Jefferies Franchise List Energy Stocks Could Be Big Q4 Winners
The fourth quarter is underway, and with earnings reports for the third quarter set to start pouring in, many investors are looking to add stocks to their portfolios that offer a little extra alpha for the end of the year run. With the potential for another positive year for the major indexes, there is also concern that the market is expensive and overbought. It makes sense now to perhaps book some winners or take off some losers and free up cash for new stocks for the stretch run.
We have covered the Jefferies Franchise List of high conviction stock picks for years, and the selections have provided investors outstanding total returns since inception in December of 2013, outperforming the S&P 500 in that category by a stunning 25.5%.
We found four Franchise List energy companies that could be perfect additions for the fourth quarter, as oil prices continue to rise and energy demand may increase during the winter months.
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate that the company will have a compound annual growth rate of over 5% for the next five years.
With Permian production and asset disposals targets reset, the company can raise the dividend 20% and buyback 15% of shares. Many analysts view the strategy update as appropriately conservative for one of the more oil-levered majors. The Chevron strategy through 2020 is focused on discipline, enabled by step change in capital efficiency driven by doubling Permian production.
Chevron missed second-quarter earnings expectations, but a share buyback resumption and solid operating outlook largely wiped away concerns. The company is estimated by some to be able to generate $30 billion in free cash flow in 2020. After that, portfolio oil leverage allows Chevron to grow the dividend and expand share buybacks.
Chevron shareholders are paid an outstanding 3.55% dividend. The Jefferies price target for the shares is $157, and the Wall Street consensus target was last seen at $146.28. The stock closed Tuesday’s trading at $126.82 per share.
This is the premier company in the world for liquefied natural gas (LNG) distribution. Golar LNG Ltd. (NASDAQ: GLNG) is one of the world’s largest independent owners and operators of LNG carriers and floating storage and regas units (FSRUs). The company has 14 vessels in its fleet, three LNG carriers slated for floating LNG platform (FLNG) conversion, 10 LNG carriers and one FSRU.
Collectively with Golar Partners and Golar Power, the fleet has 16 LNG carriers, three FLNGs/candidates and eight FSRUs. GLNG is the general partner for Golar LNG Partners. Its joint ventures, Golar Power and OneLNG, are focused on FSRU conversions and FLNG projects.
The analysts noted this in a recent report:
We believe the fundamentals for the LNG shipping market will continue to improve significantly as LNG shipping demand growth outpaces LNG shipping supply growth throughout the coming quarters and years. Investors are also likely to increasingly focus on Golar’s development of floating liquefaction (FLNG) projects making any announcements related to the FLNG projects potential catalysts for GMLP.
Investors in Golar LNG receive a 1.83% dividend Jefferies has a price target of $40, while the posted consensus price objective is $36.67. The stock closed most recently at $27.02.