Seven Energy Investments to Purchase for Income and Capital Appreciation

Seven energy investments to purchase for income and capital appreciation feature both oil and natural gas opportunities.

The seven energy investments to purchase for income and capital appreciation highlight four dividend-paying funds and three stocks. Rig activity by the Organization of the Petroleum Exporting Countries (OPEC) has lagged lately as a substantial amount of oil that has been held off the market, except by Iraq, according to BofA Global Research.

The situation raises questions among analysts about how strongly OPEC activity may ramp up during 2022, especially if U.S. oil production growth tops expectations, BofA wrote. Rising U.S. oil production gains could cause an unforeseen tapering of output by OPEC+ nations at some point in 2022, the investment firm added.

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Gas Exploration and Production Lifts Seven Energy Investments to Purchase for Income

With uncertainty about how oil production may progress later in 2022, hydrocarbon energy such as natural gas may find an enhanced role in meeting the needs of consumers and businesses alike. Investors who like to back companies that produce strong free cash flow should be pleased that the 15 energy stocks covered by BofA are forecast to increase that performance metric by 74% between 2021 and 2023.

Gas exploration and production (E&P) generates the highest free cash flow in the energy industry, not midstream activities such as storing, processing and transporting crude oil and raw natural gas products, pipelines and storage facilities, refining or oilfield services (OFS). No other energy sector will even come close to generating this kind of free cash flow growth over the next couple of years, BofA reported in a recent research note.

Not completing the Keystone Pipeline, opening federal lands for drilling and overregulating on permitting of existing fields or releasing more than a four-day supply from the Strategic Oil Reserve have stoked inflation with no White House response other than to ask OPEC to step up production. Common sense has apparently been abandoned in Washington, said Bryan Perry, a Wall Street veteran who now heads the Cash Machine investment newsletter, as well as the Premium Income, Quick Income Trader, Breakout Profits Alert and Hi-Tech Trader advisory services.

Paul Dykewicz interviews Bryan Perry.

Perry Picks Three of Seven Energy Investments to Purchase for Income

Perry recommended the Global X MLP ETF (MLPA), which invests in some of the largest, most liquid midstream Master Limited Partnerships (MLPs). The fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive MLP Infrastructure Index.

MLPA’s dividend yield is 7.9% and its largest holding is Enterprise Products Partners L.P. (NYSE: EPD), composing 9.88% of the fund’s net assets, which is one that I personally own. Enterprise Products Partners is a midstream natural gas and crude oil pipeline company headquartered in Houston.

As a fan of high-dividend payouts, Perry chose three energy funds that pay dividend yields of at least 7%. EPD currently offers a dividend yield of 7.8%.

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Seven Energy Investments to Purchase for Income Include AMZA

InfraCap MLP ETF (NYSEARCA: AMZA) seeks to provide exposure to midstream master limited partnerships (MLPs) with an emphasis on high current income. With the fund’s dividend yield of 8.7%, it is another of the three exchange-traded funds that earned Perry’s recommendation.

The closed-end fund trades at a slight discount of -0.04%. The fund’s largest holding is Findlay, Ohio-based MPLX LP, composing 17.97% of its AMZA’s total assets. MPLX is a diversified, large-cap master limited partnership formed by Marathon Petroleum Corporation (MPC) that owns and operates midstream energy infrastructure and logistics assets, as well as fuel distribution services.

MPLX’s assets include a network of crude oil and refined product pipelines; an inland marine business; light-product terminals; storage caverns; refinery tanks, docks, loading racks, and associated piping; and crude and light-product marine terminals. The company also owns crude oil and natural gas gathering systems and pipelines, along with natural gas and natural gas liquids (NGL) processing and fractionation facilities in key U.S. supply basins.

