Geopolitical tensions, supply-demand imbalances, and forecasts of increased natural gas consumption are propelling growth in the energy industry. In light of this, investing in robust energy stocks, Kinder Morgan, Inc. (KMI), Unit Corporation (UNTC) and Graham Corporation (GHM) could be wise, given their potential for substantial growth.
Prior to exploring these stocks, let's assess the dynamics of the energy industry.
Recent Middle Eastern tensions have surged oil prices as Yemen-based Houthi forces persistently attacked vessels in the Red Sea, escalating costs and disrupting global oil trading. The group has vowed to continue targeting the United States and British warships, labeling it self-defense.
However, the International Energy Agency (IEA) forecasts a slowdown in global oil demand growth for 2024. Conversely, oil supply is projected to reach a record high of 103.5 million barrels per day. This imbalance, which has driven prices down recently, is poised to reverse, signaling a shift in dynamics.
Occidental Petroleum's (OXY) CEO, Vicki Hollub, predicts that undersupply will dominate in the coming years. Despite a short-term easing of crude demand, energy markets have been grappling with long-term supply issues as producers have been unable to replace the oil they have been producing.
Other oil-market forecasters have been issuing similar warnings, highlighting the upward pressure on oil prices due to the undersupply of crude oil. Chronic underinvestment in the industry has led to what Goldman Sachs (GS) previously estimated as a "supercycle" for oil and other commodities, potentially driving crude prices as high as $100 a barrel.
Meanwhile, the International Energy Agency (IEA) predicts a resurgence in global natural gas consumption in 2024, driven by lower prices and increased demand during the winter. Following a modest 0.5% uptick in 2023, natural gas demand is expected to grow by 2.5% this year, according to the agency's latest Gas Market Report for the first quarter of 2024.
Additionally, the United States led as the top LNG exporter in 2023, shipping 8.6 million metric tons from its terminals in December. Forecasts from the U.S. Energy Information Administration project North America's LNG export capacity will rise to 24.3 billion cubic feet per day (Bcf/d) by the end of 2027.
In light of these trends, let’s look at the fundamentals of the three best energy stocks.
Kinder Morgan, Inc. (KMI)
KMI serves as an energy infrastructure provider. It is the owner and operator of 140 ports and around 83,000 miles of pipelines. The company operates through four segments: Natural Gas Pipelines; Products Pipelines; Terminals; and CO2.
On December 28, 2023, KMI completed its previously announced $1.815 billion acquisition of NextEra Energy Partners' (NEP) South Texas assets, which includes a network of integrated, large-diameter, high-pressure natural gas pipeline systems that connect the Eagle Ford basin to key growing Mexico and Gulf Coast demand markets.
By extending the company's direct connectivity in the lean region of the Eagle Ford Basin and integrating well with its current South Texas footprint, these assets would enable KMI to provide LNG clients with more access to the desired low-nitrogen natural gas supply.
For the fiscal 2023 fourth quarter that ended December 31, 2023, KMI’s revenues stood at $4.04 billion. Its adjusted earnings and adjusted earnings per share came in at $633 million and $0.28, respectively, for the quarter. As of December 31, 2023, the company’s total assets amounted to $71.02 billion, up from $70.08 billion as of December 31, 2022.
Analysts expect KMI’s revenue to increase 15.2% year-over-year to $17.66 billion for the fiscal year ending December 2024. Likewise, the company’s EPS for the current year is expected to grow 11.1% from the previous year to $1.19. KMI plunged 1.7% intra-day to close the last trading session at $16.67.
KMI’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
KMI has a B grade for Momentum. It is ranked #11 out of 82 stocks within the Energy - Oil & Gas industry.
In addition to the POWR Ratings I’ve highlighted, you can see KMI’s Growth, Value, Stability, Sentiment and Quality ratings here.
Unit Corporation (UNTC)
UNTC develops, acquires, and produces oil and natural gas properties. Its operations extend to land contract drilling for oil and natural gas wells, as well as the comprehensive management of buying, selling, gathering, processing, and treating natural gas. The company's segments include Oil and Natural Gas; Contract Drilling; and Mid-Stream.
On December 13, 2023, UNTC finalized the previously announced sale of certain non-core oil and gas assets in the Texas Panhandle to a third party for net cash proceeds of $50 million at closure. "This transaction is a great example of our strategy to prune our non-core assets and return value to our shareholders," said the company's CEO, Phil Frohlich.
For the nine months that ended September 30, 2023, UNTC’s income before income taxes increased 74% year-over-year to $144.76 million. In addition, net income and net income per common share attributable to UNTC grew 115.1% and 122.4% from the prior year’s period to $191.50 million and $19.55, respectively.
Furthermore, as of September 30, 2023, the company’s total assets stood at $501.06 million, compared to $469.26 million as of December 31, 2022.
Over the past six months, the stock has gained 22.2%, closing the last trading session at $40.13.
UNTC’s robust fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
UNTC has a B grade for Value and Quality. It is ranked #15 out of 82 stocks within the Energy - Oil & Gas industry.
Click here to access additional UNTC ratings for Growth, Momentum, Stability and Sentiment.
Graham Corporation (GHM)
GHM designs and manufactures versatile equipment for chemical, petrochemical, defense, space, petroleum refining, cryogenic, and energy industries. Additionally, the company offers rocket propulsion systems, incorporating turbopumps, fuel pumps, and advanced cooling systems.
On November 10, 2023, GHM announced the acquisition of P3 Technologies, LLC, a specialized turbomachinery engineering, product development, and production company serving the space, new energy, and medical markets. P3, a company based in Jupiter, Florida, is well-known for creating revolutionary rotating machinery.
This is an exceptional instance of the acquisition component of GHM's expansion plan. P3 is a perfect add-on company that will expand and improve GHM's turbomachinery offerings with its highly complementary technology.
For the fiscal 2024 third quarter that ended December 31, 2023, GHM’s net sales increased 9.9% year-over-year to $43.82 million. Its adjusted EBITDA rose 72.1% from the year-ago value to $3.85 million. Also, the company’s adjusted net income and adjusted net income per share grew 182.8% and 175% from the prior year’s period to $2.42 million and $0.22, respectively.
The consensus revenue estimate of $176.60 million for the fiscal year ending March 2024 indicates a 12.4% year-over-year growth. Likewise, the consensus EPS estimate of $0.27 for the same period reflects an 800% year-over-year increase. Furthermore, the company topped the consensus revenue estimates in all of the trailing four quarters.
GHM shares have gained 38.7% over the past six months and 88.8% over the past year, closing the last trading session at $21.96.
GHM’s sound prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
GHM has an A grade for Sentiment. It has ranked #10 within the 51-stock Energy - Services industry.
Click here to access the additional GHM ratings (Growth, Value, 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.
KMI shares were trading at $16.65 per share on Tuesday afternoon, down $0.02 (-0.12%). Year-to-date, KMI has declined -4.05%, versus a 3.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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