Top 5 Dividend-Paying Black Gold Investments to Acquire for the Upcoming Energy Crunch

By: ,

Top 5 dividend-paying black gold investments to acquire for the upcoming energy crunch are positioned to profit from exploration and production (E&P) growth that is expected to offer a blowout bonanza.

The top 5 dividend-paying oil investments to acquire for the upcoming energy crunch not only will be fueled by E&P growth but a 22% rise in global drilling & completion (D&C) spending in 2022 to achieve the biggest annual rise since 2006, according to BofA Global Research. In the wake of two tough years for the oilfield services (OFS) industry, BofA is forecasting that 2022 could offer a robust D&C spending spurt.

Contrary to the previous cycle that was dominated by U.S. D&C spending gains, international expenditures are expected to be strong in 2022. As a result, BofA is projecting a broad D&C spending recovery in 2022, including U.S. and international growth of 37% and 15%, respectively.

----ADVERTISEMENT----

Chart generated using Stock Rover. Activate your 2-week free trial now.

Top 5 Dividend-paying Black Gold Investments to Acquire for the Upcoming Energy Crunch Should Be Lifted by Exploration and Production Power

E&P companies in the oil and gas industry are involved in the early stage of energy production known as the upstream segment of the business. E&P entails searching for and extracting oil and gas from the ground.

Typically, E&P companies do not refine or produce energy but rather focus on finding and extracting raw materials. Midstream activities are the next step with companies that specialize in storing, processing and transporting the crude oil and raw natural gas products. Midstream companies operate tanker ships, pipelines and storage facilities to help move those raw materials and prepare them for the downstream process that refines the resources into fuels and finished products for marketing, distribution and sale.

----ADVERTISEMENT----

Energy is one of the limited number of industries that are benefitting from the current rising yield environment. Increased prices have helped oil stocks and are producing buying opportunities for investors, according to the Jan. 18 issue of the Fast Money Alert trading service led by Mark Skousen, PhD, and Jim Woods.

Mark Skousen, a descendant of Benjamin Franklin, meets with Paul Dykewicz.

Top 5 Dividend-paying Black Gold Investments to Acquire for the Upcoming Energy Crunch Will Be Revved up by Exploration, Production and Inflation

Crude oil prices are surging on a combination of rising inflation, steady demand and a constricted supply, Skousen and Woods opined.

“Those rising prices have created a bullish setup in several oil stocks,” wrote Skousen and Woods. Skousen, named one of the world’s Top 20 living economists by www.superscholar.org, is the leader of the Forecasts & Strategies investment newsletter, as well as the Five Star Trader, TNT Trader and Home Run Trader advisory services. Woods writes the Successful Investing and Intelligence Report investment newsletters, as well as heads the Bullseye Stock Trader and High Velocity Options advisory services.

Jim Woods and Paul Dykewicz discuss stocks to buy now.

BofA reports it has been watching the private U.S. exploration and production companies closely, forecasting their rig activity above pre-COVID levels. But the public U.S. E&Ps are still 45% below pre-COVID levels.

While public E&Ps will raise their activities modestly above maintenance, probably producing 20%-plus year over year (y/y) growth in the group’s capital expenditures (capex), private E&Ps should provide the biggest increases in 2022. For example, BofA expects private E&P capex to surge by roughly 55% in 2022. Overall, U.S. E&P capex is projected by BofA to rise 37% this year, including 10% due to inflation.

Top 5 Dividend-paying Black Gold Investments to Acquire for the Upcoming Energy Crunch Gain Interest

Energy stocks had a strong finish to 2021 and the same reasons remain intact for 2022, said Bob Carlson, who heads the Retirement Watch investing newsletter. Inflation is likely to stay high for much of 2022 and likely longer, helping to power energy stocks that traditionally serve as a good inflation hedge for such conditions.

“In addition, capital investments in the energy sector lagged the last few years, continued Carlson, who also serves as chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. “Capital investments aren’t going to surge enough to increase supply anytime soon. In fact, some governments are discouraging or prohibiting additional investments in traditional energy sources, and many banks and other capital sources cut their exposure to the sector as part of their environmental policies.”

The result is demand likely will surpass supply, absent a recession, Carlson counseled. Many energy companies, especially the shale oil producers, have indicated that they will be more friendly to shareholders going forward. Instead of investing heavily to maximize production, they will focus more on profitability to ensure shareholders have cash distributions and stock price appreciation, he added.

Pension fund and Retirement Watch chief Bob Carlson answers questions from columnist Paul Dykewicz.

Pension Fund Chairman Provides 2 of Top 5 Dividend-paying Black Gold Investments to Acquire

For investors interested specifically in energy services, Carlson recommends an exchange-traded fund (ETF), Tortoise North American Pipeline (TPYP).  It seeks to follow a custom index called the Tortoise North American Pipeline Index.

The fund has among the lowest expenses in its category, plus an excellent performance relative to its peers over three and five years. In addition, its 12-month return is 31.55%. The yield currently is just shy of 5%.