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AMLP Ranks Among Seven Energy Investments to Purchase for Income

Perry proposes investing in energy through the Alerian MLP Exchange Traded Fund (NYSE: AMLP), which seeks investment results that correspond generally to the price and yield performance of the Alerian MLP Infrastructure Index. The index is a capped, float-adjusted, capitalization-weighted composite of energy infrastructure Master Limited Partnerships (MLPs) that earn most of their cash flow from midstream activities such as the transportation, storage and processing of energy commodities.

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The United States is the world’s largest producer of oil and gas, with MLPs providing exposure to long-lived assets that generate inflation-protected cash flows. Plus, MLPs have low correlation to other yield-oriented investment such as bond and utilities.

Dividend lovers will appreciate that Alerian MLP ETF offers a current dividend yield of 7.7% and does not force investors to contend with a troublesome K-1 document. I once asked a partner at an accounting firm what he advises clients to do if an investment sends a K-1 at the end of each year and he replied, “Sell it.”

Carlson Chooses XLE as One of Seven Energy Investments to Purchase for Income

The top energy investment for conservative to moderate investors recommended by Bob Carlson, a pension fund chairman, is Energy Select SPDR (XLE).

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Energy stocks had a strong finish to 2021 and most of the reasons for that continue in 2022, said Bob Carlson, who also heads the Retirement Watch investing newsletter. Inflation is likely to remain high for much of 2022 and perhaps longer, likely lifting energy stocks, which traditionally serve as a good inflation hedge for such conditions, he added.

“In addition, capital investments in the energy sector lagged the last few years, continued Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. “Capital investments aren’t going to surge enough to increase supply anytime soon. In fact, some governments are discouraging or prohibiting additional investments in traditional energy sources, and many banks and other capital sources reduced their exposure to the sector as part of their environmental policies.”

The result is that demand likely will surpass supply without a recession, Carlson counseled. Many energy companies, especially shale oil producers, have made clear that they will be more attuned to shareholders going forward. Instead of investing heavily to maximize production, energy companies will focus on profitability and ensuring shareholders have cash distributions and stock price appreciation, he added.

Pension fund and Retirement Watch chief Bob Carlson answers questions from columnist Paul Dykewicz.

EOG Resources Joins Seven Energy Investments to Purchase for Income

Energy is one of the limited number of industries that are benefitting from the current rising yield environment. Increased prices are producing buying opportunities for energy industry investors, according to the Fast Money Alert trading service led by Mark Skousen, PhD, and Jim Woods.

Mark Skousen, a descendant of Benjamin Franklin, meets with Paul Dykewicz.

EOG Joins Seven Energy Investments to Purchase for Income

EOG Resources, Inc. (EOG) is an American energy company engaged in hydrocarbon exploration. Headquartered in Houston, Texas, the company recently was recommended by Skousen and Woods in Fast Money Alert. The stock produced a fast, double-digit-percentage investment return, and they chose to recommend that their subscribers sell the position to cash out.

They recommended EOG on Oct. 4 but opted to recommend the stock’s sale on Jan. 31 after it has soared 33%. However, the stock remains a recommendation of BofA.

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Skousen, named one of the world’s Top 20 living economists by www.superscholar.org, is the leader of the Forecasts & Strategies investment newsletter, as well as the Five Star Trader, TNT Trader and Home Run Trader advisory services. Woods writes the Successful Investing and Intelligence Report investment newsletters, as well as heads the Bullseye Stock Trader and High Velocity Trader advisory services.

Jim Woods and Paul Dykewicz discuss stocks to buy.

EOG Shines Among Seven Energy Investments to Purchase for Income

BofA set a price objective on EOG of $118 and praised the stock for offering the highest dividend yield of exploration and production companies. The investment firm rated EOG among its top ideas in the “conservative beta” category.

Two key risks for EOG to attain BofA’s price objective are the oil and gas price and margin environment, as well as any significant delays to the new upstream projects critical to its production targets. BofA wrote in a recent research note that it expects EOG to lower cost guidance over the course of 2022 to clear the way for greater clarity on cash return priorities, such as enhanced emphasis on ordinary dividends and buybacks rather than “one off” special dividends.

