Occidental Petroleum(NYSE: OXY) has become one of the more popular stocks in the energy sector. Warren Buffett has a lot to do with its popularity. His company, Berkshire Hathaway, owns more than a quarter of the oil producer's shares.
However, there are a lot of interesting investments in the energy sector beyond Occidental Petroleum. Helmerich & Payne (NYSE: HP), Brookfield Renewable(NYSE: BEPC)(NYSE: BEP), and EnLink(NYSE: ENLC) currently stand out to a few Fool.com contributors as even better investment opportunities. Here's why they think investors should look beyond Occidental Petroleum and consider one of these energy stocks instead.
A much-improved environment for oil services makes H&P look dirt cheap
Tyler Crowe (Helmerich & Payne): Oil producers get most investors' attention, but some of the companies that make oil production possible can be the better investments. The shale boom and subsequent bust through much of the 2010s was a challenging time for oil services and equipment companies. Too many rigs and not enough work led to major industry contraction and consolidation.
Today, the industry is in a much healthier place, but investors haven't been paying much attention. Take the oil rig company Helmerich & Payne. Investors might see the relatively low utilization rate (total rigs in service relative to its total available fleet) of 63% and think the company is struggling to get its rigs to the field. However, the company recently reported that its fiscal year 2023 results were the best since 2015. Management has focused on pricing and returns rather than worrying about total market share. It has paid off handsomely recently.
Sure, management's outlook for 2024 isn't quite as good as 2023's results, but it expects to pay a dividend in fiscal 2024 that equates to a yield of 4.6% today. As of this writing, shares trade for about 1.3 times tangible book value and about 8.2 times free cash flow. If investors are considering buying stocks in the oil patch, Helmerich & Payne appears to be a solid choice.
A quiet storm
Jason Hall(Brookfield Renewable): Count me among those who've been concerned that rising interest rates could impact the growth prospects, and the future cash flows, of independent power producers like Brookfield Renewable. The industry has built a massive portfolio of renewable energy projects over the past decade, largely funded by cheap, easy debt.
We've already seen the rug get pulled from under many of the companies in this group when NextEra Energy Partners slashed its growth plans back in September, citing the change in the capital environment. They pay out much of their cash flows to shareholders, funding expansion with debt and stock sales, putting many in an unenviable position with few good choices.
Brookfield Renewable, however, continues its silent march forward. The company has grown total power-generating capacity by 50% over the past five years, and while others are tapping the brakes, it looks to be accelerating growth.
A few days before NextEra Energy Partners cut its growth plans, Brookfield Infrastructure disclosed a long-term pipeline that's 80% bigger than it was just one year ago, and plans to commission 45% more assets over the next three years than it was expecting to bring online just one year ago. Its 7 gigawatt annual deployment run rate is more than double its actual growth over the past five years.
These numbers may sound unrealistic considering the capital environment, but Brookfield has always been relatively conservative with its projections in the past. My expectation is it could actually deliver even better results going forward. The company has earned my trust. And at recent prices, it may just earn more of my capital, too.
Working to capture a major opportunity
Matt DiLallo (EnLink Midstream): One of the big draws of Occidental Petroleum is its emerging carbon capture and sequestration business. The oil company is building the world's first large-scale direct air capture facility. It has bold plans to build many more, which could be a major growth driver for the oil company.
However, Occidental Petroleum isn't the only company working to capture the potentially massive carbon capture opportunity. EnLink Midstream is an early mover in the sector. The midstream company is working to repurpose some of its pipelines along the U.S. Gulf Coast to transport carbon dioxide captured from industrial facilities to sequestration sites.
It signed a first-of-its-kind carbon dioxide transportation agreement with ExxonMobil late last year. EnLink will use parts of its existing pipeline network and new facilities to transport the captured greenhouse gas to a sequestration site Exxon is developing in Louisiana. Exxon initially reserved 3.2 million tonnes per year of capacity starting in 2025, which could grow to 10 million metric tonnes per year in the future.
EnLink is in active discussions with several other energy companies (including Occidental Petroleum) for up to 40 million tonnes of capacity. Meanwhile, it sees an addressable market of over 80 million tonnes in the Mississippi River Corridor alone.
The company estimates that this new line of business could eventually supply it with $300 million of incremental annual adjusted EBITDA. That represents the potential to boost its earnings by 25% from the current level. Meanwhile, since EnLink Midstream would primarily utilize existing pipelines, it wouldn't need to invest much capital to seize this needle-moving opportunity. Because of that, it could generate a lot of excess cash in the coming years, potentially giving it more fuel to increase its already attractive 3.9%-yielding dividend.
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Jason Hall has positions in Berkshire Hathaway, Brookfield Renewable, Brookfield Renewable Partners, and NextEra Energy Partners. Matthew DiLallo has positions in Berkshire Hathaway, Brookfield Renewable, Brookfield Renewable Partners, and NextEra Energy Partners. Tyler Crowe has positions in Berkshire Hathaway and Brookfield Renewable. The Motley Fool has positions in and recommends Berkshire Hathaway and Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners, Helmerich & Payne, and Occidental Petroleum. The Motley Fool has a disclosure policy.
