With third-quarter earnings season in the bag for much of the energy patch, we take advantage of the sudden break in the action to assess where we stand today and highlight the names that offer the best risk-reward propositions over the next 12 months.
The bulk of these picks hail from the upstream (oil and gas production) and midstream (pipelines and processing) links in the energy value chain–the two areas that stand to benefit the most from a modest recovery in oil prices.
One of the major themes that we’ve highlighted over the past year focuses not on trends in overall US oil production, but rather the low-cost shale plays that stand to take market share in an environment where energy prices remain lower for longer.
This analysis has informed our positioning in the upstream segment, with the high-quality exploration and production companies that we added to our model portfolio in January 2016 up an average of 80 percent over the subsequent months.
Our selection process targeted names with strong balance sheets, low production costs, a history of solid execution and franchise assets that can deliver output growth in a challenging environment. With oil prices a point of pain or profit for all upstream operators, names that can deliver on a volumetric growth story and take market share should outperform.
We continue to like our picks from earlier this year as solid holdings for 2017. But all three trade above our buy targets, while a handful of names that the market perceives as being a notch lower on the quality scale could offer superior upside potential in the new year.
Although the market continues to throw capital at any upstream name with significant exposure to the red-hot Delaware Basin, some midstream names that play in this field and the emerging STACK play offer high yields and significant upside potential.
Your complete guide to energy investing, from growth stocks to high-yielders.
In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on Sep. 30, 2020
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