Energy

JPMorgan Has 4 Top Energy Plays for the Rest of 2017

Lee Jackson

Published: October 5, 2017 8:35 am

Last Updated: January 12, 2020 7:30 am

The interest in energy stocks certainly picked up when oil finally pushed through the $50 a barrel level, and while prices have backed up some this week, the sector seems to be gaining strength. With the prospect for range-bound oil, a huge amount of low-cost U.S. natural gas available and the potential for rising interest rates, certain energy stocks look very appealing now.

A new JPMorgan research report makes the case that some of the top C-corporation energy companies are very attractive total return candidates. The report noted this:

We expect the trend towards building financial strength to continue for US names, with a focus on reducing leverage and increasing dividend coverage to maintain crucial investment grade ratings.

We screened the companies listed in the report for those rated Overweight and with solid upside potential to the JPMorgan price targets. We found four that look like great picks for the rest of 2017.

Cheniere Energy

This top liquid natural gas play has made a nice move off August lows. Cheniere Energy Inc. (NYSE: LNG) is primarily engaged in liquefied natural gas (LNG) related businesses. The company conducts its business through its subsidiaries, including the development, construction and operation of its LNG terminal business and the development and operation of its LNG and natural gas marketing business.

Cheniere’s LNG terminal segment consists of the Sabine Pass and Corpus Christi LNG terminals. Its LNG and natural gas marketing segment consists of LNG and natural gas marketing activities by Cheniere Marketing. Cheniere Marketing is developing a portfolio of long-term and medium-term sale and purchase agreements (SPAs) with professional staff based in the United States, the United Kingdom, Singapore and Chile.

The JPMorgan price objective for the shares is $60, which compares with the Wall Street consensus price target of $55.46. The shares closed Wednesday at $45.84.

Kinder Morgan

This is one of the most recommended energy companies on Wall Street, and it looks to reclaim its preeminent position. Kinder Morgan Inc. (NYSE: KMI) is one of the largest energy midstream companies, with diverse operations across the midstream energy value chain. Businesses include natural gas pipelines, liquids terminalling, CO2 production, as well as products pipelines.

JPMorgan sees the potential for $3.1 billion growth in capital expenditures this year and a massive $2 billion buyback program scheduled to run from 2018 to 2020.

Shareholders receive a 2.65% dividend. JPMorgan has a $23 price target, though the consensus is higher at $24.65. The stock closed most recently at $18.82 a share.

Macquarie Infrastructure

This off-the-radar company holds solid upside potential. Macquarie Infrastructure Corp. (NYSE: MIC) owns and operates a portfolio of businesses that provide services to businesses, government agencies and individuals. It operates through four segments: International-Matex Tank Terminals (IMTT), Atlantic Aviation, Contracted Power and MIC Hawaii.

The IMTT segment offers bulk liquid storage, handling and other services for petroleum products, chemicals, renewable fuels and vegetable and animal oils at 10 marine terminals in the United States and two marine terminals in Canada. This segment also provides environmental emergency responses, industrial services and waste transportation and disposal services.

This is a very diversified play for investors looking for energy exposure but who want to own a diversified company that provides additional services and products to clients. This is an ideal holding for more conservative accounts seeking income.

Shareholders receive a 7.52% distribution. The $88 JPMorgan price target is lower than the consensus price objective of $93.33. Shares closed trading on Wednesday at $72.59.

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Plains GP Holdings

This is a top general partner play that the analysts like now. Plains GP Holdings L.P.’s (NYSE: PAGP) primary asset is its general partnership interest in Plains All American Pipeline, which is a master limited partnership (MLP) primarily engaged in crude oil transportation, storage and marketing.

The company operates through three segments. The Transportation segment engages in the transportation of crude oil and natural gas liquids (NGLs) on pipelines, gathering systems, trucks and barges. The Facilities segment is involved in the provision of storage, terminalling and throughput services for crude oil, refined products, natural gas and NGL, as well as NGL fractionation and isomerization services and natural gas and condensate processing services.

Lastly, the Supply and Logistics segment engages in merchant-related activities, including purchase of crude oil, cargos and NGL; storage of inventory and NGL and natural gas; resale or exchange and transport of crude oil and NGL; and purchase and sale of natural gas.

The company recently announced a distribution cut in an effort to help eliminate debt. The new distribution of $1.20 per share translates to a still solid 5.5% distribution.

JPMorgan has set its price target at $28, while the consensus target is $25.74. Shares closed Wednesday at $21.70.

These are four solid companies to buy in a sector that has underperformed all year. With commodity consumption expected to continue to grow, all these stocks make good long-term holdings in growth accounts.