In the wake of multiple bank collapses over the past week, many banking stocks’ valuations have fallen sharply and are trading at deep discounts right now.
One investor, however, that definitely won’t be looking for any bargains amongst the carnage is ‘Shark Tank’ star Kevin O’Leary. With the government having stepped in to ensure depositors walk away unscathed from the SVB and Signature Bank debacles, O’Leary anticipates a flurry of tighter regulation around banks, regional or not, and that will eat into any potential profits.
“If you thought putting your money into bank stocks was a good idea,” says O’Leary, “you should change your mind this morning — forever.”
So, where should investors be looking right now? Easy. According to O’Leary, energy is the place to be. Energy stocks have cash flow and distributions, and O’Leary only recently described the sector as looking “golden” and primed to push ahead from here.
With this in mind, we dipped into the TipRanks database and pulled up the details on two energy stocks investors should consider adding to the portfolio. The Street’s analyst certainly think these are worth a punt – both are rated as Strong Buys by the analyst consensus.
Marathon Petroleum (MPC)
We’ll start off with the U.S.’s largest independent refiner, Marathon Petroleum. The company’s refining activities include refining crude oil and other feedstocks, while Marathon also boasts branded locations – including retail outlets – spread throughout the United States. Additionally, through its refining logistics assets, and a network of pipelines, terminals, towboats, and barges, the company moves, stores and distributes crude oil and refined products – primarily for the Refining & Marketing sector. These midstream activities are run by its subsidiary MPLX, largely owned by MPC.
It’s a business that is thriving in times like these, as was evident in the company’s latest quarterly report – for 4Q22. Revenue rose by 12.6% year-over-year to $40.09 billion, while beating the Street’s call by $4.8 billion. Adjusted net income came to $3.1 billion, or $6.65 per diluted share, far above the net income of $794 million, or $1.30 per diluted share delivered in the same period last year. The figure also easily beat the $5.53 forecast.
Throughout 2022, MPC returned $13.2 billion of capital to shareholders – $11.9 billion via share repurchases and the rest through dividends – the quarterly payout currently stands at $0.75, yielding 2.4%. Moreover, the company also announced an incremental $5 billion share repurchase authorization.
What it all boils down to, according to Jefferies analyst Dushyant Ailani, is a company that will keep on delivering the goods for investors over the coming years.
“Strong FCF generation, cash balance, and distributions from MPLX give us confidence in MPC’s ability to return capital to shareholders through the cycle,” Ailani explained. “Assuming ~75% of OCF is returned to shareholders (similar to ’22), we estimate MPC has the ability to buy back ~$23bn or 38% of its market cap through 2025.”
Accordingly, Ailani rates MPC shares a Buy while his $157 price target suggests the stock will surge 23% in the year ahead. (To watch Ailani’s track record, click here)
Barring one skeptic, all of Ailani’s colleagues agree; the additional 10 Buys overpower a lone Hold, providing this stock with a Strong Buy consensus rating. Going by the $147.92 average target, investors will be sitting on returns of 16% a year from now. (See MPC stock forecast)
Targa Resources (TRGP)
Next up is Targa Resources, one of the biggest independent midstream players in North America. The company delivers natural gas and natural gas liquids across the U.S. while its gathering and processing assets are strategically placed in some of the U.S most attractive basins – Targa has operations in the Permian Basin, Bakken Shale, Barnett Shale, Eagle Ford Shale, Anadarko Basin, Arkoma Basin, onshore Louisiana and the Gulf of Mexico.
The company had some record numbers on display in its Q4 and full-year 2022 report. Despite a year-over-year drop in revenue, Targa saw its adjusted EBITDA climb substantially compared to the same period a year ago. The company delivered a record adjusted EBITDA of $840.4 million, amounting to a 47.28% uptick over the $570.6 million reported in 4Q21. And for the full year, adjusted EBITDA reached a record $2.90 billion, far above the $2.05 billion reported for the full year 2021. Q4 net income came in at $318.0 million, also a vast improvement on the $313.0 million net loss on display in the year-ago quarter.
As a bonus for income minded investors, Targa also pays a dividend; the quarterly payout currently stands at $0.35, which generates a yield of 1.94%.
For Scotiabank analyst Tristan Richardson, Targa’s value proposition lies in it being one of its segment leaders. He writes: “With a customer portfolio that has evolved dramatically over the past several years as a result of customer consolidation and a high grading of contract terms, we expect increased stability of earnings going forward – namely, lower commodity variability in 2023 and 2024 versus previous years. Targa remains in a commodity cycle business with even large stable producers reacting to price signals in the market; however, with its integrated model, large gathering and processing (G&P) supply funnel, and position on the water, Targa remains one of the best positioned in midstream.”
These comments underpin Richardson’s Outperform (i.e. Buy) rating and $115 price target. There’s potential upside of 59% from current levels. (To watch Richardson’s track record, click here)
Boasting a full house of Buys only – 12, in total – this stock naturally claims a Strong Buy consensus rating. The average target currently stands at $100.58, suggesting the shares will climb 39% higher over the one-year timeframe. (See TRGP stock forecast)
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