Seven Energy Income Investments to Buy Amid Terrorism

Seven energy income investments to buy amid terrorism by Hamas militants, who reportedly killed 1,300 people in Israel starting Saturday, Oct. 7, appear stable enough to withstand the heightened political risk caused by the resulting war.

The seven dividend-paying energy income investments to buy amid terrorism can be obtained at slightly discounted prices since crude pulled back recently from $90-95. That $90-plus mark hit the highest level since August 2022.

Impetus for the surge in crude prices stemmed from shrinking crude supplies at a key storage hub in Cushing, Oklahoma, sliding to their lowest level since July 2022. Specifically, U.S. West Texas Intermediate futures rose to $95.03 per barrel on Sept. 28, pulling back to $88.82 on Monday evening, Oct. 2, rising to $89.41 on Tuesday evening, Oct. 3, finishing at $86.05 on Oct. 10 and $82.91 on Oct. 12, before climbing to $87.69 on Friday afternoon, Oct. 13.

“The latest potential escalation in the Israel-Hamas war triggered a wave of buying of oil and gold,” said Edward Moya, senior market analyst, The Americas, New York-based OANDA Business Information & Services. “The U.S. dollar remained on firm footing as safe-haven flows continued to come to Treasuries. Crude prices are surging as the oil market will remain very tight, given escalating geopolitical risks could threaten supplies.”

The shrinking surplus at the Cushing facility’s crude tanks, America’s largest U.S. storage hub, recently sent oil prices trending up for near-term supplies. Stockpiles slumped below 22 million barrels to the lowest mark since July 2022, according to U.S. government data.

Instead of the usual negative relationship between the U.S. dollar and crude oil prices, the oil supply shock has been “more bullish than bearish” for America’s currency in the post-pandemic period, according to BofA Global Research. The U.S. dollar seems “broadly supported” through year-end due to a persistently tight oil supply, the investment firm wrote in a research note.

Seven Energy Income Investments to Buy Amid Terrorism: EPD

The top energy stock currently recommended in the Forecasts & Strategies investment newsletter is Enterprise Products Partners L.P. (NYSE: EPD). I have owned shares in that stock for many years and appreciate its 7.5% dividend yield. I first learned about Enterprise Products Partners in the Forecasts & Strategies newsletter led by Mark Skousen, PhD, and he has kept that recommendation for more than a decade as its share price keeps climbing.

Enterprise Products Partners is one of the largest publicly traded partnerships and a key North American provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products and petrochemicals. The company links producers from some of the largest North American supply basins with domestic consumers and international markets. Midstream activities specifically include the storage, processing and transportation of petroleum products.

In the Forecasts & Strategies weekly hotline on Oct. 9, Skousen wrote to his subscribers that Mohamed El-Erian, former CEO of PIMCO, urged investors to add Enterprise Products Partners as a “strong buy” dividend stock.

Mark Skousen, a Ben Franklin scion, meets with Paul Dykewicz.

“EPD’s 50-cent-per-unit dividend annualizes to $2, and at that rate yields 7.5%,” Skousen quoted Mohamed El-Erian, former chief executive officer of PIMCO, as saying. “Enterprise has a 24-year history of maintaining regular dividend payments and making regular increases to those payments  — solid attributes for a defensive portfolio addition.”

Truist Bank also is bullish on EPD, especially due to the energy company’s aggressive expansion plans. Truist has a $33 price target, with good upside potential.

“Enterprise sits in an enviable position with $4.1 billion growth projects under construction, including $1.1 billion anticipated to begin service this year,” according to Truist Bank.

Chart courtesy of http://www.stockcharts.com.

Seven Energy Income Investments to Buy Amid Terrorism: American Assets

The Israeli-Hamas war casts a grim profile that also puts the United States into the conflict, seasoned Wall Street trader Bryan Perry wrote to his Cash Machine subscribers in an Oct. 10 hotline.

“My concern is the toll this war takes on market sentiment, not for economic reasons, per se, but for the gruesome optics and images that will be for all the world to view,” Perry wrote. “Iran is supporting Hamas, Hezbollah, the Taliban in Afghanistan and the Iranian Revolutionary Guard Corps (IRGC) Qods Force in Iraq. Iran supplies financing, weapons, training and strategic battle plans for these terrorist tentacle arms of barbaric radical jihadists.”

In President Biden’s Oct. 10 press briefing, not once in his “heart-felt speech” did he mention Iran by name, Perry said. To not condemn Iran, even as Hezbollah is unleashing missile strikes on the northern border of Israel, is hugely disappointing, Perry added.

