The Best Performing Oil And Gas Stocks - January 2020
The
price of crude oil has traded in a relatively tight range over the past year,
balancing several conflicting fundamental factors. Going back to late 2018 and
through much of 2019, the major macro story was growing pessimism over the
global growth environment pressured by the U.S.-China trade dispute
uncertainty. On one hand, weaker economic data out of China, Europe, and in the
U.S., particularly in industrial activity, kept a bearish outlook on the demand
for oil. On the other, OPEC production cuts and more managed exports helped to
support the market on the supply side.
Indeed,
the current price of Brent and the WTI crude oil (USO) benchmarks have traded
around the $60 per barrel level since 2017, unable to break out one way or
another. Depending on your point of view, crude oil is either in a bull market
up over 25% from its lows in Q4 2018, or still with a bearish tilt, considering
WTI and Brent benchmarks are down by more than 45% from highs reached in 2014.
Let's not forget about natural gas which is firmly in a bear market currently
trading under the $2.00/MMBtu level. The story here is a much more pronounced
supply glut.
Nevertheless,
there have been some big winners among energy sector stocks that have been able
to generate value despite the market challenges. This article takes a look at
the top 50 best-performing oil and gas stocks over the past year.
Best
Performing Oil & Gas Stock
Our data here is based on the universe of energy sector stocks traded on a U.S. exchange with a market cap above $200 million. The list is diverse with companies represented across the entire supply chain of oil & gas. We filter the results by performance on a total return basis over the past year, while also including returns for the month-to-date period as of January 17th, 2020, and a 6-month lookback. Stated forward-dividend yields are also listed in the table above.
Offshore
service provider and tanker operator, Teekay Tankers Ltd. (TNK) with a market
cap of $752 million is the top performer in the group up 168% over the past
year, and 125% in just the past 6 months. This is something of a turnaround
story, considering the company has suffered steep losses in recent years, and
the stock has been extremely volatile. TNK owns tankers, currently benefiting
from rising lease rates in recent months. Similarly, Frontline Ltd. (FRO) also
operates oil tankers and is up 123% over the past year. Other oil shipping
stocks on the list include Scorpio Tankers (STNG) and Ardmore Shipping Corp.
(ASC). Renewed tensions in the Middle East since the start of the year have
been a bullish theme in this segment more recently.
A
pair of Russian energy giants make the list with state-controlled Gazprom PJSC
(OTCPK:OGZPY) and PJSC Lukoil (OTCPK:LUKOY), the largest non-state enterprise
in the country, up 87% and 48% each, respectively. In this case, an improving
macro outlook in Russia with a strengthening Rubble currency has supported the
returns over the past year.
Among
large-cap U.S. energy firms, we highlight some strong performers among
midstream pipeline stocks. Phillips 66 Partners LP (PSXP), ONEOK Inc. (OKE),
and Kinder Morgan Inc. (KMI) are up by 40%, 31%, and 27% each over the past
year. Despite consistently low gas prices, these companies which also transport
and store oil products are benefiting from their market leadership position and
generally improving profitability. It appears the market is rewarding quality
among pipeline companies. Separately, we note that Hess Corp. (HES), up 37%
over the past year is the best performing oil and gas producer among U.S.
large-cap firms.
In
terms of dividends yields, NGL Energy Partners LP (NGL) with a forward yield
13% on its common shares and USA Compression Partners LP (USAC) at 12% are the
highest in the group.
Analysis
and Forward-Looking Commentary
We
are bullish on oil and energy sector stocks seeing various scenarios for
further upside in 2020. The current strong momentum and the risk-on environment
in equity markets suggest an improving outlook for economic growth and global
trade. It follows that a rebound in macro conditions should support the upside
in the demand for energy, driving the price of oil and sector stocks higher.
While increasing global energy production and a general supply surplus continue
to be the main bearish trends, we see the potential that demand can outperform
expectations.
We
want to see WTI crude sustain a rally above the $60 per barrel level and view
the $65 mark as representing important resistance. A break higher could open
the door for momentum towards $80. To the downside, it's likely going to take a
major deterioration of the global macro outlook for the price of oil to move
below the all-important $50 per barrel support level. In our view, risks are
tilted to the upside.
The
environment for natural gas is more difficult, but we think some of the
high-quality midstream players as best positioned to survive in the current
pricing environment. We expect the price of natural gas to remain pressured and
trade below $2.25/MMBtu through 2020.
Takeaway
We like following the top-performing stocks by sector and industry to better understand why a particular company has outperformed. We hope the list above serves as a good starting point for further research. Keep in mind that individual oil stocks can be high-risk and may not be suitable for all investors. Never make an investment decision based on a single metric or much less just the performance history. Take a look at the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) as a good option to gain diversified passive exposure to oil & gas stocks through an exchange-traded fund.