JPMorgan says this is the only sector seeing ‘quality, growth and momentum scores’ improve all at the same time
Energy stocks are some of the top performers in the market. But according to JPMorgan, more gains are on the horizon.
“Energy is the only sector that is seeing quality, growth and momentum scores improve simultaneously while maintaining an attractive value and income profile,” JPMorgan’s chief U.S. equity strategist Dubravko Lakos-Bujas writes.
Strong commodity prices have fueled the sector’s rally. Lakos-Bujas believes that trend will continue because of elevated demand and constrained supply.
“While investor interest and sentiment has clearly inflected from record lows over the past year, energy stocks are far from pricing in strong and sustainable outlooks for fundamentals and shareholder returns.”
Of course, not all energy stocks are the same. Here’s a quick look at three names in the sector that JPMorgan finds particularly attractive.
Cheniere Energy (LNG)
The price of natural gas has more than doubled year to date. So it shouldn’t come as a surprise that liquified natural gas producer Cheniere Energy is firing on all cylinders.
In Q1, revenue shot up 142% year over year to $7.5 billion. Management also lifted the company’s full-year consolidated adjusted EBITDA outlook by 17% and distributable cash flow projection by 26% at the midpoint.
As a leading player in the field, Cheniere is well-positioned for the commodities boom. The shares have already climbed 40% in 2022 to over $140 apiece.
Last Friday, JPMorgan analyst Jeremy Tonet reiterated an ‘overweight’ rating on Cheniere while raising his price target from $169 to $183 — implying potential upside of 30%.
With oil prices rising above $100 a barrel, oil producers have served as a safe haven in an otherwise gloomy stock market.
British oil and gas giant BP, for instance, has seen its shares climb 15% in 2022. And there could be plenty of more room to run. Last month, JPMorgan analyst Christyan Malek maintained an ‘overweight’ rating on the shares and raised his price target. The new target implies potential upside of about 20%.
BP shares trade on the London Stock Exchange. But its American depository receipt — commonly known as ADR — allows investors to buy BP like any other US-traded stock.
In Q1, the oil and gas supermajor brought in $51.2 billion of revenue, up 40% from a year ago. On the negative side, BP’s decision to exit Russia in light of Moscow’s invasion of Ukraine led to a pre-tax charge of $25.5 billion for the quarter.
Nextier Oilfield Solutions (NEX)
Oil producers aren’t the only companies in the energy sector worth following.
For instance, Nextier Oilfield Solutions — an oilfield service company — has also delivered extraordinary returns to investors in recent months. Year to date, the shares have skyrocketed by more than 170%.
Nextier’s business is booming.
In Q1, revenue increased 25% sequentially to $635 million, marking its fourth consecutive quarter of 25%-plus top-line growth. The company’s two operating segments — completion services and well construction/intervention services — delivered strong improvements.
For Q2, management expects sequential revenue growth of greater than 20% and substantial adjusted EBITDA margin expansion.
JPMorgan analyst Arun Jayaram has an ‘overweight’ rating on Nextier and recently raised his price target to $13 — roughly 19% above where the stock sits today.
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