We’ve all seen the headlines lately, about Russia cutting back its natural gas exports to Germany – and to Western Europe generally. The cuts come in response to Western sanctions over the Ukraine war, but the result is a scramble in Germany to find alternative fuels sources. The continent is coping with a record heatwave, and the cold winter months are not so far away.
The upshot is that the International Energy Agency (IEA) has bumped up its estimates for oil demand by 22%, increasing the 2022 growth estimate by 380,000 barrels per day to 2.1 million barrels daily by year’s end. The agency also foresees total daily European oil consumption rising by 500,000 barrels per day later this year and into 2023.
One thing is clear – if demand goes up, the oil companies and energy stocks will gain. With this in mind, we’ve used the TipRanks database to find two Buy-rated stocks that are well positioned to benefit from an increased appetite for crude oil. Let’s take a closer look.
We’ll start with a Canadian firm, Calgary-based Enerplus. This company focuses on existing oil and natural gas plays in North America, exploiting known reserves in proven formations. Enerplus has operations in the Waterfloods region of Saskatchewan and Alberta, where it uses enhanced extraction techniques to maximize production from hydrocarbon plays that have finished their primary activities. The company also operates, on a larger scale, in the US, in the Marcellus share of Pennsylvania and the Bakken formation of North Dakota.
A look at Enerplus’s second quarter numbers will give a good snapshot of the company’s overall position. The company reported $580.4 million in total revenues for 2Q22, and a net income of $244.4 million. These numbers represented significant growth from the year-ago quarter, of 238% at the top line. The bottom line was a dramatic turnaround from a $50 million quarterly loss. Per share, the company reported a diluted EPS of 99 cents, up from the 20-cent EPS loss one year ago.
Looking forward, Enerplus sees its strong operational performance supporting an increase in total production for this year, and the company has pushed its 2022 guidance up from range of 96,000 BOE/day – 101,000 BOE/day (barrels of oil equivalent daily) to a new range of 97,500 BOE/day – 101,500 BOE/day.
Enerplus has also made a point of maintaining its dividend. The company’s dividend has been reliable for the past 22 years – an enviable record – and management has prioritized that reputation. The payment, of 5 cents per common share quarterly, annualizes to 20 cents and gives a modest yield of 1.5%.
Writing for BMO Capital, 5-star analyst Randy Ollenberger lays out a strong case for buying into this stock now: “Enerplus has continued to consolidate its position in the Bakken through accretive acquisitions and organic growth, while being a leader when it comes to capital discipline and shareholder returns. We believe that the company is in an advantaged position to accelerate returns to shareholders due to its strong balance sheet, impressive free cash flow profile, and the sale of its non-core assets. These factors, coupled with Enerplus’ discounted valuation, present a compelling entry point for shareholders.”
Ollenberger’s Outperform (i.e. Buy) rating and $20 price target should come as no surprise given those bullish comments. His price target suggests ~42% upside in the next 12 months. (To watch Ollenberger’s track record, click here)
This mid-cap energy producer has picked up 6 recent analyst reviews – and they are all positive, making the Strong Buy consensus rating unanimous. The shares are trading for $14.07 and the $24.86 average price target indicates a strong 77% upside potential on the one-year time frame. (See Enerplus forecast on TipRanks)
Marathon Oil Corporation (MRO)
Next on our list is Marathon Oil, which, with a market cap of $16 billion, is one of the industry’s giants. Marathon Oil is the hydrocarbon exploration and production arm of the 2011 Marathon Petroleum spinoff, that saw the parent company split its E&P and midstream businesses. Based in Houston, Texas, Marathon Oil operates in some of the richest oil and natural gas basins in the US, including the Bakken of North Dakota, the Eagle Ford shale of South Texas, the north Delaware basin on the Texas-New Mexico border region, and the Stack/Scoop plays in Oklahoma.
Last year, Marathon Oil’s assets generated approximately 274,000 BOE/day, and the company saw its revenue and earnings rise in each quarter of the year. For all of 2021, MRO brought in $5.6 billion in total revenue.
Looking at the most recent quarterly financials, for 2Q22, we find that the company is keeping up its high performance. Total revenues came in at $2.3 billion, and adjusted income was reported at $1.32 per diluted share. On a year-over-year basis, these numbers represent gains of 27% and 29% respectively. Based on these strong results, Marathon Oil also generated a record quarterly free cash flow of $1.2 billion, and year-to-date has been able to return some $1.7 billion to shareholders through a combination of dividends and share buybacks. Overall, Marathon Oil has been returning approximately 75% of adjusted free cash flow to its investors.
On the dividend front, MRO pays out 8 cents per common share, with the last payment made at the end of May. This common share dividend annualizes to 32 cents, and yields 1.5%. MRO has a history of keeping reliable dividend payments going back to 1962.
Truist’s Neal Dingmann, rated 5-stars by TipRanks, sees Marathon as a Buy, and describes it as an outperformer in its league: “Unlike all other larger E&Ps to date, the company maintained both its 2022 production and CAPEX guidance as it was able to keep costs contained despite the current environment. MRO continues to lead with a CFO levered shareholder return that should give investors more comfort as capital spending plans ramp across the industry for various reasons. The company remains focused on a maintenance capital program that is capable of delivering continued notable shareholder returns.”
Dingmann’s upbeat comments back up his Buy rating on MRO shares, and his price target, of $43, implies a one-year upside potential of 79%. (To watch Dingmann’s track record, click here)
In recent weeks, Marathon Oil has picked up 12 reviews from the Street’s analyst corps, breaking down to 8 Buys, 2 Holds, and 2 Sells – for a Moderate Buy consensus rating. The stock is selling for $23.95 and its average price target of $32.92 indicates it has ~37% gain ahead of it in the next 12 months. (See MRO stock forecast on TipRanks)
To find good ideas for energy stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.