News & Analysis

Q3 2021 Momentum-driven energy stocks to consider

17 Aug 2021 | by: Kirsteen Mackay

Momentum-driven energy stocks to consider in Q3 2021

Energy is the lifeblood of society. We need reliable energy to continue to live in the level of comfort we’ve grown accustomed to, but climate initiatives can’t be ignored. This means we’re at a significant turning point in the way the world captures and delivers energy.

This makes it an exciting area of investment. Some investors like to follow momentum to build a profitable portfolio. It can prove lucrative to follow the herd and buy into an investment when momentum is building.

What is the energy sector?

The energy sector traditionally included stocks operating in oil and gas, coal, and utilities such as electricity and water, and it now includes renewable companies too.

Energy sector stocks cover companies exploring, refining, marketing, and distributing fossil fuels, renewable energy sources, and non-renewable resources such as Uranium. It also includes companies servicing these markets and the manufacture of energy-related equipment.

Investors have been swarming to Environmental, Social, and Corporate Governance (ESG) and renewable stocks in droves. But many analysts and company executives alike see the world facing a growing need for hydrocarbons for a long time to come.

During the crazy lows and momentum-driven highs of 2020, the energy sector enjoyed a share price run as oil and natural gas prices soared. Now things are settling down, and some investors are pulling out of energy to seek their fortunes elsewhere.

So, here are a few energy stocks still gaining momentum:

Momentum-driven energy stocks by EPS

EPS stands for earnings per share. This financial ratio relates the earnings generated by the business to the number of shares in issue.

The EPS refers to earnings generated during a specific time frame. While TTM stands for Trailing Twelve Months, EPS and TTM often describe how the earnings have changed during the past 12 consecutive months.

According to our calculations, some energy stocks, momentum-driven by EPS, include the following:

Continental Resources

Petroleum and natural gas exploration company Continental Resources (NYSE: CLR) has seen its share price rise 105% year-to-date, but it’s down 8% in the past month.

Founded by fracking pioneer Harold Hamm in 1967, Continental Resources is a stalwart of the US energy industry. It’s also one of the country’s biggest independent oil companies.

CLR has a $13.3bn market cap, total debt is $4.7bn, while cash and equivalents are $150m. Meanwhile, the short interest on this stock is 2.8%.

Continental Resources has a forward P/E of 10. It also offers shareholders a 1.6% dividend yield. CLR displays earnings per share (EPS) growth of 477.3% TTM and its 2021 consensus average EPS forecast is $3.44.

The Continental share price has enjoyed a strong run this past year. It is now up 217% from its 52-week low and down 12.8% from its 52-week high.

After suspending share buybacks amid the pandemic, it recently resumed this $1bn program. It also raised its dividend by 36%.

Analyst consensus shows Continental hovering between hold and buy. Their 12-month average share price target is $38.97, giving a potential 5% upside. CLR stock appears in 78 ETFs.

ConocoPhillips

ConocoPhillips (NYSE: COP) is the largest independent oil driller in the United States.

COP has a $75bn market cap, total debt is $20bn, while cash and equivalents are $10bn. Meanwhile, the short interest on this stock is 1%.

ConocoPhillips has a forward P/E of 10. It also offers shareholders a 3% dividend yield. COP displays EPS growth of 128% TTM, and its 2021 consensus average EPS forecast is $4.59.

The hydrocarbon explorer has a 12-month average share price target of $75.49, giving a potential 34% upside from today’s price. In its most recent earnings call, it posted excellent results.

The company has an ongoing commitment to return over 30% of its cash from operations (CFO) to shareholders. Its total planned returns of capital amount to around $6bn this year.

ConocoPhillips has benefited from higher commodity prices year-over-year (YoY). In Q2, its total average realized price was $50.03 per BOE, a hike of 117% YoY.

Being a natural gas distributor, it also benefits from the sector’s rise in natural gas prices. COP stock appears in 177 exchange-traded funds (ETFs).

Kinder Morgan

Kinder Morgan is one of the largest natural gas pipeline operators in the United States. Its extensive pipeline covers 70,000 miles.

The company has four divisions: natural gas pipelines, terminals, products pipelines, and carbon dioxide.

Natural gas is considered cleaner than heavier fossil fuels but has traditionally struggled to gain price momentum. This past year natural gas prices have soared.

Meanwhile, Hydrogen is a much-talked-about fuel of the future. Kinder Morgan recognizes this and is exploring the possibility of blending hydrogen into its natural gas stream as an alternative fuel for combustion.

In Q1, Kinder Morgan acquired liquefied natural gas company Kinetrex Energy for $310m. This is a renewable play that will help it gain market share by expanding into green energy.

Kinder Morgan demonstrates earnings per share (EPS) growth of 198.6% TTM. It has a $38.7bn market cap, forward P/E of 16.9, and a dividend yield of 6.3%.

KMI has a $38bn market cap, total debt is $33bn, while cash and equivalents are $1.4bn. Meanwhile, the short interest on this stock is 1.6%. Analyst consensus on KMI stock is a 12-month average share price target of $18.75. That gives a potential 9% upside.

Kinder Morgan has a forward P/E of 17. It also offers shareholders a 6% dividend yield. KMI displays EPS growth of 198% TTM and its 2021 consensus average EPS forecast is $1.30. KMI stock appears in 217 exchange-traded funds (ETFs).

Momentum-driven energy stocks by sales growth

Sales growth is an important financial metric for any business to track. If sales are increasing, the company should be thriving, whereas if sales are declining, the business may be in trouble.

