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Top 3 Oil & Gas Picks for Smart 2024 Investments

Amidst surging oil prices, optimistic annual projections, and evolving market dynamics, investors seeking smart opportunities in the oil and gas sector might consider fundamentally solid stocks Sasol Limited (SSL), Sunoco (SUN), and Global Partners (GLP). Read more...

Expectations of interest rate cuts and escalating geopolitical tensions have provided support for oil prices. Amidst shifting supply dynamics, robust oil and gas stocks Sasol Limited (SSL), Sunoco LP (SUN), and Global Partners LP (GLP) could be ideal picks for smart investment this year.

Oil prices increased for a third consecutive day on Wednesday due to lower-than-expected growth in U.S. crude inventories and a reduction in the forecast for U.S. output growth, easing concerns about potential oversupply.

Brent crude futures rose by 26 cents to $78.85 a barrel, while U.S. West Texas Intermediate crude climbed by 27 cents to $73.58 on Wednesday. Moreover, American Petroleum Institute data revealed a smaller-than-expected increase in U.S. crude stocks, with a rise of 670,000 barrels compared to the forecasted 1.9 million barrels.

In addition, due to the escalating tensions between the U.S. and Iran, U.S. crude and the global benchmark Brent increased 5.86% and 6.06%, respectively, in  January, marking the first monthly gain since September.

Further, the International Energy Agency (IEA) has increased its 2024 global oil demand growth forecast for the third consecutive month, predicting a rise of 1.24 million barrels per day (bpd). Despite concerns about supply disruptions in the Middle East, the IEA suggests that the market will remain reasonably supplied in 2024, with the possibility of a surplus if OPEC and its allies ease output cuts as planned.

The IEA attributes the upward demand revision to improved global economic growth, lower crude prices, and China's expanding petrochemicals sector.

On top of it, OPEC+ sources had recently announced that a decision regarding the extension of voluntary oil production cuts, in effect for the first quarter, will be made in March. These cuts, totaling approximately 2.2 million barrels per day (bpd) and led by Saudi Arabia's 1 million bpd reduction, were agreed upon last November.

With these favorable trends in mind, let's delve into the fundamentals of the three oil and gas stock picks.

Sasol Limited (SSL)

Based in Johannesburg, South Africa, SSL operates as an integrated chemical and energy company under Advanced Materials; Base Chemicals; Essential Care Chemicals; and Performance Solutions segments.

In October, SSL’s business unit, Sasol Chemicals, launched CARINEX and LIVINEX, two brand names aimed at expanding its portfolio of sustainable products. This initiative is in line with Sasol Chemicals' prior declaration to investigate alternatives to traditional surfactants.

Its annualized dividend rate of $0.91 per share translates to a dividend yield of 12.83% on the current share price, higher than its four-year average yield of 2.80%.

During the fiscal year that ended June 30, 2023, SSL’s overall turnover and operating profit before remeasurement items increased 6.2% and 7.6% year-over-year to ZAR289.70 billion ($15.29 billion) and ZAR55.42 billion ($2.92 billion), respectively. Its earnings for the year and earnings per share stood at ZAR9.33 billion ($492.35 million) and ZAR13.02, respectively.

Analysts expect SSL’s EPS to grow 20.4% year-over-year to $3.45 in the fiscal year ending June 2024.

The stock has gained 2.8% intraday to close the last trading session at $8.41.

SSL’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

SSL has a B grade for Value and Momentum. Within the B-rated Foreign Oil & Gas industry, it is ranked #14 out of 43 stocks.

Access SSL’s additional POWR Ratings for Growth, Stability, Sentiment, and Quality here.

Sunoco LP (SUN)

SUN and its subsidiaries distribute and retail motor fuels in the United States. It operates in two segments, Fuel Distribution and Marketing and All Other. The company owns and operates retail stores under the APlus and Aloha Island Mart brand names and offers food, beverages, snacks, grocery and non-food merchandise, motor fuels, and other services.

On January 22, 2024, SUN unveiled its acquisition of NuStar Energy L.P. (NS) through an all-equity agreement. The completion of the transaction is anticipated in the second quarter of 2024. This acquisition bolsters stability, fortifies SUN’s financial framework, and opens up new avenues for growth and increased cash flow.

Forecasts indicate that this deal will yield immediate benefits, with projected run-rate synergies of at least $150 million within three years after the transaction's closure.

In the same month, SUN declared a quarterly distribution for the fourth quarter of 2023 of $0.8420 per common unit or $3.368 per common unit on an annualized basis. The distribution will be paid on February 20, 2024. Its annual dividend yields 5.51% on the current market prices.

In the fiscal third quarter, which ended September 30, 2023, SUN’s total revenues amounted to $6.32 billion. The company’s net income and comprehensive income rose 227.7% over the prior-year quarter to $272 million.

Also, its net income per common unit came in at $2.95, registering an increase of 293.3% year-over-year and adjusted EBITDA stood at $257 million.

Street expects SUN’s EPS to increase 148.8% year-over-year to $1.04 for the fiscal fourth quarter, which ended December 2023.

Over the past nine months, the stock has gained 36.6% to close the last trading session at $59.78.

SUN’s sound prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has an A grade for Growth and a B for Momentum and Sentiment. It is ranked #12 within 25 stocks in the A-rated MLPs – Oil & Gas industry.

To see the additional ratings of SUN for Value, Stability, and Quality, click here.

Global Partners LP (GLP)

GLP purchases, sells, gathers, blends, stores, and transports gasoline and gasoline blendstocks, distillates, residual oil, renewable fuels, crude oil, and propane to wholesalers, retailers, and commercial customers. The company operates through Wholesale; Gasoline Distribution and Station Operations; and Commercial segments.

On January 3, GLP finalized the pricing for its previously disclosed private offering of $450 million in total principal amount of 8.25% senior unsecured notes maturing in 2032.

GLP plans to utilize the net proceeds generated from the Senior Notes offering to repay a portion of its outstanding borrowings under its credit agreement and for general corporate purposes.

In the same month, GLP declared a cash distribution of $0.7000 per unit ($2.80 per unit on an annualized basis) on all of its outstanding common units from October 1, 2023, through December 31, 2023. The distribution will be paid on February 14, 2024.

Its annual dividend yields 5.96% on the current share price, compared to its four-year average yield of 11.13%. GLP’s dividend payments have grown at CAGRs of 12.6% and 7.3% over the past three and five years, respectively.

During the fiscal third quarter that ended September 30, 2023, GLP’s sales and gross profit stood at $4.22 billion and $228.52 million, respectively. Moreover, its adjusted EBITDA stood at $77.73 million.

Its net income attributable to common limited partners and net income per common limited partner unit stood at $20.54 million and $0.60, respectively. As of September 30, 2023, GLP’s total current liabilities stood at $916.58 million, compared to $971.48 million as of December 31, 2022.

Street expects GLP’s revenue and EPS for the fiscal first quarter ending March 2024 to increase 36.7% and 2.9% year-over-year to $5.51 billion and $0.72, respectively.

The stock has gained 50.6% over the past nine months to close the last trading session at $45.93.

GLP’s solid prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.

GLP has a B grade for Value. It is ranked #10 within the MLPs – Oil & Gas industry.

Click here for GLP’s additional POWR Ratings (Growth, Momentum, Stability, Sentiment, and Quality).

What To Do Next?

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SSL shares were trading at $8.17 per share on Wednesday morning, down $0.24 (-2.85%). Year-to-date, SSL has declined -17.81%, versus a 4.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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