TPYP has 54 positions, and 59% of the fund is in the 10 largest ones. Top positions recently were TC Energy (NYSE: TRP), Enbridge (NYSE: ENB), Kinder Morgan (NYSE: KMI), Williams Companies (NYSE: WMB) and one of my personal holdings, Enterprise Products Partners (NYSE: EPD).

Charts courtesy of www.stockcharts.com.

Energy Fund Rates Among Top 5 Dividend-paying Black Gold Investments to Acquire
Energy Select SPDR (XLE) is the top pick in the industry for conservative to moderate-risk investors, Carlson said. The fund’s top holding, among 21 stocks, is Exxon Mobil (NYSE: XOM). Carlson said he likes XLE, for several key reasons.

First, energy stocks had a strong finish to 2021, and most of the factors that propelled those gains continue in 2022. Second, inflation is likely to remain high for much of 2022 and perhaps longer. Energy stocks traditionally are a good inflation hedge.

Third, capital investments in the energy sector lagged the last few years. Those capital investments aren’t going to surge enough to raise supply, since some governments are discouraging or prohibiting additional investments in traditional energy sources, and many banks and other capital sources reduced their exposure to the sector as part of their environmentally conscious policies.

BofA Picks 3 of 5 Top 5 Dividend-paying Black Gold Investments to Acquire for the Upcoming Energy Crunch

With BofA preferring oil stocks that have more exposure to the U.S. E&P market, it recommended Halliburton (NYSE: HAL), with dual headquarters in Houston and Fort Worth, Texas. BoA rated HAL as a buy and the “best-in-class” North American, large-cap E&P stock.

The investment firm wrote a research report recently that described Halliburton as its favorite offshore large-cap investment in the sector. One reason is that U.S. E&P capital discipline has reduced the sensitivity of domestic activity to oil prices, it noted.

But with oil now at $80, U.S. onshore activity may have underappreciated upside that will help to boost further gains for HAL’s consensus estimates, BofA continued. Amid that positive outlook, BofA reiterated its buy rating and raised its 2022 / 2023 earnings per share (EPS) and earnings before interest, taxes, depreciation and amortization (EBITDA) estimates to $1.85 / $2.66 and $3,659 million / $4,770 million, respectively.

For those who like value-added charts, Stock Rover has provided such visual demonstrations of the recent track record of HAL and BofA’s other three recommended oil stocks of BofA.

The Williams indicators in the illustrative Stock Rover charts show momentum, with 0 to -20 (shaded in red) considered overbought and -80 to -100 regarded as oversold. The accompanying Stock Rover charts also are overlaid with a volume indicator.

Chart generated using Stock Rover. Activate your 2-week free trial now.

In addition, charts that feature Keltner Channels are an informative variation on moving average lines.

Chart generated using Stock Rover.

Top 5 Dividend-paying Black Gold Investments to Acquire for the Upcoming Energy Crunch: PTEN

Patterson UTI (NASDAQ: PTEN), a Houston-based provider of oilfield services and products to oil and natural gas E&P companies in the United States and other select countries, offers contract drilling, pressure pumping and directional drilling services. Rig count upside exists to drive day-rate momentum for PTEN, BofA wrote.

The company is rated as BofA’s favorite land driller. Key reasons are (1) higher leverage to U.S. private E&Ps, (2) lower capex requirements, especially when compared to competitors, and (3) cheaper valuation than its closest peer, BofA opined.

“Furthermore, we think U.S. horizontal rig activity could end the year around 650 rigs, which implies more than 100 rigs added between now and the end of the year,” BofA wrote in a recent note. “And if activity plays out like we think this year, we expect day rates to climb into the mid-$20,000 range as total Super Spec rig utilization eclipses 90%.”

Chart generated using Stock Rover.

Upon taking all these factors into account, BofA reiterated its buy rating, while raising its 2022 / 2023 EBITDA estimates on the stock to $426.7 million / $594.3 million.

Chart generated using Stock Rover.

Top 5 Dividend-paying Black Gold Investments to Acquire for the Upcoming Energy Crunch: WHD

Cactus Wellhead (NYSE: WHD), of Houston, designs, manufactures, sells and rents a range of highly engineered wellhead and pressure control equipment. Its products are sold and rented principally for onshore unconventional oil and gas wells and are used during the drilling, completion and production phases of its customers’ wells.

In addition, Cactus Wellhead offers field services for all its products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment. BofA forecasts U.S. drilling upside that could give WHD’s margins tailwinds.

WHD, with a 40%-plus share of the U.S. wellhead market, is set to benefit from continued momentum in U.S. drilling activity, BofA predicted. Plus, the investment firm forecast that the company’s product segment could be helped if its input costs, such as steel, come down even as Cactus Wellhead has had success boosting prices to offset inflationary pressures, BofA added.

