“Energy stocks are looking golden,” says Kevin O’Leary; Here are 3 names analysts like

Everyone now knows that the energy sector was the place to be over the past year, as the segment has been an outlier and one of the few to dodge the market carnage of 2022. Fueled by rising energy prices amid Russian invasion of Ukraine, overall energy stocks clearly beat the market.

For those mourning a missed opportunity, Shark Tank star Kevin O’Leary sees plenty of opportunity in this segment.

“I love energy. Everyone hates energy… Go where people hate it. Energy is the driving linchpin,” said O’Leary. “The cash flow, the distribution… this sector is looking golden right now.”

O’Leary isn’t the only one who thinks energy stocks are poised for more success. In a nod to O’Leary, we dug into the TipRanks database and got the lowdown on three names the street is pinning high hopes on — all rated strong buys by analyst consensus. Let’s see what makes them attractive investment choices in the current climate.

Valero Energy Corporation (VLO)

With a market capitalization in excess of $50 billion, Valero Energy is the world’s largest independent refiner. Based in San Antonio, Texas, the company operates 15 refineries in the US, Canada and the UK and has a total throughput capacity of approximately 3.2 million barrels per day. Not only that, it is also the second largest producer of renewable fuels in the world.

It all adds up to a recipe for success in the current environment, as evidenced by recent fourth-quarter results. The company posted earnings that more than tripled compared to the same period last year when net income reached $3.1 billion for adjusted EPS of $8.45 per share. This number was also well above the forecast of $7.22. Additionally, Valero’s refineries showed their best utilization rate since 2018 at 97%, allowing the company to take advantage of the wide gap between crude and refined product prices. The result was a 230% increase in refining segment operating profit to $4.1 billion.

The story goes on

Given the performance, Valero was also able to reduce its debt load by $2.7 billion last year, and the improved balance sheet gave the company the ability to return more cash to shareholders. As a result, the company increased its dividend payout by ~4% to $1.02 per share in January. At an annualized rate of $4.08, the dividend yields 3.1%.

This energy giant has garnered praise from Raymond James analyst Justin Jenkins, who sees a lot to like here.

“We believe Valero remains extremely well positioned to benefit from the strength of the global refining environment, as the impact of the European energy crisis adds to the benefits of VLO’s premier portfolio,” said the 5-star analyst. “The Company’s disciplined strategy has placed VLO at the forefront of refining operations, expanding its footprint in both renewable diesel and carbon capture while strengthening its balance sheet. The powerful combination will allow shareholders to grow returns throughout 2023, positioning VLO for another re-rating.”

Accordingly, Jenkins rates VLO stocks as a Strong Buy, while its price target of $174 suggests the stock could register gains of 25% in the coming year. (To see Jenkins’ track record, Click here)

Turning to the rest of the street, the cops have it on this one. With 14 purchases and just a single sale, word on the street is that VLO is a strong buy. (See VLO stock forecast)

Magnolia Oil & Gas (MGY)

Next is Magnolia Oil & Gas, a pure-play oil and gas E&P (exploration and production) company. Most of MGY’s operations are concentrated in the Eagle Ford Shale and Austin Chalk formations in South Texas. Its holdings consist of a total of 460,000 net acres located in the Giddings and Karnes counties area, the former of which the Company views as a resurgent oil field with “extensive inventory potential” and significant growth potential.

Growth was on the menu for the profitability profile when the company reported its Q4 results last month. The company posted net income of $254.8 million for the quarter, compared to $192.1 million for the same period last year. That translates to earnings per share of $1.20, slightly above the $0.78 analysts were expecting. Total production for the quarter rose 6% year-on-year to 73.8 thousand barrels of oil equivalent per day.

In the fourth quarter, the company also repurchased 2.4 million shares for $57.8 million, not far from the $61 million in the third quarter, and the company has 8.9 million shares remaining under the repurchase authorization program .

MGY has also shown a consistent commitment to paying its dividend, and at the end of January the company increased the payment by 15% to $0.115. This brought the annualized value of the dividend to $0.46 per share, making the yield 2.08%.

For Truist analyst Neil Dingmann, it all boils down to a company delivering the goods to its shareholders.

“We continue to favor MGY’s relatively methodical shareholder return plan, which includes dividends of no more than 50% of last year’s reported net income and opportunistic share buybacks of at least 1% of total shares each quarter,” the 5-star analyst wrote. “The flexible shareholder return program ensures the company maintains its pristine balance sheet while having plenty of dry powder to take a material stake if the major equity sponsor decides to sell some or all of its remaining 13% of total shares. MGY’s operating plan remains stable with two rigs, one focused on its highest revenue development activities and the other on development and delineation activities.”

Based on the above, Dingmann ranks MGY stocks as a Buy along with a price target of $29. The consequences for investors? Upside potential of ~27% from current levels. (To see Dingmann’s track record, Click here)

Elsewhere down the road, with 5 additional buys beating 1 hold, the stock claims a strong buy consensus rating. The forecast calls for a 12-month return of ~31% considering the average target is currently $29.86. (See MGY Stock Forecast)

Cheniere energy (LNG)

The final energy stock we’ll look at is Cheniere Energy. As the ticker suggests, Cheniere Energy is a liquefied natural gas (LNG) player, and in fact Cheniere became the first U.S. company to export liquefied natural gas in 2016.

Today, the Houston, Texas-based company is the largest producer of LNG in the US and the second largest LNG operator in the world. The company’s LNG assets are located in southwest Louisiana and southern Texas, and Cheniere is proud to serve dozens of markets across five continents as it believes demand for its fuel will only increase when countries on the around the world are looking for cleaner ways to power their economies.

That became clear in the company’s most recent quarterly report – for 4Q22. Revenue rose 38.6% year over year to $9.09 billion, beating Street’s call by $1.05 billion. The company generated consolidated Adjusted EBITDA of approximately $3.1 billion, compared to $1.34 billion for the same period last year. For 2023, the company expects consolidated Adjusted EBITDA to be in the range of $8.0 billion to $8.5 billion.

For JP Morgan analyst Jeremy Tonet, the pressure has “delivered on multiple fronts,” including a better-than-expected 2023 EBITDA guidance and an improvement in Q4 EBITDA estimates. Additionally, Tonet said, “Unlike most others in our coverage, Cheniere showed a strong commitment to share buybacks, with over $700 million executed in Q4 and plenty of room for the $6 billion program. At the same time, Cheniere has repaid $5.4 billion in debt in 2022, demonstrating its robust financial flexibility.”

In summary, Tonet continued, “We continue to see value in the Company’s world-class, long-term take-or-pay contract portfolio, leverage for increasing LNG demand (and capture market share as other sources decline) and unrivaled execution. “

These upbeat comments support Tonet’s overweight (i.e., “buy”) LNG, while his price target of $209 implies a ~28% stock appreciation over 1 year. (To see Tonet’s track record, Click here)

Tonet’s colleagues fully agree with this assessment; The stock’s Consensus Strong Buy rating is based on 13 unanimous buys. Analysts expect stocks to return ~20% in the coming year as the average target currently stands at $195.62. As a little bonus, the company pays regular dividends, which currently yield 1% annually. (See LNG stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is for informational purposes only. It is very important that you do your own analysis before making any investment.