Oil and gas prices have trended higher recently amid renewed concerns over supply due to escalating tensions in Eastern Europe and the Middle East. Prices are also supported by solid demand growth forecasts, with OPEC and IEA predicting robust oil demand in the second half of 2024. Moreover, OPEC+ deepened oil production cuts into 2025.
Against this backdrop, it could be wise to invest in fundamentally strong energy stocks ConocoPhillips (COP), Schlumberger Limited (SLB), and Baker Hughes Company (BKR) with significant upside potential.
OPEC maintains a solid oil-demand outlook after the output policy move. The Vienna-based cartel projects global oil demand growth at 2.2 million b/d in 2024 and 1.8 million b/d in 2025. During the second half of this year, oil demand is expected to grow by an average of 2.3 million b/d.
Oil prices hit seven-week highs lately, driven by summer demand optimism and concerns over growing conflicts in Eastern Europe and the Middle East. Brent crude futures for August rose by 20 cents to $85.53 per barrel by 12:35 GMT on Wednesday. Meanwhile, the September contract, which is more actively traded, increased by 21 cents to $84.74.
U.S. West Texas Intermediate crude also saw a slight rise of 3 cents, reaching $81.60 per barrel.
Furthermore, the extension of OPEC+ cuts through the third quarter of 2024 will likely cause Brent prices to rise to an average of $85/b during the second half of 2024, and owing to less OPEC+ production, more oil withdrawal from global inventories in the second half of the year is expected.
With the increasing adoption of distributed energy generation in commercial and industrial sectors and supportive government initiatives, the Energy as a Service (EaaS) market will witness considerable growth. The EaaS market is projected to reach $169.52 billion by 2029, growing at a CAGR of 12.5% from 2024 to 2029.
Given the industry’s robust outlook, investing in quality energy stocks such as COP, SLB, and BKR could be wise for future gains.
ConocoPhillips (COP)
COP explores for, produces, transports, and markets crude oil, bitumen, natural gas, LNG, and natural gas liquids internationally. Its portfolio includes unconventional plays in North America, conventional assets in North America, Europe, Asia, and Australia, global LNG developments, oil sands assets in Canada, and an inventory of global exploration prospects.
On May 29, COP entered into a definitive agreement to acquire Marathon Oil Corporation in an all-stock transaction with an enterprise value of $22.5 billion, including $5.4 billion of net debt. COP expects to achieve at least $500 million of run-rate cost and capital savings within the first full-year from the acquisition.
The strategic acquisition will expand COP’s portfolio and align well with its financial framework, adding high-quality, low-cost supply inventory adjacent to its leading U.S. unconventional position.
On May 2, COP declared an ordinary dividend of $0.58 per share and a VROC of $0.20 per share, both paid on June 3, 2024, to stockholders of record at the close of business on May 13, 2024.
COP pays an annual dividend of $3.12, which translates to a yield of 2.85% at the current share price. Its four-year average dividend yield is 3.69%. Moreover, the company’s dividend payouts have increased at a CAGR of 22.3% over the past five years.
During the first quarter that ended March 31, 2024, COP reported total revenues and other income of $14.48 billion. The company’s adjusted earnings came in at $2.41 billion and $2.03 per of common stock for the quarter, respectively. Furthermore, its cash and cash equivalents and total assets stood at $5.57 billion and $95.35 billion as of March 31, 2024, respectively.
As per the second quarter 2024 outlook, COP expects its production to be 1.91 to 1.95 million barrels of oil equivalent per day.
Analysts expect COP’s revenue and EPS for the second quarter (ending June 2024) to grow 20.3% and 21.4% year-over-year to $15.51 billion and $2.23, respectively. Also, the company topped the consensus EPS estimates in three of the four trailing quarters.
Shares of COP have surged 8.8% over the past year to close the last trading session at $109.41. Moreover, Wall Street analysts expect the stock to reach $147.27 in the upcoming 12 months, indicating a potential upside of 34.6%.
COP’s solid fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
COP has a B grade for Quality. It is ranked #28 out of 80 stocks in the Energy – Oil & Gas industry.
