Navigate Market Volatility With These 3 Gas Stocks

The gas market is likely to benefit from dynamic movements in global energy markets this year. Natural gas is predicted to make a substantial contribution to a sustainable future as technology advances and infrastructure improves.

Given the industry’s bright prospects, it could be wise to consider investing in fundamentally solid gas stocks Energy Transfer LP (ET), MPLX LP (MPLX), and Hess Midstream Partners LP (HESM).

In January, the United States consumed 118 billion cubic feet of natural gas per day, the most in any month on record, driven by the electric power sector. On January 16, 2024, a record high of 141.5 billion cubic feet per day (Bcf/d) of natural gas was consumed in the U.S. Lower 48 states, surpassing the previous record set on December 23, 2022.

Residential and commercial consumption totaled 46 billion cubic feet per day (Bcf/d), which is 4 Bcf/d higher than January 2023. Natural gas use in the residential and commercial sectors peaks during the winter months due to increased demand for space heating.

The chilly weather boosted demand for space heating and energy generation by 5 Bcf/d in January compared with a year earlier, helping set a new January record of nearly 37 Bcf/d. Experts project residential and commercial natural gas consumption in the United States to rise modestly in 2024, averaging 22 Bcf/d.

The oil and gas market will reach $7.63 trillion in 2024, growing at a CAGR of 6.1%. Increased crude oil and natural gas output, growth in the petrochemical sector, expansion of demand in developing countries, and increased investment in oil and gas exploration have all contributed to the historical expansion.

Also, in the February Short-Term Energy Outlook (STEO), the EIA forecast that the U.S. benchmark Henry Hub natural gas spot price will average higher in 2024 and 2025 than in 2023 but will remain less than $3.00 per million British thermal units (MMBtu). They expect natural gas prices to rise in 2024 as demand is likely to outstrip supply.

Furthermore, several technological advancements are revolutionizing natural gas extraction, helping improve efficiency, safety, and yields while minimizing environmental impact.

Hydraulic fracturing, horizontal drilling, imaging technologies, and the Internet of Things are revolutionizing the natural gas extraction sector. These technologies boost yields, lower drilling costs, improve safety, and help the environment.

Furthermore, given its range of applications, natural gas is expected to play a crucial role in the global energy transition. Global gas demand is projected to grow by approximately 10% to 15% until 2035.

With these encouraging market trends in mind, let’s delve into the fundamentals of the three gas stocks.

Energy Transfer LP (ET)

ET provides energy-related services. It owns and operates approximately 11,600 miles of natural gas transportation pipeline, three natural gas storage facilities, and two natural gas storage facilities in Texas and Oklahoma. Additionally, it manages 19,945 miles of interstate natural gas pipeline.

ET’s trailing-12-month asset turnover ratio of 0.72x is 34.8% higher than the industry average of 0.53x.

During the fiscal fourth quarter that ended December 31, 2023, ET’s revenues rose marginally year-over-year to $20.53 billion. Its operating income rose 19.9% year-over-year to $2.17 billion.

For the same quarter, the company’s net income attributable to partners and net income per common unit came in at $1.33 billion and $0.37, respectively, up 14.9% and 8.8% over the prior-year quarter. In addition, its adjusted EBITDA increased 4.8% year-over-year to $3.60 billion.

Street expects ET’s EPS and revenue for the quarter ending March 31, 2024, to increase 22.6% and 18.6% year-over-year to $0.39 and $22.53 billion, respectively. Over the past nine months, the stock has gained 15.7% to close the last trading session at $14.90.

ET’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Growth, Value, Momentum, Stability, and Sentiment. Within the Energy - Oil & Gas industry, it is ranked #2 out of 83 stocks. To see ET’s rating for Quality, click here.

MPLX LP (MPLX)

MPLX owns and operates midstream energy infrastructure and logistics assets. The company functions in two segments: Logistics and Storage and Gathering and Processing. It is involved in the gathering, processing, and transportation of natural gas; gathering, transportation, fractionation, exchange, storage, and marketing of natural gas liquids.

MPLX’s trailing-12-month levered FCF margin of 22.86% is 275.4% higher than the industry average of 6.09%. Its 36.78% trailing-12-month net income margin is 167.2% higher than the 13.76% industry average. Additionally, its 31.53% trailing-12-month ROCE is 72.8% higher than the 18.25% industry average.

For the fiscal fourth quarter that ended December 31, 2023, MPLX’s total revenue and other income increased 11.4% year-over-year to $2.97 billion. Its income from operations was $1.37 billion, up 29.7% from the prior year’s quarter.

Also, net income attributable to MPLX grew 39% and 41% year-over-year to $1.13 billion and 1.10 per limited partner unit, respectively. In addition, the company’s adjusted EBITDA rose 11.6% from the year-ago value to $1.62 billion.

Analysts expect MPLX’s revenue and EPS for the quarter ending March 31, 2024, to increase 7.7% and 6.9% year-over-year to $2.92 billion and $0.97, respectively.  Moreover, the company surpassed the consensus EPS estimates in each of the trailing four quarters. Shares of MPLX have gained 13.2% over the past year to close the last trading session at $39.51.

It’s no surprise that MPLX has an overall A rating, equating to a Strong Buy in our POWR Ratings system.

It has a B grade for Growth, Momentum, Stability, Sentiment, and Quality. It is ranked first among the 24 stocks in the A-rated MLPs - Oil & Gas industry.

Beyond what is stated above, we’ve also rated MPLX for Value. Get all MPLX ratings here.

Hess Midstream LP (HESM)

HESM owns, develops, operates, and acquires midstream assets, including natural gas and crude oil gathering systems, processing plants, storage facilities, and terminal assets across three segments: Gathering, Processing & Storage, and Terminaling & Export.

HESM’s trailing-12-month EBIT margin of 60.57% is 184.5% higher than the 21.29% industry average. Its trailing-12-month levered FCF margin of 30.87% is 406.9% higher than the 6.09% industry average. Additionally, its 40.53% trailing-12-month ROCE is 122.1% higher than the 18.25% industry average.

HESM’s net revenue for the fourth quarter ended December 31, 2023, increased 13.3% year-over-year to $356.50 million. Its income from operations grew 7.0% from the year-ago value to $210.10 million.

The company’s net income attributable to HESM rose 72% year-over-year to $37.50 million. In addition, its net income attributable to HESM per Class A share stood at $0.55, representing an increase of 12.2% over the prior-year quarter. Also, HESM’s adjusted EBITDA increased 7.7% year-over-year to $264.10 million.

For the quarter ending March 31, 2024, HESM’s EPS and revenue are expected to increase 34% and 14.9% year-over-year to $0.63 and $350.40 million, respectively. Over the past year, the stock has gained 21.8% to close the last trading session at $34.67.

HESM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.

It is ranked first out of the two stocks in the A-rated MLPs – Gas industry. It has a B grade for Growth, Momentum, and Quality. To see the additional HESM ratings for Value, Stability, and Sentiment, click here.

What To Do Next?

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ET shares rose $0.02 (+0.13%) in premarket trading Tuesday. Year-to-date, ET has gained 10.40%, versus a 7.39% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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