“At some point, Iran needs to be held accountable,” Perry concluded.

Fortunately, the Cash Machine model portfolio has a large weighting of high-yield, U.S.-based  assets that are bullishly sensitive to rising interest rates and relatively safe havens from the world’s current hot spots, Perry continued.

Paul Dykewicz interviews Cash Machine chief Bryan Perry at a MoneyShow.

Seven Energy Income Investments to Buy Amid Terrorism: Jobs and Inflation Data Improve

The seven energy income investments to buy amid terrorism also offer a chance for capital appreciation. Perry, who currently averages a dividend yield of 10.8% with Cash Machine’s 29 recommendations, closely follows and recommends oil and other energy equities. His favorite oil stock, recommended on November 29, 2022, has soared 55.84% in slightly more than 10 months.

Unemployment data released on Oct. 6 revealed non-farm payrolls for September jumped by 336,000 versus consensus estimates of 160,000. Hourly wages increased at the lowest level in a year. Even though the economy is adding jobs, wage inflation is easing.

Investors also may see hope in the Personal Consumption Expenditures (PCE) index data released by the U.S. Bureau of Economic Analysis on Sept. 29. The data showed inflation dipping below 4% on an annual basis. When excluding volatile food and energy prices, the latest rise in the key inflation gauge of the Federal Reserve was just 0.1%, a 3.9% gain from the same period a year ago.

The data indicated that consumer prices rose less than expected during August. Growth stocks traded up after the release of the inflation news, with bond prices positive and yields dipping, Perry opined. The result is that the “trading landscape” improved slightly, he added.

Seven Energy Income Investments to Buy Amid Terrorism: Occidental Petroleum

Another of the seven energy income investments to buy amid terrorism is Houston’s Occidental Petroleum (NYSE: OXY), an international energy company with assets mainly in the United States, the Middle East and North Africa. As one of the largest U.S.-based oil and gas producers, it has operations in the Permian and DJ basins, and offshore in the Gulf of Mexico.

Occidental Petroleum’s midstream and marketing segment provides flow assurance and maximizes the value of its oil and gas. The company’s chemical subsidiary, OxyChem, manufactures the building blocks for life-enhancing products, while its Oxy Low Carbon Ventures subsidiary is advancing technologies and business solutions to economically grow its revenues while reducing emissions. As part of its green energy outreach, Occidental Petroleum seeks to advance a reduced-carbon world.

BofA’s price objective of $82 per share for OXY assumes $80 Brent and $75 WTI long-term crude prices, which are below current levels. BofA also is assuming long-term Henry Hub natural gas of $4.25.

Risks to reaching that price objective are reductions in prices and margins for oil and gas, significant delays to new upstream projects critical to OXY’s production targets and any cost pressures from operating expenses, capital expenditures and taxation, BofA wrote.

Seven Energy Income Investments to Buy Amid Terrorism: APA

APA Corporation (NASDAQ: APA), a Houston-based holding company for Apache Corporation, an American-based hydrocarbon exploration business, received a $57 price objective from BofA. The valuation assumes a discounted cash flow value based on $80 Brent and $75 West Texas Intermediate (WTI) long term prices.

BofA also assumes long-term Henry Hub natural gas prices at $4.25. The investment firm further used a long-term, post-tax weighted average cost of capital (WACC) of 9.7%, based on the BofA strategy team’s assumed risk premium and a five-year monthly beta.

Outperformance of that estimate is possible amid higher-than-expected commodity prices, as well as exploration success in Suriname and Egypt, BofA opined. Increased drilling activity in the latter land could help further. Risks to achieving BofA’s price objective are reduced commodity prices, Egyptian political risk and exploration risk in Suriname, the investment firm added.

Chart Courtesy of www.stockcharts.com

Seven Energy Income Investments to Buy Amid Terrorism: OVV

Denver-based Ovintiv Inc. (NYSE: OVV) (TSX: OVV), a North American energy producer focused on developing its multi-basin portfolio of oil, natural gas liquids and natural gas producing plays, received US$66 and CN$89 price objectives from BofA. The price target assumes $80 Brent and $75 WTI long-term, BofA wrote in a recent research note.

The estimate is based on a long-term Henry Hub natural gas price of $4.25. The valuation applied a long-term, post-tax WACC of 9.7%, based on the BofA strategy team’s assumed risk premium and a five-year monthly beta.

