What are we screening for?
Discounted North American energy stocks with strong relative valuation.
The Screen
With benchmark crude oil prices down by more than 11 per cent this year, Saudi Arabia announced on Sunday it would curb oil production by one million barrels a day starting July in hopes of providing relief to depressed oil prices. OPEC has now decreased oil production by approximately 4.6 million b/d, or 4.6 per cent of global demand this year. These new cuts come as we approach the start of summer – a period that sees increased domestic and international travel, which relies heavily on crude oil as a key input cost. While consumers may experience elevated prices in the second half of the year, energy producers could benefit from higher prices and a strengthening export market. In the latest Reuters poll, the average forecast price for WTI oil in the fourth quarter is US$82.72 a barrel, with a high of US$99, suggesting the market is anticipating higher prices. (Oil is currently trading at around US$72.) Today we screen for energy companies that could rally in a strengthening oil market.
- First, we screen for Canadian-, and U.S.-listed oil, gas and consumable fuels companies with a market capitalization greater than US$1-billion.
- We then use the StarMine Relative Valuation model to screen for companies with a score greater than 90. The relative valuation model is a percentile ranking of stocks based on price and enterprise value multiples such as price-to-earnings, price-to-cash-flow, price-to-book, and enterprise value-to-EBITDA, with 100 representing the highest rank. (EBITDA stands for earnings before interest, taxes, depreciation and amortization.)
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Select North American-listed companies
What We Found
The StarMine Relative Valuation screen produced nine companies across both upstream and midstream segments.
Global Partners LP GLP-N, which scored 100, was one of two oil and gas transportation and storage companies to make the screen. Global Partners is a publicly traded limited partnership and is one of the largest independent owners, suppliers and operators of gas stations and convenience stores in the northeastern United States, with more than 1,700 locations. The company has grown steadily using acquisitions to expand their footprint, including a recent joint venture with ExxonMobil to acquire 64 locations in the Houston area, and the acquisition of five refined-products terminals in the Northeast, adding 3.9 million barrels of new storage capacity. Given the vertical integration of their distribution and terminal network, Global Partners can profit at various stages of their supply chain, allowing them to benefit in a variety of market conditions.
Nuvista Energy Ltd. NVA-T, which scored 92 on the Relative Valuation model, was one of two Canadian-listed companies to make the screen. Nuvista operates in the Montney formation located on the border of northeast British Columbia and central Alberta, and while often viewed as a gas company, Nuvista earns roughly 60 per cent of its revenue from condensate and natural gas liquids, which are oil-linked commodities. The company was affected by the wildfires in Alberta, and management provided updated guidance on June 5, indicating that production reached a record high of 80,000 barrels of oil equivalent a day (boe/d), with second-quarter guidance of 71,000 boe/d and full year guidance of 76,000 – 79,000 boe/d. Capital spending has remained unchanged at $425-million to $450-million for 2023, which should help the company increase their production over the next year.
Investors are advised to do their own research before trading in any of the securities shown.
Stephen Donovan, MBA, is a senior customer learning manager at Refinitiv, covering cross-asset trading for the Refinitiv Academy.