“Keep in mind, though, that typically WHD does not have to concede some of the price gains captured previously as input costs come down, which is a possible added catalyst for margins in 2022,” BofA wrote. “Therefore, we reiterate our buy rating.”

Chart generated using Stock Rover.

BofA raised its 2022 / 2023 EBITDA estimates to $193.4 million / $272.5 million.

Chart generated using Stock Rover. Activate your 2-week free trial now.

No-dividend NEX Left Out of Top 5 Dividend-paying  Black Gold Investments to Acquire

Among the smallest 2,500 stocks within the broad S&P benchmark is Houston-based NexTier (NYSE: NEX), a land oilfield service company that has a diverse set of well completion and production services. It focuses on D&C and received a buy recommendations from BofA, even though its does not pay a dividend.

NexTier gained a buy recommendation from BofA partly as the “best way” to invest in tightening pumping fundamentals. Specifically, BofA is positive on U.S. hydraulic fracturing (a.k.a. pressure pumping) fundamentals. Attrition is tightening the fracturing market much more quickly than investors might expect even though the crew count is still well below 2019 levels.

Despite NEX’s recent rise, the stock still seems undervalued, BofA added. Continued execution and market tailwinds should help this “exceptionally cheap” stock re-rate as consensus estimates move higher this year, the investment firm added.

Chart generated using Stock Rover. Activate your 2-week free trial now.

As such, BofA affirmed its buy rating on NEX and raised its 2022 / 2023 EBITDA estimates to $329.9 million / $426.1 million.

Chart generated using Stock Rover.

Free Cash Flow Growth Enlivens Oilfield Service Sector

With the oil and gas industry entering its “twilight years” amid a global push toward clean energy, investors have begun to focus more on free cash flow and less on growth, BofA wrote. With activity on the rebound and oilfield service pricing set to climb this year, the oilfield services sector is positioned to generate significant growth in free cash flow.

At this point in the cycle, cash flow growth really doesn’t require much, if any, growth capex, BofA added. Plus, use of the U.S. dollar to price oil favors such stocks, so any decline in the greenback compared to other currencies should increase the prices of oil and other forms of energy.

There are 21 stocks in the energy sector of the S&P 500. At the end of 2021, those stocks had a combined market value of about $1 trillion. That’s about a third of Apple’s (NASDAQ: AAPL) $3 trillion market value and a little more than the 2021 increase in the technology company’s market capitalization, Carlson commented.

Omicron Variant of COVID-19 Has Strangle-hold on U.S. Cases

The economy is affected by the Omicron variant of COVID-19 causing 99.5% of new coronavirus cases in the United States last week to show a slight increase from the previous week, according to estimates from the U.S. Centers for Disease Control and Prevention (CDC). The Delta variant accounts for the remainder.

COVID-19 booster shots of the Pfizer-BioNTech and Moderna vaccines have proven effective at preventing Omicron-related hospitalizations, according to new data from the CDC.

The booster proved 90% effective preventing the need for hospitalizations people became infected with the Omicron version. Booster shots were 82% effective at preventing emergency department and urgent care visits, the data show.

An average of 750,000-plus new COVID-19 infections were reported every day over the past week, according to data from Johns Hopkins University. Reports indicate that the recent surge in COVID cases is causing some hospitals to run out of space to treat other patients in intensive care units. A squeeze also is occurring in the travel industry due to canceled flights from rising COVID cases, as workers at airlines, airports and related retailers call in sick.

COVID-19 Concerns Continue as Cases and Deaths Strongly

The Centers for Disease Control and Prevention (CDC) reported that the variants still are inducing people to obtain COVID-19 boosters. But more than 60 million people in the United States, or nearly 15%, remain eligible to be vaccinated but have not done so, said Dr. Anthony Fauci, the chief White House medical adviser on COVID-19.

As of Jan 21, 250,262,153 people, or 75.4% of the U.S. population, have received at least one dose of a COVID-19 vaccine, the CDC reported. Those who are fully vaccinated total 210,021,766, or 63.6% of the U.S. population, according to the CDC.

COVID-19 deaths worldwide, as of Jan. 21, topped the 5.5 million mark to hit 5,583,886, according to Johns Hopkins University. Worldwide COVID-19 cases have zoomed past 345 million, reaching 345,747,702 on that date.

U.S. COVID-19 cases, as of Jan. 21, soared beyond 70 million, totaling 70,116,329 and causing 864,489 deaths. America has the dreaded distinction as the country with the most COVID-19 cases and deaths.

The top 5 dividend-paying black gold investments to acquire for the upcoming energy crunch are poised to profit from oil exploration and production growth, while offering investors a way to tap into the rising price per barrel. Those willing to openly mindedly acquire shares in these top 5 dividend-paying black gold investments could be gushing about their returns by the end of the year.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also 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 book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.

Top-Ranked Trader:

"It's the #1 EV Trade for 2022"

This overlooked stock could be the biggest winner in the explosive Electric Vehicle market... expected to be worth $2.5 billion globally by 2027.
X
X
X

Search Dividend Investor