Combat Volatility With These 3 Low-Beta Energy Stocks
Oil prices have witnessed wild swings since the onset of the coronavirus pandemic, reflecting that notorious volatility is an integral part of the energy sector. Hence, creating a portfolio of low-beta energy stocks is of utmost importance since the securities will deliver healthy returns and shield against choppy market conditions.
In this regard, stocks like PHX Minerals Inc. PHX, Cheniere Energy Partners LP CQP and Transportadora de Gas del Sur SA TGS are worth betting on.
Extremely Volatile Energy Market
We should not forget how oil prices have behaved since the initial coronavirus outbreak. The early pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The commodity’s price plunged to a negative $36.98 per barrel on Apr 20, 2020.
However, with the rapid developments of vaccines by scientists, which led to the gradual reopening of the economies, the pricing scenario of West Texas Intermediate crude improved drastically over time to reach $123.64 per barrel on Mar 8, 2022. Oil price data are per the U.S. Energy Information Administration. Oil is currently trading higher than the $70-per-barrel mark.
Low-Beta Energy Stocks to the Rescue
While the energy market is highly volatile, it will be better to consider stocks belonging to the sector that are less volatile than the market. For analyzing a stock’s risk profile, it is better to employ a statistical measure called beta — one of the popular indicators. Beta measures the volatility or risk of a particular asset compared to the market. In other words, beta measures the extent of a security’s price movement relative to the market. In this article, we are considering the S&P 500 as the market.
If a stock has a beta of 1, then its price will move with the market. Therefore, the stock is more volatile than the market if its beta is more than 1. In the same way, the stock is not as volatile as the market if its beta is less than 1.
For example, if the market offers a return of 20%, a stock with a beta of 3 will return 60%, which is overwhelming. Similarly, when the market slips 20%, the stock will sink 60%, which is devastating.
While employing our proprietary stock screener, we have zeroed in on three low-beta energy stocks that investors should bet on. The companies either carry a Zacks Rank #1 (Strong Buy) or #2 (Buy), and all have a beta lower than 1, which is our prime criterion for screening stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.
PHX Minerals is a well-known natural gas and oil mineral player. In its core focus area, the company is growing its mineral position. PHX has an ambitious plan of sustainably growing its royalty production while developing mineral location inventory. Over the past 60 days, Zacks #2 Ranked PHX Minerals has witnessed upward earnings estimate revisions for 2023.
Cheniere Energy has a stable business model backed by long-term take-or-pay contracts with investment-grade off-takers. Owning natural gas liquefaction facilities with six liquefaction Trains, the firm secures stable cashflows. The total production capacity of facilities at the Sabine Pass LNG terminal in Cameron Parish, Louisiana (SPL Project) is 30 million tonnes of LNG every year. Cheniere Energy also has an expansion project adjacent to the SPL project, securing additional cashflows. The expansion development will likely comprise up to three natural gas liquefaction trains. Following the positive developments, the #2 Ranked stock has witnessed upward earnings estimate revisions, for 2023, over the past 60 days.
Transportadora’s midstream asset portfolio has the most extensive natural gas pipeline network in Latin America. It generates stable fee-based revenues since its pipeline assets transport more than 60% of the gas consumed in Argentina.
Transportadora has witnessed upward estimate revisions for its 2023 bottom line in the past 60 days. The upward revisions are backed by the company’s stable business model and a strong focus on creating differential value for shareholders. Also, TGS, with a Zacks Rank of 1, has lower debt exposure than the composite stocks belonging to the industry.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cheniere Energy Partners, LP (CQP) : Free Stock Analysis Report
Transportadora De Gas Sa Ord B (TGS) : Free Stock Analysis Report
PHX Minerals Inc. (PHX) : Free Stock Analysis Report
