We recently published a list of What Happened to LNG Stocks and 10 Best LNG Stocks to Buy Now. In this article, we are going to take a look at where ConocoPhillips (NYSE:COP) stands against the other LNG stocks.
Liquefied natural gas is one of the fastest-growing sectors in the energy industry. The global LNG market is changing quickly to meet the rising demand for gas in new markets. This growth is fueled by more companies getting involved and faster advancements in technology, but faces uncertainties due to supply constraints.
The 2024 World LNG Report reveals that the global LNG market now connects 20 exporting with 51 importing markets, with supply being the main constraint on growth. After two turbulent years, the market has reached a fragile equilibrium due to limited spare supply.
Geopolitical tensions have significantly shifted demand and supply dynamics, fueling price volatility and causing natural gas prices to rise across all key markets in the second quarter of 2024. These factors continue to pose challenges for the industry in 2024.
However as the industrial coal-to-gas transition gathers steam fueled by solid demand in China and Southeast Asia, demand for LNG is expected to grow by 40% by 2040.
The worldwide market for liquefied natural gas is expected to experience steady expansion until 2030 as production increases, resulting in reduced costs and a broader market reach in nations where coal is more affordable.
The total LNG supply globally is anticipated to rise by an average of 31 million metric tons annually until 2030. Production capacity is expected to grow by 30% or more from 2026 to 2028 due to the launch of new liquefaction facilities. LNG Capacity should exceed 600 million by 2030.
The increased supply comes as companies invest billions of dollars in building LNG facilities in the hope of cashing in on the exponential growth in demand. Amid the rise in LNG demand, investment opportunities are increasingly cropping up for investors looking to diversify their energy sector portfolios.
Over the last 50 years, LNG trade has grown at an average rate of 11% annually, starting from 2.6 million metric tons in 1971 and reaching 372.3 million metric tons in 2021. Given that the expansion has been consistently positive, it underscores the tremendous opportunity for grabs amid the transition from coal.
According to Julia Khandoshko, CEO of international broker Mind Money, the main trend in the LNG market is the transition to natural gas as LNG infrastructure expands, making it a preferred energy source.
The growing investments in the sector in the US and Europe affirm the sector’s long-term prospects. While US LNG exports have increased significantly since Russia invaded Ukraine, affecting key supply lines, there is still room for growth.
Japan dominates the $250 billion global LNG trade, giving it its primary role in the supply chain stage. Additionally, Japanese companies netted at least $14 billion in profit from gas-related business, affirming the booming business. Nevertheless, some of the best LNG stocks are in the U.S.
The shale oil and gas production surge has allowed the U.S. to secure the top spot in global natural gas output, contributing to stable prices at home. However, the country doesn’t require all this gas for its own use, making producers keen to sell it abroad to regions like Europe and Asia, where it fetches a premium. The U.S. Energy Information Administration anticipates a 2% increase in U.S. LNG exports this year and a further 18% rise next year as new export plants are established.
While energy stocks can be highly volatile, LNG stocks have proven more resilient than crude oil and other entry commodities. As natural gas moves to replace coal as the primary energy source amid the push to combat emissions, some of the best LNG stocks to buy now are poised to offer some of the best investment opportunities. Such stocks are of companies capable of delving low, modest LNG production growth at the lowest breakeven levels.
Companies investing billions into exploring more natural gas resources to meet the growing demand are some of the best investment plays in the sector. Additionally, companies are building LNG export and import infrastructure to benefit from the supply chain business.
Investments in building LNG infrastructure are expected to generate significant free cash flow going to the strong demand, consequently allowing the companies to pay big dividends.
Our Methodology
For our list of the best LNG stocks to buy now, we sifted through ETFs and online rankings to compile an initial list of 20 stocks. We then selected the 10 stocks that are the most popular among elite hedge funds. We have sorted the list in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An underground network of pipelines transporting oil through an expansive terrain.
ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 72
Houston, Texas, based ConocoPhillips (NYSE:COP) is a leading global energy company specializing in hydrocarbon exploration and production. The company explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids.
ConocoPhillips (NYSE:COP) stands out as one of the best LNG stocks to buy now owing to its impressive track record in timely acquisitions that strengthen its edge in the energy sector. In 2023, ConocoPhillips expanded its LNG portfolio by securing regasification capacity at the Gate LNG terminal in the Netherlands and finalizing a decision for 5 MTPA of LNG offtake and 30% equity in Sempra’s Port Arthur LNG Phase 1 project.
Additionally, they signed offtake agreements at Mexico Pacific’s Saguaro Energía LNG and Energia Costa Azul export facility. These efforts, along with their 60-year history in LNG technology, position ConocoPhillips as a key player in the global energy transition, leveraging natural gas to reduce greenhouse gas emissions and support energy security.
It also completed the acquisition of Concho Resources when the overall sector was in a downturn, creating a combined resource base of approximately 23 billion barrels of oil equivalent. Nevertheless, the company suffered a major blow on its plan to acquire Marathon Oil, resulting in a significant pullback in the stock price. The acquisition was expected to expand the company’s footprint into new regions, including Eagle Ford, Bakken, Delaware, and Permian basins. It was also expected to result in $500 million in cost savings.
ConocoPhillips (NYSE:COP)’s acquisition strategy focuses on assets that are cost-effective to produce, allowing it to make a profit even when the prices of oil and gas are low. It strategizes its operations around a target price of $60 per barrel.
This structured approach has resulted in the company’s sustained financial stability. It has consistently maintained a financial profile characterized by low long-term debt and strong debt ratios to capital and financial debt to equity. Unlike many other exploration and production companies that took on more debt during the 2020 recession, ConocoPhillips managed to preserve its financial health through its disciplined approach.
ConocoPhillips (NYSE:COP) delivered solid Q2 2024 results with adjusted earnings of $2.3 billion or $1.98 a share. Generated cash provided by operating activities totaled $4.9 billion, and cash from operations (CFO) totaled $5.1 billion.
Backed by a solid balance sheet, the company has consistently rewarded its shareholders, affirming its ability to generate shareholder value. It distributes 40% of its cash flow to shareholders through dividends and buybacks.
ConocoPhillips (NYSE:COP)’s dividend is $0.58 a share with a 1.8% dividend yield. ConocoPhillips has also announced a 34% increase in ordinary dividends as it also plans to return $9 billion of capital by year-end.
By the end of June, 72 hedge funds were bullish on ConocoPhillips (NYSE:COP), up from 62 in the previous quarter, based on Insider Monkey’s database. Eagle Capital Management stood out as the largest stakeholder in the second quarter, with over 14.52 million shares.
Here is what Invesco Distributors, Inc. said about ConocoPhillips (NYSE:COP) in its Q2 2024 investor letter:
“Stock selection in the industrials and health care sectors detracted from relative performance during the quarter. Selection and an underweight in consumer staples also hurt relative return as the sector was one of just two index sectors with a positive return for the quarter. ConocoPhillips (NYSE:COP): The company announced its acquisition of Marathon Oil in May. The deal is expected to increase earnings and will increase the scale of Conoco’s production assets. However, the stock traded lower on the news.”
Overall COP ranks 2nd on our list of the best LNG stocks to buy. While we acknowledge the potential of COP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than COP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