In addition, Ovintiv announced on Sept. 26 that it obtained regulatory approvals for the renewal of its share buy-back program. This action is consistent with the company’s capital allocation framework to return at least 50% of post-base dividend Non-GAAP Free Cash Flow to its shareholders.

Risks that could cause the price target for OVV to be missed include the oil and gas prices and margins, any significant delays to the new upstream projects critical to Ovintiv’s production goals, an inability to capture the price environment due to cost pressures from operating expenses, capital expenditures and taxation. Other risks encompass potential currency exchange challenges and whether the purchase of certain Midland Basin assets closes by mid-2023, as planned.

Possible outperformance of estimates could come from improved cost of capital as Ovintiv deleverages its balance sheet or from increased oil and gas prices.

The Toronto Stock Exchange accepted Ovintiv’s notice of its intention to renew its normal course issuer bid (NCIB) to purchase up to 26,734,819 common shares during the 12-month period starting October 3, 2023, and ending October 2, 2024. The number of shares authorized for purchase equals 10% of Ovintiv’s public float as of September 21, 2023. The purchases will be made on the open market through facilities of the TSX, NYSE and/or alternative trading systems at the market price at the time of acquisition, the company disclosed.

Ovintiv reported on Sept. 11 that it priced an underwritten public offering of 15 million shares of its common stock by NMB Stock Trust, a Delaware statutory trust, for gross proceeds of about US$684.8 million. Plus, Ovintiv will not sell any shares of its common stock in the offering and will not receive any proceeds from the sale. The offering closed on September 13, 2023, with J.P. Morgan serving as underwriter.

Chart Courtesy of www.stockcharts.com

Seven Energy Income Investments to Buy Amid Terrorism: ExxonMobil

ExxonMobil is yet another BofA buy in the energy sector. The company’s “product solutions” business recently provided a positive progress report halfway through its eight-year strategy for its combined downstream and chemicals businesses. BofA Global Research’s latest research note on the stock showed the energy giant is ahead of its management’s plan of forecasting almost triple earnings from 2019 through 2027.

“While this seems to be a haircut by the market on imprecise visibility, management has provided a new level of transparency that suggests it is about 60% of the way there, with an incremental mid-cycle product solutions contribution to FCF [free cash flow] that we believe could be 25% of total company value,” wrote Doug Leggate, a BofA oil industry research analyst.

Under mid-cycle conditions, ExxonMobil’s management gave guidance that the company would earn $4 billion more than the run rate achieved in the first half of 2023 and $10 billion above 2019 under mid-cycle conditions for refining and chemicals, Leggate reported.

Seven Energy Income Investments to Buy Amid Terrorism: Transparency Is Reassuring

“We took two key messages away from the presentations and ‘in-person’ discussion with management,” Leggate wrote. “First, is management’s confidence in delivery of these projects and the way it defines its contribution to earnings and cash flow. Our second takeaway is what is clearly a growth trajectory for chemicals & downstream that goes beyond 2027, with a similar level of spending that has funded its current project queue. What is not clear is whether the market has recognized the incremental value as sustainable given a start up that has coincided with the strong rebound in refining margins, blurring the contribution from new projects and efficiencies delivered so far. In our view, risks to current estimates look skewed higher.”

Incremental value of $10 billion is reasonably about $120 billion or almost a quarter of XOM’s market capitalization when fully onstream, Leggate wrote. No other major oil stock has that level of growth, he added.

“With an outlook that doubles cash flow through 2027 from 2019, we see little new that would materially change XOM’s trajectory defined by growth and rate of change in free cash flow that we believe can support relative outperformance vs. peers,” Legatte concluded. “We maintain our Buy rating and $145 PO (price objective).”

Chart Courtesy of www.stockcharts.com

Seven Energy Income Investments to Buy Amid Terrorism: Alternative Energy Advocacy

ExxonMobil’s management recognizes the need to offer alternative energy, said Michelle Connell, head of Dallas-based Portia Capital Management. The oil giant recently announced the acquisition of Denbury, a $4.9 billion Dallas company that focuses on carbon capture and oil recovery.

The purchase will help smooth out the seasonality of XOM’s cash flow/revenue, Connell continued. Exxon Mobil will benefit from large tax incentives by participating in this green energy segment.

In the last few years, ExxonMobil has focused on cutting the costs of its headquarters and personnel, Connell told me. The cost-trimming also included the paying down of debt that is expected to continue for the next several years. Another plus is that ExxonMobil has a “strong” annual free cash flow of $5 billion, she added.

