Amid recent oil production cuts, depleting inventories pushing oil prices to multi-month highs, and a simultaneous uptick in natural gas production and demand, investors could seek refuge in sound Energy stocks Hess Midstream LP (HESM), PBF Energy Inc. (PBF) and Suburban Propane Partners, L.P. (SPH), poised for potential gains in October.

Let’s understand this in detail.

Saudi Arabia has chosen to extend its crude oil production cut by 1 million barrels per day until the end of the year. Simultaneously, Russia, the world's second-largest oil exporter, has prolonged its voluntary 300,000 barrels per day reduction in oil exports until year-end to maintain market stability.

Due to the production cuts from Saudi Arabia and OPEC+ and the decrease in commercial crude inventories in the United States, oil prices have recently soared to their highest levels in months.

The global benchmark, Brent Crude, experienced a notable surge, hitting a new 2023 high last month, surpassing the $97 per barrel threshold. In addition, oil prices jumped recently due to concerns over the attack on Israel, which could impact crude supply from the Middle East. 

In the first seven months of 2023, U.S. dry natural gas production surged by 3%, registering an average daily output of 103.0 billion cubic feet (bcfd), as reported by the EIA’s Natural Gas Monthly. This marked a notable increase from the preceding year's annual average of 99.6 Bcf/d.

Looking ahead, the EIA foresees a significant surge in both natural gas production and demand for the year 2023. The projection entails an increase in dry gas production to 102.69 bcfd in 2023, followed by a subsequent boost to 104.93 bcfd in 2024, surpassing the prior record of 98.13 bcfd established in 2022.

Additionally, the agency foresees a rise in domestic gas consumption, reaching 89.72 bcfd in 2023 from a record 88.56 bcfd in 2022. Moreover, it projects that average U.S. Liquefied Natural Gas (LNG) exports will increase to 11.60 bcfd in 2023 and 13.15 bcfd in 2024, up from 10.59 bcfd in 2022.

In light of these encouraging trends, let’s look at the fundamentals of the three best energy stocks, beginning with number 3.

Hess Midstream LP (HESM)

HESM owns, operates, and acquires midstream assets, including oil, gas, and produced water handling facilities, primarily situated in North Dakota's Williston Basin area, encompassing the Bakken and Three Forks Shale plays. The company operates through three segments: Gathering; Processing and Storage; and Terminaling and Export.

In terms of forward non-GAAP PEG, HESM is trading at 1.51x, 18.6% lower than the industry average of 1.85x. Also, its forward EV/EBITDA multiple of 5.04 is 10.1% lower than the 5.61 industry average. In addition, the stock’s forward EV/EBIT of 6.25x compares with the industry average of 9.00x

For the fiscal second quarter, HESM’s total revenues increased 3.4% year-over-year to $324 million. Its income from operations rose 1.4% from the prior year’s quarter to $198.10 million. Moreover, net income attributable to HESM came in at $25.10 million, up 14.1% year-over-year, while net income attributable to HESM per Class A share stood at $0.50.

The consensus revenue estimate of $1.33 billion for the fiscal year ending December 2023 reflects a 3.9% year-over-year improvement. Likewise, the consensus EPS estimate of $2.10 reflects a 4.5% rise from the prior year. HESM’s shares have gained 5.3% over the past year to close the last trading session at $28.47.

HESM’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

HESM has an A grade for Quality and a B for Growth, Value, and Momentum. It has topped the A-rated MLPs - Gas industry.

In addition to the POWR Ratings I’ve just highlighted, you can see HESM’s ratings for Sentiment and Stability here.

PBF Energy Inc. (PBF)

PBF engages in petroleum product refining and supply. It manufactures a range of products, including gasoline, ultra-low-sulfur diesel, heating oil, jet fuel, lubricants, petrochemicals, asphalt, and unbranded transportation fuels from crude oil, along with petrochemical feedstocks and blending components.

In terms of forward non-GAAP P/E, PBF is trading at 3.88x, 60.6% lower than the industry average of 9.85x. Furthermore, its forward EV/EBITDA multiple of 2.49 is 55.7% lower than the 5.61 industry average. Additionally, the stock’s forward Price/Sales of 0.15x compares with the industry average of 1.48x.

During the second quarter that ended June 30, 2023, PBF’s revenues came in at $9.16 billion. Moreover, the net income attributable to PBF stockholders and net income available to Class A common stock per share stood at $1.02 billion and $7.88, respectively.

In addition, as of June 30, 2023, the company’s total assets amounted to $14.03 billion, compared to $13.55 billion as of December 31, 2022.

Year-to-date, PBF has gained 21%, closing the last trading session at $45.43.

PBF’s solid outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.

PBF has an A grade for Value and a B for Quality. It has ranked #13 out of 89 stocks within the Energy - Oil & Gas industry.

Click here to access additional PBF ratings for Growth, Momentum, Stability, and Sentiment.

Suburban Propane Partners, L.P. (SPH)

SPH operates through three segments, Propane; Fuel Oil and Refined Fuels; and Natural Gas and Electricity. The company specializes in retail distribution, providing propane, fuel oil, diesel, kerosene, and gasoline. Additionally, it markets natural gas and electricity to its customers.

In terms of forward non-GAAP P/E, the stock is trading at 7.21x, 53.2% lower than the industry average of 15.39x. Its forward EV/Sales of 1.65x is 53% lower than the 3.52x industry average. In addition, SPH’s forward Price/Sales multiple of 0.72 is 58.2% lower than the 1.72 industry average.

During the third quarter that ended June 24, 2023, SPH’s operating income marginally rose year-over-year to $14.87 million. In addition, as of June 24, 2023, the company’s cash and cash equivalents came in at $10.03 million, compared to $4.10 million as of September 24, 2022, while its total assets amounted to $2.28 billion, compared to $2.10 billion as of September 24, 2022.

Analysts expect SPH’s revenue to grow 1.5% year-over-year to $1.46 billion for the fiscal year ending September 2024. Likewise, the company’s EPS for the next fiscal year is estimated to come in at $2.44, indicating a 33.6% year-over-year improvement. The stock has gained 11.9% over the past month, closing the last trading session at $16.29.

SPH’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.

SPH has a B grade for Quality and Sentiment. It is ranked #2 within the MLPs – Gas industry.

Click here to access the additional SPH ratings (Growth, Value, Momentum, and Stability). 

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

HESM shares were trading at $29.08 per share on Monday afternoon, up $0.61 (+2.14%). Year-to-date, HESM has gained 2.98%, versus a 13.52% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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