Despite the challenges posed by various economic and geopolitical factors across several sectors, the energy industry has proven its resilience. The sector stands well-prepared to sustain its impressive performance and prosper in the upcoming quarters, spurred by the recent increase in oil demand and simultaneous supply restrictions that put upward pressure on prices.
Therefore, quality oil stocks BP p.l.c. (BP), Repsol, S.A. (REPYY), and Ultrapar Participações S.A. (UGP), holding the potential to leverage on the industry tailwinds and offer substantial returns, could be wise portfolio additions now.
Before proceeding deeper into the fundamentals of these stocks, let's first discuss the latest developments within the oil and gas sector.
OPEC’s recent forecast indicates a surge in global oil demand by 2.4 million barrels per day, reaching 102.1 million bpd this year, driven mainly by the progressive expansion in the Chinese economy. Also, a subsequent increase of 2.2 million bpd is anticipated for 2024.
Moreover, the U.S. Energy Information Administration (EIA), paralleling these predictions, foresees the global oil demand outstripping the world's production during the second half of 2023 and 2024, thereby applying upward pressure on oil prices.
Amid rising oil demand, persistently high oil prices could be maintained due to supply restrictions resulting from OPEC+ and Russia’s prolonged production cuts. Although the Israel-Hamas conflict has yet to affect oil flows directly, it holds substantial geopolitical risks for oil markets.
Implications drawn against Iran's involvement in Hamas' attack on Israel may result in the U.S. imposing stricter sanctions. The strain on an already strained oil market could fuel a further rise in oil prices.
EIA’s recent October Short-Term Energy Outlook indicates Brent crude will rise by $6.69 to $94.91 per barrel in 2024. The average WTI crude prices in 2024 would undulate around $90.91 per barrel, marking an increase of $7.69 from their prior estimate for the same period.
Considering these conducive trends, let's take a look at the fundamentals of the three B-rated Foreign Oil & Gas stocks, starting with number 3.
Stock #3: BP p.l.c. (BP)
Headquartered in London, United Kingdom, BP produces natural gas and integrated gas and power, gas trading, onshore and offshore wind power operation, and hydrogen and carbon capture and storage facilities. The company operates through Gas & Low Carbon Energy; Oil Production & Operations; and Customers & Products segments.
BP’s annualized dividend rate of $1.74 per share translates to a dividend yield of 4.50% on the current share price. Its four-year average yield is 6.12%. This reflects its shareholder payback abilities.
BP also intends to execute a further $1.5 billion share buyback before reporting third quarterly results, following $4.5 billion in share buybacks already announced and completed this year.
BP’s trailing-12-month ROCE and ROTC of 27.24% and 16.72% are 26.3% and 57.6% higher than the industry averages of 21.57% and 10.60%, respectively. Its trailing-12-month cash from operations of $35.77 billion is significantly higher than the industry average of $659.47 million.
BP’s EBITDA grew at CAGRs of 35.4% and 11.6% over the past three and five years, respectively. In addition, its levered free cash flow grew at 42.3% and 30% CAGRs over the same time frames.
For the fiscal second quarter that ended June 30, 2023, BP’s total revenues and other income stood at $49.48 billion. Its profit and profit attributable to BP shareholders per ADS came in at $1.95 billion and $0.60, respectively. Moreover, its adjusted EBITDA amounted to $9.77 billion.
BP’s operating cash flow stood at $6.29 billion. Also, as of June 30, 2023, its current liabilities were $81.47 billion, compared to $98.70 billion as of December 31, 2022.
BP’s revenue and EPS are expected to be $219.37 billion and $5.43, respectively, in the fiscal year ending December 2023.
The stock has gained 11.1% year-to-date to close the last trading session at $38.79. Over the past year, it gained 22%.
BP’s POWR Ratings reflect its positive prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
BP also has an A grade for Momentum and a B for Quality. It is ranked #10 out of 44 stocks in the B-rated Foreign Oil & Gas industry.
To see BP’s grades for Growth, Value, Stability, and Sentiment, click here.