With a new CEO at the helm of EOG, BofA expects the company to pivot to moderate medium-term growth and provide the tools to win back investors, while offering conservative exposure to an ongoing commodity recovery. BofA forecasts that EOG will be able to sustain a 3.3% dividend yield, the highest among the “pure play” E&Ps.

APA Ascends Among Seven Energy Investments to Purchase for Income

APA Corporation (NYSE: APA), the Houston-based holding company for Apache Corporation, is engaged in hydrocarbon exploration. BofA recommends the company, gave it a price objective of $47 and views it as a good value investment in the energy industry.

Modest international gas exposure bolsters APA’s unhedged free cash flow outlook that is 60% committed to give back to the company’s shareholders, BofA wrote. In fact, APA could theoretically buy back 20% of its stock in 2022, the investment firm continued.

Ways to top the $47 price objective would include: 1) higher commodity prices 2) exploration success in Suriname 3) exploration success and 4) increased drilling activity in Egypt, BoA wrote. Risks to achieving the price objective are: (1) lower commodity prices (2) Egyptian political risk and (3) exploration risk in Suriname.

In addition to commodity price leverage, Apache has two organic catalysts that BofA wrote can narrow the valuation gap: improved contract terms in Egypt that can reinvigorate activity and exploration success in Suriname, where success to date appears to be a free option.

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Ovintiv Seals Spot in Seven Energy Investments to Purchase for Income

Ovintiv Inc. (NYSE: OVV), once known as Encana Corporation, is a hydrocarbon exploration and production company headquartered in Denver. Founded and previously based in Calgary, Alberta, the company then was the largest natural gas producer in Canada.

BoA set a $56 price objective on Avintiv but that was based on $60 Brent / $56.50 WTI oil prices, rather than the current levels that are about $30 above both right now. Risks to attaining BofA’s price objective are (1) the oil and gas price and margin environment, (2) significant delays to the new upstream projects, (3) inability to capture the price environment due to cost pressures and (4) potential currency exchange risk.

Outperformance is possible, too. It could happen, BofA noted, amid potentially improving cost of capital as the company deleverages its balance sheet and increased oil & gas prices.

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COVID-19 Concerns Continue as Cases and Deaths Climb

Data show the new Omicron subvariant of COVID-19 is transmitting faster and more potently than the original, so public health officials keep warning not to ease restrictions or stop pleas for vaccinations. New cases are decreasing in 49 of 50 states, with new daily cases falling by almost a half million domestically since mid-January. In addition, Pfizer-BioNTech moved a step closer to authorization for their vaccine aimed at children under the age of 5.

The Centers for Disease Control and Prevention (CDC) reported that the continuing COVID-19 threat is leading additional people to obtain COVID-19 boosters. However, more than 60 million people in the United States remain eligible to be vaccinated and have yet to do so, said Dr. Anthony Fauci, the chief White House medical adviser on COVID-19.

As of Feb. 4, 250,731,954 people, or 75.5% of the U.S. population, have received at least one dose of a COVID-19 vaccine, the CDC reported. Those who are fully vaccinated total 212,481,465, or 64% of the U.S. population, according to the CDC.

COVID-19 Cases Worldwide Top 390 Million and U.S. Deaths Exceed 900,000

COVID-19 deaths worldwide, as of Feb. 4, topped the 5.7 million mark to hit 5,722,301, according to Johns Hopkins University. Worldwide COVID-19 cases have soared past 390 million, reaching 390,302,735 on that date.

U.S. COVID-19 cases, also as of Feb. 4, rose beyond 76 million, totaling 76,249,926 and causing 900,754 deaths. America has the dreaded distinction as the country with the most COVID-19 cases and deaths.

The seven energy investments to purchase for income from oil and gas providers are offering an escape from the early-2022 market pullback. Even though traditional oil and gas investments are not sought out by investors who have adopted environmental, social and executive governance standards, open-minded people who are willing to buy shares of established energy stocks may find both income and capital appreciation.