Energy stocks will only get better in 2022 – here are three to buy
Professional investor Jonathan Waghorn of Guinness Global Investors picks three top energy stocks.
Oil prices have risen over the last few months. Global demand is rebounding strongly, following the worst of the pandemic, and is expected to reach new highs later in 2022. The Organisation of the Petroleum Exporting Countries (Opec) cartel has been adding supply back into the market in a cautious fashion – its aim being to keep global oil reserves under control while achieving a price that satisfies the fiscal needs of its members.
Elsewhere in the world, a lack of investment in new oil supply is beginning to show up, with no major oil developments starting up this year. Natural gas has become front page news, with a perfect storm of supply and demand events driving European and Asian prices to record levels.
Rising oil and gas prices have created a positive backdrop for energy equities. The sector performed strongly in 2021, but valuations remain subdued relative to our long-term oil price and earnings expectations. In particular, we are seeing the emergence of much stronger free cash flow yields in the sector, a result of higher revenues and better spending discipline by the companies in question.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Our Guinness Global Energy fund invests worldwide in companies across the oil and gas sector. This includes the large integrated oil and gas majors, smaller and mid-sized oil producers, refiners, and pipeline and energy services companies.
BP: catching up with the market
In common with other oil and gas super-majors around the world, BP (LSE: BP) has lagged broader equity markets for several years. In addition to navigating a period of depressed commodity prices, the company has been dealing with the aftermath of the Gulf of Mexico oil spill in 2010. Today, BP has reshaped itself and now has one of the industry’s strongest pipelines of new oil and gas projects, has improved the profitability of its existing production assets, and is showing some leadership in its de-carbonisation strategy. The company’s dividend yield is currently just over 4%, but this has room to rise, since its free cashflow yield is expected to be over 10% this year.
Pioneer Natural Resources: higher oil prices, higher dividends
Pioneer Natural Resources (NYSE: PXD) is a US-based oil and gas producer, with a focus on shale oil production in the Permian Basin in Texas. We believe that the company owns one of the highest quality asset bases in the shale oil industry, with a deep inventory of undeveloped acreage. Pioneer is also demonstrating growing shareholder friendliness, shifting its ambitions away from production growth and towards higher shareholder returns. In particular, we like Pioneer’s recent adoption of a variable dividend structure, which returns excess profits to shareholders in sync with the oil price cycle.
Equinor: Nordic powerhouse
Equinor (Oslo: EQNR), previously known as Statoil, is Norway’s state-controlled energy major. The company has grown its oil production well over the past couple of years, thanks to the successful development of its Johan Sverdrup oil field. In addition, Equinor is responsible for supplying a high proportion of Europe’s natural gas imports, so it’s enjoying the benefit of higher prices. We expect Equinor to increase production this year, to help alleviate the worst of the gas price spike, but we still expect gas prices to settle at a level that supports strong earnings growth for the company in 2022.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
Higher rates are disappearing – should you fix your savings?
Fixed savings rates have dropped to their lowest levels in over a year. Should you fix your savings now ahead of a potential base rate cut in November?
By Katie Williams Published
-
Nine million people fall victim to financial scams, says Citizens Advice
The charity says that around one in five people across the UK have been caught out by a finance scam in the past year - here is how to protect your money
By Chris Newlands Published
-
What will a broken-up Google look like?
The US courts have ruled that Google is a monopoly, leaving it facing the prospect of a break-up. WIll that be a good thing?
By Matthew Lynn Published
-
How will the UK gambling sector be hit by the Budget?
There are concerns for the UK gambling sector in the lead-up to the Autumn Budget. What could be on the cards?
By Dr Matthew Partridge Published
-
HSBC returns to cost-cutting plan
HSBC is set to revamp its commercial banking division – but will it come at a cost?
By Dr Matthew Partridge Published
-
Will European stocks bounce back?
European stocks have looked unattractive for some time – will they bounce back?
By Alex Rankine Published
-
British American Tobacco goes smokeless – can it survive?
British American Tobacco’s core product is struggling, but new areas bode well, says Bruce Packard
By Bruce Packard Published
-
Pfizer shares rise as US investor takes $1 billion stake
Pfizer shares are on the up since US activist investor Starboard Value built up a stake in the drug maker. But strategic options appear limited
By Dr Matthew Partridge Published
-
LSL Property Services: a profit-machine in the property sector
LSL covers every area of the residential real estate market and should thrive after its shake-up
By Rupert Hargreaves Published
-
Global car shares slide amid lower demand in China – what happens now?
Has the car sector run into trouble? Britain’s Aston Martin and Germany’s Volkswagen are among the key automobile brands that have issued profit warnings.
By Alex Rankine Published