Stock #2: Repsol, S.A. (REPYY)
Based in Madrid, Spain, REPYY’s Upstream segment explores, develops, and produces crude oil and natural gas. The Industrial segment encompasses refining, petrochemicals, trading, and oil and gas transportation. The Commercial and Renewables segment focuses on low-carbon power generation.
On October 9, REPYY began producing its first electrolyzer (renewable hydrogen) at the Petronor industrial center (Biscay, Spain) with an investment of €11 million ($11.69 million).
On September 7, REPYY acquired the renewable energy platform ConnectGen from Quantum Capital Group, a provider of capital to the global energy and energy transition industries, with a 20,000 MW pipeline and development capabilities, for $768 million. This should bode well for the company.
Its annualized dividend rate of $0.76 per share translates to a dividend yield of 4.93% on the current share price. Its four-year average yield is 7.07%. REPYY’s dividend payments have grown at a CAGR of 10.7% over the past three years.
REPYY’s trailing-12-month cash from operations of $9.55 billion is significantly higher than the industry average of $659.47 million, while its trailing-12-month asset turnover ratio of 0.97x is 58.6% higher than the industry average of 0.61x.
Over the past three years, its EBITDA and levered free cash flow grew at CAGRs of 45.8% and 344.6%, respectively.
For the first half of 2023 ended June 30, 2023, REPYY’s sales and operating income stood at €28.34 billion ($30.13 billion) and €2.31 billion ($2.45 billion), respectively.
For the same period, its net income attributable to the parent and earnings per share attributable to the parent stood at €1.42 billion ($1.51 billion) and €1.08, respectively. Its cash and cash equivalents increased 21.2% year-over-year to €5.25 billion ($5.58 billion).
Street expects REPYY’s revenue and EPS in the fiscal year ending December 2023 to come at $64.05 billion and $4.09, respectively.
The stock has gained 17.3% over the past year to close the last trading session at $15.34. Over the past six months, it gained 1.7%.
REPYY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
REPYY has an A grade for Momentum and a B for Value and Stability. Within the Foreign Oil & Gas industry, it is ranked #7.
Beyond what we’ve stated above, we have also rated the stock for Growth, Sentiment, and Quality. Get all ratings of REPYY here.
Stock #1: Ultrapar Participações S.A. (UGP)
Headquartered in São Paulo, Brazil, UGP operates in the energy and infrastructure business. It operates in five segments: Gas distribution (Ultragaz); Fuel distribution (Ipiranga); Chemicals (Oxiteno); Storage (Ultracargo); and Drugstores (Extrafarma).
On August 25, UGP paid a dividend of R$ 0.25 per common share. Its annualized dividend rate of $0.07 per share translates to a dividend yield of 1.78% on the current share price. Its four-year average yield is 3.08%.
UGP’s trailing-12-month cash per share of $1.03 is 50% higher than the industry average of $0.69, while its trailing-12-month asset turnover ratio of 3.84x is 528.4% higher than the industry average of 0.61x.
Over the past three and five years, its tangible book value grew at CAGRs of 11.1% and 7.4%, respectively, while its revenue grew at 17.2% and 9.7% CAGRs over the same periods.
For the fiscal second quarter that ended June 30, 2023, UGP’s net revenues from sales and services and gross profit stood at R$29.59 billion ($5.91 billion) and R$1.67 billion ($333.87 million), respectively.
For the same quarter, its net income and earnings per share stood at R$238.70 million ($47.66 million) and R$0.20, respectively. Its adjusted EBITDA stood at R$964.20 million ($192.50 million).
Street expects UGP’s EPS in the fiscal year ending December 2023 to increase 180.8% year-over-year to $0.23, while its revenue is expected to come at $25.82 billion.
The stock has gained 63.6% year-to-date to close the last trading session at $3.96. Over the past year, it gained 55.9%.
UGP’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
UGP has a B grade for Value and Sentiment. It is ranked #5 within the same industry.
Click here for the additional POWR Ratings for UGP (Growth, Momentum, Stability, and Quality).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
BP shares were trading at $38.97 per share on Wednesday morning, up $0.18 (+0.46%). Year-to-date, BP has gained 15.19%, versus a 11.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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