It sounds like energy is the most beloved sector of the stock market today, but there are some numbers to back it up. The weight of the energy sector in the S&P 500 is the lowest in decades and is less than 5% of the total index. However, this market breakdown is not unjustified. Many energy companies burn money at the same rate as natural gas in the Permian Basin.
Despite all the bad business players flooding the market with cheap joules and a worsening rate of return for everyone in the industry, there are still some companies that are making the right steps. That's why we asked three of our Motley Fool contributors to highlight any energy supply they consider to be a good buy today. That's why they chose Core Laboratories (NYSE: CLB) TerraForm Power (NASDAQ: TERP) and MPLX LP (NYSE: MPLX) .
Taking advantage of market pessimism
Jason Hall (Main Laboratories): Stocks of oil and gas reservoir specialists Core Laboratories plummeted, losing almost 70% of their 201
Why such a beating? In short, as the market is currently very pessimistic and Core Labs' latest quarterly results have not given investors much reason to change their minds.
At least on the surface. But when you dig a little deeper, I think there are many reasons to act now and buy Core Labs.
Why now? I will borrow from the reasons that my Motley Fool colleague, Matt Dilalo, decided to buy Core Labs:
- The rating is attractive, close to the cyclical levels of previous oil recessions.
- Maintaining a dividend that yields more than 5% at recent prices is a priority.
- Offshore costs have been at record lows for years. It is starting to recover and this will be huge for Core Labs.
These factors combined must be huge catalysts to send Core shares much higher, though to be fair, it will probably take some time. But with that being said, the high yield that her dividend is currently paying should make it much easier for investors to hold stocks as business improves and the market eventually reinvents this high quality company.
Good allocation of capital in the brutal industry
Tyler Crow (TerraForm Power): An undervalued feature of a company is to get a management team to tell you exactly what it will do, and then implement this plan. In the Wild West alternative energy industry, this trait is rare. Being able to rely on management to achieve what it says is probably one of the best reasons to invest in TerraForm Power's solar and wind energy operator.
Ever since Brookfield Asset Management (NYSE: BAM) acquired TerraForm Power in 2017, it implemented the same gaming plan that it used in many of its other subsidiaries: Acquire assets at reasonable prices, use your larger footprint to gain more value and generate consistent shareholder returns. growing dividend.
So far, he has followed this plan to the letter. It acquired wind and solar changes at low enough rates that they were immediately attracted to its stock-based cash flow. It then began improving item operations such as new maintenance and maintenance agreements across its portfolio of wind and solar projects, as well as leveraging Brookfield's financial strength to renegotiate more favorable debt conditions.
All of these initiatives are projected to lead to a 5% to 8% dividend increase – the same rate that Brookfield has maintained in its other subsidiaries for years. In anticipation of unforeseen problems, TerraForm is likely to deliver on this promise and generate good long-term shareholder returns.
Revenue and Growth at a Value Price
Matt DiLallo (MPLX): The giant mid-flow MPLX can offer many investors, For starters, MLP pays a dividend above the average that currently carries close 10%. While a payout approaching a double-digit rate is usually a sign of trouble, this is not the case with MPLX. This is because it covers its high cash flow distribution at a comfortable 1.36 times, well above the comfort zone of 1.2 for most MLPs. Meanwhile, the company has a solid balance sheet, backed by a low leverage ratio of 3.9 times. This is just below the comfort level of 4.0 times most MLPs.
The reason MPLX pays such an attractive dividend is that its value has dropped nearly 25% in the last year, which has driven yields. This sale doesn't make much sense considering that MLP cash flow per unit has increased by more than 10% in the last year.
Another reason why selling MPLX is scratching its head is that the company has excellent growth prospects. The emphasis is on building an integrated water-to-water solution to move oil and gas from the Permian Basin to the Gulf Coast. These projects include the construction of more pipelines that collect oil and gas from the newly drilled wells in the Permian, as well as long-term ones that will transport volumes to the coast. From there, oil and gas can reach end-users as well as global markets through their growing export capabilities.
MPLX is a rare trifecta for investors as it pays a high-yield dividend, has attractive growth prospects and trades at a value price. Therefore, it can potentially generate some high-octane total returns over the coming years, making it an excellent supply of energy to buy these days.