Wall Street’s analysts have been predicting that this year would see slower growth than 2019. But a savvy investor can still find great returns. It may just require a more refined search.
The tech industry comes to mind, of course. Tech stocks are the bright and shiny object in the markets and, mostly, they’ve brought in the returns. But they’re not the only game in town. The energy and utility sector – yes, the staid, dull oil companies – rose 6.61% in January, making them the leading gainers in the market.
Several factors have come together to fuel their gain. Tax cuts and low energy prices have made it possible for utility companies to upgrade their infrastructure without passing the costs along to customers, while low interest rates mean that their dividends – usually just mid-ling when they’re offered – significantly beat out the yields on Treasury bonds.
With that in mind, we’ve used TipRanks’ Stock Screener tool to pull up three Buy-rated small- and mid-cap players in the energy industry, to find out what Wall Street thinks about their prospects. Let's take a closer look.
Liberty Oilfield Services (LBRT)
Up first, a small-cap company in the oilfield support business. These are the companies that offer the engineering tech the big-name drillers need to pull oil and gas out of the ground. Liberty provides back-up for the oil fracking industry: water, sand, chemicals, piping, and even the engineers to put it all together.
It’s high-cost niche, as was made clear by the EPS loss in Q4. LBRT reported net losses of 15 cents per share, worse than the forecasts had predicted. Revenues were positive, at $398 million, but 5% below the estimates and down 15% year-over-year. As expected, the stock is down, too. LBRT shares have slipped 30% since the turn of the year.
The company’s current woes, however, may be a buying opportunity, at least according to Citigroup analyst Scott Gruber. The analyst writes, “The outlook for oilfield services has improved given the likely activity bottom in Q4, need to expand activity to mitigate the production growth deceleration, OPEC reducing supply risk in the first half of 2020, and the likely end of rate deflation early next year. We believe the U.S. oilfield services trade has legs and that quality smaller caps are more attractive.”
Gruber puts an $11.50 price target on the stock, to support his Buy rating. This implies an upside of nearly 50% from current levels. (To watch Gruber’s track record, click here)
With 5 recent Buy ratings under its belt, LBRT gets a Strong Buy from the analyst consensus view. The stock is a bargain at $7.72 and with an average price target of $12.90, a 67% twelve-month rise could be in the cards. (See LBRT's price targets and analyst ratings on TipRanks)
Apergy Corporation (APY)
Next on our list is another oilfield services company, Apergy. This company focuses on lift equipment – rod pumping, electric submersible pumps, cavity pumps, and polycrystalline diamond cutters for drillings shafts – needed to open a well and extract the oil. As the company says, they are in the business of "unlocking energy."
Where LBRT has seen losses in recent quarters, APY is still showing positive earnings despite pressure from low oil and gas prices. The Q4 report, expected on February 24, is forecast to show sequential declines from Q3, which itself was down from Q2. In the last quarterly report, revenues came in at $278.4 million, while EPS was 27 cents. The coming report is expected to show EPS at 14 cents.
Stephens analyst Tommy Moll is siding with the bulls, saying, “In our opinion, the stock is oversold in the high-$20s, given 2020 industry headwinds are well-known and in 2021 we see earnings inflecting higher just as the Company approaches its leverage target and can pivot to shareholder returns.”
Moll adds that the company has a clear advantage over its competition: “Apergy … offers investors the rare combination of leading technologies and brands packaged in a nimble, independent platform with execution advantages vs. large, diversified competitors.”
In his review of the stock, Moll sets a Buy rating with a $34 price target. His target suggests a potential upside of 27%. (To watch Moll’s track record, click here)
With a 1-to-1 split between Buys and Holds, APY shares get a Moderate Buy rating from the analyst consensus. The stock is currently trading at $26.62, and the $34 average price target suggest an upside of 27%. (See Apergy's stock-price forecast on TipRanks)
Azure Power Global (AZRE)
With our third stock, we shift from oil to the solar energy sector. Azure designs, builds, operates, and maintains solar energy projects, focusing on utility and commercial scale photovoltaic power plants. The India-based company got started in the state of Punjab in 2009 and now has operations across the subcontinent, with a substantial total power generation capacity – in the range of 3 gigawatts.
For the upcoming fiscal third quarter (calendar Q4 2019), AZRE is expected to show a loss of 32 cents per share. It’s important to remember here that the company typically shows a loss in calendar Q4. Despite the projected net loss, revenues are expected to show strong yearly growth of 26.5%, reaching $44.2 million. High overhead costs and a $5.4 million interest charge in the quarter took a toll on the bottom line.
Wall Street’s analysts are sanguine about AZRE’s prospects heading forward. From Jefferies, analyst Lavina Quadros writes, “Azure Power, with 100% solar power capacity, has a strong track record in execution, that we believe supports its planned 2.3x rise in capacity during FY19-22E. We expect it to benefit from EBITDA CAGR of 30% in this period from higher generation and debtor monetisation." The analyst continued, "Azure's asset portfolio is well-diversified, and the company has a strong track record of execution. [Azure is a] well placed play on the environmental, social and governance trend, given its 100% solar power capacity.”
Quadros’ $15.20 price target backs up the Buy rating, and suggests room for a 21% upside.
Azure Power has only 2 recent analyst reviews, but both are Buys. Shares are priced low, at $12.47, and have an average price target of $19.60, which indicates room for a 57% upside potential. (See Azure stock analysis at TipRanks)