In addition to the POWR Ratings we’ve stated above, we also have COP ratings for Value, Sentiment, Growth, Momentum, and Stability. Get all COP ratings here.
Schlumberger Limited (SLB)
SLB engages in the provision of technology for the energy industry globally. It operates through four divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. The company offers field development and hydrocarbon production, carbon management, and integration of adjacent energy systems.
On June 14, SLB and Aker Carbon Capture closed their previously announced joint venture, under which the new company combined technology portfolios, expertise, and operations platforms to support accelerated carbon capture adoption for industrial decarbonization at scale.
The joint venture will allow wider adoption of market-ready and new carbon capture technologies for power and hard-to-abate industrial sectors worldwide.
On May 24, SLB’s OneSubsea™ joint venture was awarded a sizeable contract by Equinor under which the award leverages an existing long-term contract for the execution of the second stage of Phase 3 for Equinor’s Troll project in the North Sea, offshore Norway.
For the first quarter that ended March 31, 2024, SLB’s revenue increased 12.6% year-over-year to $8.71 billion. Its income before taxes grew 16.9% from the year-ago value to $1.36 billion. The company’s adjusted EBITDA of $2.06 billion indicates growth of 15% year-over-year.
In addition, net income attributable to SLB and EPS came in at $1.07 billion and $0.74, up 14.3% and 13.8% from the prior year’s quarter, respectively.
Street expects SLB’s revenue for the second quarter (ending June 2024) to increase 12.4% year-over-year to $9.10 billion, while its EPS is expected to grow 15.8% year-over-year to $0.83, respectively. Furthermore, the company surpassed the consensus EPS estimates in all of the trailing four quarters.
SLB’s stock has plunged 6% over the past year to close the last trading session at $44.44. However, Wall Street analysts expect the stock to reach $66.94 in the upcoming 12 months, indicating a potential upside of 50.6%.
SLB’s bright prospects are reflected in its POWR Ratings. The stock has an A grade for Momentum. SLB is ranked #14 among 51 stocks in the Energy - Services industry.
Click here to access SLB’s ratings for Quality, Growth, Value, Stability and Sentiment.
Baker Hughes Company (BKR)
BKR offers a portfolio of technologies and services to energy and industrial value chains worldwide. The company operates through Oilfield Services & Equipment; and Industrial & Energy Technology segments. It designs and manufactures products and provides related services, including exploration, development, production, and decommissioning.
On June 10, BKR was awarded a significant order from Petrobras for workover and plug and abandonment services in pre-salt and post-salt fields offshore Brazil. Under the multi-year project, BKR will optimize performance for Petrobras and will deploy wireline, coiled tubing, cementing, tubular running, wellbore intervention, fishing, and geosciences services.
On April 23, BKR received an order by Worley, for and on behalf of Aramco, to supply gas technology equipment for the third phase of Saudi Arabia’s Master Gas System project. BKR will supply 17 pipeline centrifugal compressors driven by state-of-the-art aero-derivative gas turbines.
BKR’s revenue increased 12.2% year-over-year to $6.42 billion during the first quarter that ended March 31, 2024. Its adjusted operating income rose 28.9% year-over-year to $660 million. Adjusted net income attributable to BKR and EPS came in at $429 million and $0.43 for the quarter, up 48.4% and 53.6% from the prior year’s quarter, respectively.
Furthermore, the company’s adjusted EBITDA grew 20.6% from the year-ago value to $943 million.
Street expects BKR’s EPS for the second quarter (ending June 2024) to increase 25.6% year-over-year to $0.49, and its revenue for the ongoing quarter is expected to grow 7.6% year-over-year to $6.79 billion. Also, the company has surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.
BKR’s stock has gained 7.8% over the past year to close the last trading session at $32.14. Moreover, Wall Street analysts expect the stock to reach $40.50 in the upcoming 12 months, indicating a potential upside of 26%.
BKR’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Growth. Within the Energy – Oil & Gas industry, BKR is ranked #14 among 80 stocks.
Click here to access additional ratings of BKR for Stability, Value, Sentiment, and Quality.
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.
COP shares were trading at $109.41 per share on Wednesday morning, down $0.13 (-0.12%). Year-to-date, COP has declined -4.46%, versus a 15.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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