Occidental Petroleum Corp. (NYSE: OXY) is the poster child for energy’s bad year. The company’s $40 billion buyout of Anadarko sliced more than 40% from its share price this year. Warren Buffett put up $10 billion to help Oxy get the deal done and, in addition to 100,000 preferred shares with an 8% coupon, he received an option to buy 80 million ordinary shares at $62.50. With the stock now trading at around $38 a share, and a consensus price target of $50.36, the implied upside is around 32%, just over half the upside if shares reach Buffett’s strike price.
Oxy’s capex this year is right around $7.5 billion. The company is expected to cut that to $5 billion in 2020, nearly enough entirely to fund the company’s current $3.16 annual dividend. That said, there was a thought after the merger’s closing that perhaps Occidental should have just tried to give Anadarko back to its shareholders.
With a market cap of less than $6 billion, Parsley Energy Inc. (NYSE: PE) is considerably smaller than the other oil companies in this list, but it also has the distinction of having added 10% to its market value this year. In October, Parsley announced a $2.27 billion acquisition of Jagged Peak Energy, like Parsley a significant player in the Permian Basin. The deal is expected to close in the first quarter, and Parsley is expected to reduce capex by 14% next year while raising production by 10%. At a recent price of $17.84 per share and a consensus price target of $24.26, the implied upside in Parsley’s stock is 36%.
SunPower Corp. (NASDAQ: SPWR) is the second-largest solar panel manufacturer in the United States, though it is a distant second. A total of 14 hedge funds held long positions in SunPower at the end of the third quarter, a sequential jump of 40%. The so-called smart money is long on alternative energy stocks as ESG (environmental, social and governmental) investing has become a “thing.” At a per-share price of around $7.90 a share, the implied upside for SunPower stock is 14%, based on a 12-month price target of $8.96.
Enterprise Products Partners
The attraction of master limited partnerships (MLPs) has always been their quarterly cash distribution to the limited partners. Enterprise Products Partners L.P. (NYSE: EPD), the largest of the bunch, pays the equivalent of a dividend yield of 6.43%. One of the weaknesses of MLPs is that they typically have a higher cost of capital than a corporation does. That weighs on another soft spot: MLPs have to grow in order to keep distributions growing. That implies debt, and Enterprise has plenty.
The company has a market cap of around $61 billion and long-term debt approaching $25 billion. Enterprise’s distributable cash flow coverage is right around 1.7 times, solid enough to withstand several shocks. The company’s stock opened the year at just below $25 and traded recently at about $28.30. With a 12-month consensus price target of $34.80, the implied upside on the stock is 23%.
Unlike Enterprise, Kinder Morgan Inc. (NYSE: KMI) gave up its MLP designation several years ago to become a C corporation. Then the company made a few missteps. The $2 annual dividend in 2015 fell to $0.50 in 2016 and has come back to $1.00 in 2019. The company expects to post distributable cash flow of $2.2 billion this year (about $2.20 per share at the end of the third quarter), so the payout ratio is well under control.
In its outlook for 2020, Kinder Morgan said it expects to generate distributable cash flow of $5.1 billion in 2020 (about $2.24 per share) and announced an annual dividend for next year of $1.25 per share. For the year to date, Kinder Morgan’s stock has risen by nearly 30%, and the implied upside at a recent stock price of $20.50 is 7.3%, at a 12-month price target of $22.00.
The country’s largest supplier of lithium, Albemarle Corp. (NYSE: ALB) reached its year-to-date high of around $92 a share in February before dropping to below $60 in August. Since then the stock has bounced back to around $69. Over the past 12 months, the shares are down 14%.
Prices for lithium carbonate are down from their levels of a year ago, and the worse news is that supply currently outstrips demand even as electric vehicle sales pick up and demand for utility-scale battery storage increases sharply. The company forecasts a 21% compound annual growth rate for lithium demand through 2025, when total demand will reach 1 million metric tons. The stock recently traded at around $68.80, implying upside of almost 6%.
Like Albemarle, Livent Corp. (NYSE: LTHM) is in the lithium business. Since spinning out of FMC and coming public in October of last year, the company’s share price has fallen by nearly half. A lack of demand from China, the world’s largest market for lithium, has troubled the company. Livent is planning to carry over 4,000 metric tons of lithium hydroxide inventory into next year, and in early November announced a supply agreement with South Korea’s LG Electronics. The consensus price target on the stock is $9.44, implying upside of around 10% from a recent price of around $8.60.