick of the energy stocks has also become one of the leading green names stateside. Management projects adjusted earnings to grow at a 6% to 8% annual rate through 2023. NEE stock currently hovers at just under $86. Year-to-date, the stock is up 11%. It is trading at 34.2 times forward earnings and 10.3 times sales.
Energy Stocks to Buy: Schlumberger (SLB)
52-week range: $14.32 – $36.87
Dividend yield: 1.5%
Like Halliburton, Schlumberger is also based in Texas. This pick of the energy stocks is one of the largest suppliers of products and services to the oil and gas industry worldwide. The company operates through several segments: reservoir characterization, drilling, production and Cameron, a separate equipment-services entity.
Schlumberger released Q3 results on Oct. 22. For the period, global revenue of $5.85 billion increased 4% sequentially and 11% YOY. What’s more, net income soared 28% sequentially to $550 million. GAAP earnings per share (EPS) came in at 39 cents, representing a 30% increase from the previous quarter. Finally, the company generated FCF of $671 million as well as cash and short-term investments of $2.9 billion. CEO Olivier Le Peuch remarked:
“We started the second half of the year with strong results, delivering another quarter of sequential revenue growth, a fifth consecutive quarter of margin expansion, and a solid free cash flow performance.”
JPMorgan recently upgraded Schlumberger, suggesting that increasing oil prices can boost SLB stock by over 20%. Additionally, shares of this name surged after it announced a significant contract award from Turkish Petroleum (TP) for the “engineering, procurement, construction and installation (EPCI) of end-to-end production solutions for the Sakarya gas field, Turkey’s largest gas reserve.”
SLB stock currently trades around $33 and is up 50% YTD. Moreover, shares have gained 130% over the past 12 months. They are trading at 26.1 times forward earnings and 2.1 times trailing sales.
USCF Midstream Energy Income Fund (UMI)
52-week range: $20.70 – $32.62
Dividend yield: 0.30%
Expense ratio: 0.85%
Out next discussion on this list of energy stocks actually centers around an exchange-traded fund (ETF). The USCF Midstream Energy Income Fund offers exposure to U.S. and Canadian midstream energy companies, including master limited partnerships (MLPs).
Basically, this fund evaluates midstream energy infrastructure companies on metrics like income growth, leverage, distribution coverage, direct-commodity price exposure and contract quality. Overall, UMI invests in companies with limited direct commodity price exposure and cash flows supported by long-term contracts.
UMI is an actively managed fund with 24 holdings currently. The fund began trading in March 2021. The top ten holdings account for around 64% of net assets of $124 million. Among the leading names in the roster are Targa Resources (NYSE:TRGP), Enbridge (NYSE:ENB), Enterprise Products Partners (NYSE:EPD), Cheniere Energy (NYSE:LNG) and TC Energy (NYSE:TRP).
Since its inception in March, this ETF has gained around 26% and recently saw a record high of $32.62 on Oct. 18. Potential investors could regard the $30 level as a better entry point.
Energy Stocks to Buy: Valero Energy (VLO)
52-week range: $36.91 – $84.95
Dividend yield: 5%
Last up on this list of energy stocks is VLO stock. Based in Texas, Valero Energy is one of the largest independent refiners in the United States. The company operates 15 refineries with a total throughput capacity of 3.2 million barrels per day across Canada, the U.S. and the United Kingdom.
Valero released its Q3 results on Oct. 21. For the period, revenue soared nearly 87% YOY to 29.5 billion. Further, adjusted net income came in at $500 million, or $1.22 per share. That’s compared to an adjusted net loss of $472 million, or $1.16 per share, a year ago. Finally, Valero finished Q3 with $14.2 billion in total debt and finance lease obligations as well as cash and equivalents of $3.5 billion. On the metrics, CEO Joe Gorder remarked the following:
“We saw significant improvement in refining margins in the third quarter as economic activity and mobility continued to recover in key markets […] The continued improvement in earnings of our refining business, coupled with the ongoing expansion of our renewables businesses, should strengthen our competitive advantage and drive long-term shareholder returns.”
Thanks to rising oil prices, Valero is expected to generate strong free cash flow moving forward. It is also well-positioned to benefit from its renewable fuel operations.
Lastly, VLO shares also offer consistent dividend growth along with an attractive 5% yield. The stock hovers at around $77 per share and is up 37% YTD as well as 113% over the past 12 months. Valero trades at 0.36 times sales according to Seeking Alpha. Potential buy-and-hold investors could find value at current levels.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.