To calculate the sales growth rate year over year, simply divide the current sales by the prior year’s sales. Sales growth = this year’s sales / last year’s sales

The best momentum-driven energy stocks, sorted by sales growth today, include the following:

ChampionX

ChampionX (NASDAQ: CHX) is a company producing pumps and pumping equipment. It offers technology solutions to the oilfields, including chemistry programs and services, drilling technology, artificial lift solutions, and automation.

Its Q2 results brought revenue of $749.2m, up 9% on Q1. Adjusted EBITDA came in at $105.4m while operating cash reached $60.9m and free cash flow of $40.8m.

It’s been a year since ChampionX merged with Apergy Corporation to create the existing business.

CHX has a $4.7bn market cap, total debt is $978m, while cash and equivalents are $239m. Meanwhile, the short interest on this stock is 1.8%.

ChampionX has a forward P/E of 26 but its current P/E ratio is 380. It doesn’t offer shareholders a dividend. CHX displays sales growth of 156% TTM and its 2021 consensus average EPS forecast is $0.60.

Analyst consensus on this stock is a 12-month average share price target of $27.17. That gives a potential 15% upside. CHX stock appears in 86 ETFs.

Viper Energy Partners

Viper Energy Partners (NASDAQ: VNOM) is an oil and natural gas company operating in North America. Its properties include operations in the Permian Basin and Eagle Ford Shale.

VNOM has a $2.9bn market cap, total debt is $534m, while cash and equivalents are $42m. Meanwhile, the short interest on this stock is 1.9%.

Viper Energy Partners has a forward P/E of 60. It also offers shareholders a 7% dividend yield. VNOM displays sales growth of 27% TTM and its 2021 consensus average EPS forecast is $1.08.

Analyst consensus on this stock is a 12-month average share price target of $22.39. That gives a potential 19% upside. VNOM stock appears in 9 ETFs.

ConocoPhillips

ConocoPhillips (NYSE: COP) shows sales growth of 20.6% TTM

For further details, see above in momentum-driven energy stocks by EPS.

Capital Product Partners

Capital Product Partners (NASDAQ: CPLP) is an international shipping container company. CPLP’s vessels transport crude oil, refined oil products, chemicals, dry cargo, and containerized goods.

The shipping industry has seen a surge in demand as e-commerce has skyrocketed. With container ships operating at close to full capacity and a 2-to-3-year lead time on ordering any new ships, this demand is likely to outstrip supply for at least a couple of years.

A slowdown in passenger flights reduced airfreight capacity, which transferred to shipping.

The rise in demand is unlikely to drop off, while decarbonization pressure will force shipping to slow or convert to greener alternatives. This all points to buoyancy in the shipping container market for the foreseeable future.

CPLP recently sold two vessels to repay some debt and invest in more environmentally friendly ships.

Capital Product Partners displays sales growth of 19% TTM and its 2021 consensus average EPS forecast is $1.73.

CPLP has a $225m market cap, total debt is $296m, while cash and equivalents are $104m. Meanwhile, the short interest on this stock is 0.35%.

Capital Product Partners has a forward P/E of 6. It also offers shareholders a 3.3% dividend yield. Analyst consensus estimates are on a 12-Month Average share price target of $14.25, offering a potential 19% upside.

ONEOK

ONEOK (NYSE: OKE) is a major midstream player in natural gas. It connects prolific supply basins with key market centers.

Pronounced One Oak (Ok as in Oklahoma) – ONEOK has a high ESG rating and is included in over 20 MSCI ESG Indices, thanks to its focus on natural gas.

The company displays sales growth of 29.8% TTMand its 2021 consensus average EPS forecast is $3.25.

OKE has a $23bn market cap, total debt is $14.4bn, while cash and equivalents are $374m. Meanwhile, the short interest on this stock is 1.5 %.

ONEOK has a forward P/E of 15. It also offers shareholders a 7% dividend yield. The analyst consensus 12-Month Average Target is $55.90, which potentially offers 7% upside.

DCP Midstream

DCP Midstream (NYSE: DCP) is a Fortune 500 company for midstream petroleum services.

Its Q2 2021 highlights include adjusted EBITDA of $333m, up 21% on Q1. Discounted Cash Flow is $225m, up 29% on Q1, and excess free cash flow is $132m, up 48% on Q1.

DCP improved positive free cash flow despite the US oil and gas downturn last year, after cutting spending and its distribution. In response, Moody’s recently upgraded DCP’s Corporate Family Rating (CFR) to Ba1 from Ba2. The company shows sales growth of 18.5% TTM.

DCP Midstream has a $5.6bn market cap. Its forward P/E is 9, and the dividend yield is 5.9%. Analyst consensus has a 12-month average share price target of 31.5, offering a potential 19.6% upside. DCP stock appears in 14 ETFs.

Watch out for momentum traps!

While energy stocks have been leading the S&P 500 higher, sentiment can change in the blink of an eye when it comes to trading momentum. A stock that was once a bargain can turn into a momentum trap.

No investor wants to be stuck with a momentum trap to be left holding the bag when an abrupt change in sentiment causes the share price to plummet.

This is not such a problem for a set-and-forget long-term portfolio when investors can afford to ignore the peaks and troughs in favor of a longer time horizon. But for traders, it’s an important caveat to watch.

This is particularly true in the energy sector because it is cyclical in nature, and most of these stocks fluctuate, at least part, in reflection of the oil price. As the price of oil is notoriously volatile, so are energy stocks.

Valuethemarkets.com, Digitonic Ltd (and our owners, directors, officers, managers, employees, affiliates, agents and assigns) are not responsible for the content or accuracy of this article. The information included in this article is based solely on information provided by the company or companies mentioned above.

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

  • Kirsteen Mackay currently holds a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.
  • Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

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