Navigating the Energy Sector’s Ups and Downs
In the face of geopolitical tensions, the energy market has faced significant volatility. Amidst this turbulence, some experts see opportunities emerging in the sector, despite being relatively undervalued in recent years. Stephen Ellis, an energy and utilities strategist at Morningstar, believes that patience can pay off in the energy space, as it has historically.
Ellis emphasizes that selectivity is crucial in finding bargains within the current market. He seeks out “moaty” companies with durable competitive advantages and potential for long-term growth.
Top Energy Picks with Hidden Upside Potential
Ellis has identified five companies that meet his criteria: Enbridge, TC Energy, SLB, ExxonMobil, and APA Corp. Here’s a closer look at each of these energy giants:
Enbridge: A Utility Giant at a Discount
With its 29 consecutive years of dividend increases and a modest dividend yield, Enbridge has established itself as a reliable investment. Morningstar sees an upside potential of around 16.7% for its stock, offering investors a prime opportunity to acquire a solid performer at a discount.
TC Energy, SLB: Diversified Leaders in Energy
TC Energy, with its natural gas pipeline network, and SLB, a leading provider of oilfield services, have both earned Morningstar’s four-star rating. TC Energy’s potential downside is minimal, while SLB has significant upside potential of nearly 25%.
ExxonMobil: Embracing Oil and Gas with Caution
Despite the trend towards renewable energy, ExxonMobil remains committed to oil and gas production. While it faces scrutiny from environmental investors, Ellis believes its measured approach and focus on emissions reduction may ultimately lead to superior returns. Morningstar predicts an upside potential of 11%.
APA Corp: Undervalued With Suriname Development Promise
Ellis believes APA Corp. is deeply undervalued, with the market underestimating its potential in Suriname. He believes the company’s exploration projects in the South American country have the potential to deliver a healthy return for investors, regardless of short-term oil and gas prices.
Conclusion: Patience Pays in the Energy Sector
Despite the challenges, the energy sector remains promising for those willing to be patient and selective. By focusing on “moaty” companies with sustainable competitive advantages and hidden upside potential, investors can capitalize on the opportunities that volatility presents. As Ellis reiterates, patience has often been rewarded in the energy space.
Data sourced from: cnbc.com