Michelle Connell heads Dallas-based Portia Capital Management.

ExxonMobil currently has a dividend yield of 3.14% that is expected to increase to 4% during the next 3-4 years, Connell told me. She estimated XOM could climb at least 10-15% in the next 12 months.

The company’s price-to-earnings (P/E) ratio is 8.57%, well below its average P/E of 17. Plus, ExxonMobil’s gross margins are now 28%, compared to 2020 when gross margins were just 4%.

ExxonMobil also is boosting production at its lowest-cost facilities, such as the ones in Guyana and the Permian basin, while cutting output at its highest-cost production plants, Connell counseled. Its management aims to triple ExxonMobil’s profits by fiscal year 2027, she added.

Seven Energy Income Investments to Buy Amid Terrorism: XLE ETF

Another oil industry observer is Bob Carlson, a pension fund chairman who also leads the Retirement Watch investment newsletter that features several portfolios. As a risk-averse pension fund leader, Carlson favors funds rather than individual stocks to gain diversification and to reduce risk.

For dividend-paying oil stocks, Carlson told me he likes ETF Energy Select SPDR (XLE). The fund owns 23 stocks and its 10 largest positions account for 74% of its holdings. Those holdings don’t change much, since XLE has a turnover ratio of only 9%, Carlson continued.

Chart Courtesy of www.stockcharts.com

XLE’s top fund’s recently consisted of Exxon Mobil (NYSE: XON), Chevron (NYSE: CVX), EOG Resources, Inc. (NYSE: EOG), Schlumberger NV (NYSE: SLB) and ConocoPhillips (NYSE: COP). The ETF’s dividend yield currently is at 3.36% and the fund has 99% of its portfolio in U.S. energy companies. XLE rose 2.86% in the past week, slid 5.03% in the last four weeks, gained 5.15% in the past three months, climbed 2.90% so far this year and zoomed 13.50% for past 12 months.

Bob Carlson, head of Retirement Watch, gives an interview to Paul Dykewicz.

Seven Energy Income Investments to Buy Amid Terrorism: IXC

Investors who want global exposure to energy stocks should consider purchasing shares in iShares Global Energy (IXC), Carlson continued. Roughly 61% of the fund is in U.S. energy companies and 39% is outside the United States.

IXC owns about 52 stocks and has 60% of the fund in the 10 largest positions. The fund’s turnover ratio is 10%.

Top holdings of IXC recently were Exxon Mobil, Chevron, Shell (NYSE: SHEL), Total Energies (NYSE: TTE) and ConocoPhilips. The dividend yield was 4.39%.

As far as performance, IXC surged 3.69% in the past week, dipped 3.23% in the last four weeks and soared 5.89% in the past three months, 5.66% so far this year and 17.60% for past 12 months.

Chart Courtesy of www.stockcharts.com

Seven Energy Income Investments to Buy Amid Terrorism: Rising Political Risk

Russia’s invasion of Ukraine remains a key factor in keeping oil prices high. To help fund its entrenched invasion of Ukraine, Russia has limited crude production to keep prices high. OPEC leader Saudi Arabia also has curtailed production to draw down global inventories.

Political risk could mount in the months and year ahead if the war in the Middle East widens and terrorist groups that seek to wipe out Israel and kill the men, women and children who live there persist in what NATO Secretary General Jens Stoltenberg called “horrific” brutality. Russia likely will be adding fuel to its ongoing atrocities in the Ukraine by boosting its military spending more than 68% in 2024 to reach $111.15 billion, as its Defense Ministry recently revealed. That amounts to about 6% of Russia’s gross domestic product (GDP), more than the country’s spending on social programs, reported the Moscow Times. Russia’s military spending is planned to total about three times more than education, environmental protection and health care spending combined.

The seven energy income investments to buy amid terrorism provide paths to profit despite increased political risk. That risk includes the Hamas terrorism in Israel that began Oct. 7 and caused the death of more than 1,300 people last weekend, as well as Russia’s continuing invasion of Ukraine that has spurred a stout counteroffensive by those who are defending their homeland and fellow countrymen. Ukraine lately launched strikes against positions in the Crimea region that that Russia held since its previous land-seizing invasion in 2014. But Russia has used minefields, networks of trenches and formidable tank barriers to maintain its onslaught that has targeted villages far away from military clashes, along with infrastructure and civilians such as a 10-year-old boy, his grandmother and 50 other people who were killed attending a recent funeral.

Paul Dykewicz, www.pauldykewicz.com, is an award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.