Each of the following energy stocks has outperformed the S&P Index by significantly over the last 52 week period. The S&P 500’s 52-week return is 17.31%. With the current tumultuous events in the Middle East bringing attention to the mounting energy requirements of the emerging economies in addition to the burgeoning necessities of the recovering developed economies, the fact that demand is outstripping supply appears to be blatantly obvious. The future of companies in the energy industry seems brighter than ever. We all know that past performance is not a surefire indicator of future success. On the other hand, the finite nature of oil resources and the seeming tipping point of the oil supply/demand equation coming to fruition sooner rather than later, the continued success of these companies appears certain. The U.S. Energy Information Agency puts out an annual report titled the Annual Energy Outlook. Please review below excerpts from the U.S. Energy Information’s Annual Energy Outlook 2011 regarding future energy markets.
U.S. Energy Information Agency Annual Energy Outlook Excerpts
Projections in the Annual Energy Outlook 2011 (AEO2011) Reference case focus on the factors that shape U.S. Energy markets in the long term. Under the assumption that current laws and regulations will remain generally unchanged throughout the projections, the AEO2011 Reference case provides the basis for examination and discussion of energy market trends and the direction they may take in the future. It also serves as a starting point for analysis of potential changes in energy policies, rules, or regulations.
World oil prices declined sharply in the second half of 2008 from their peak in mid-July of that year. Real prices trended upward throughout 2009, and through November 2010 they remained generally in a range between $70 and $85 per barrel. Prices continue to rise gradually in the Reference case (Figure 4), as the world economy recovers and global demand grows more rapidly than liquids supplies from producers outside the Organization of the Petroleum Exporting Countries (OPEC). In 2035, the average real price of crude oil in the Reference case is $125 per barrel in 2009 dollars, or about $200 per barrel in nominal dollars.
The AEO2011 Reference case assumes that limitations on access to energy resources restrain the growth of non-OPEC conventional liquids production between 2009 and 2035, and that OPEC targets a relatively constant market share of total world liquids production. The degree to which non-OPEC countries and countries outside the Organization for Economic Cooperation and Development restrict access to potentially productive resources contributes to world oil price uncertainty. Other factors causing uncertainty include OPEC investment decisions, which will affect future world oil prices and the economic viability of unconventional liquids. A wide range of price scenarios and discussion of the significant uncertainty surrounding future world oil prices will be included in the complete AEO2011 publication when it is released in the spring of 2011.
The AEO2011 Reference case also includes significant long-term potential for supply from non-OPEC producers. In several resource-rich regions (including Brazil, Russia, and Kazakhstan), high oil prices, expanded infrastructure, and further investment in exploration and drilling contribute to additional non-OPEC oil production (Figure 5). Also, with the economic viability of Canada's oil sands supported by rising world oil prices and advances in production technology, Canadian oil sands production reaches 5.1 million barrels per day in 2035.
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With the long-term outlook for Energy provided by the EIA imparting potentially much higher energy costs and recent events driving up oil prices in the short term, I see the following companies possibly repeating their amazing yearly performances once again. Please review the following details regarding these six energy companies outstripping the S&P 500. Use this information as a starting point for your own due diligence.
CONSOL Energy Inc. (NYSE:CNX) - Engages in the production of multi-fuel energy and provision of energy services primarily to the electric power generation industry in the United States. CONSOL has outstripped the S&P’s 52-week return with a gain of 38.14%.
The company is trading below analyst’s estimates. CONSOL has a median price target of $59 by 19 brokers and a high target of $72. The last up/downgrade activity was on Jul 29, 2011, when Davenport downgraded the company from Buy to Neutral.
Chevron Corporation (NYSE:CVX) - Through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. Chevron has outstripped the S&P’s 52-week return with a gain of 30.54%.
The company is trading below analyst’s estimates. Chevron has a median price target of $121 by 18 brokers and a high target of $137. The last up/downgrade activity was on Oct 6, 2010, when Standpoint Research downgraded the company from Buy to Hold.
Clayton Williams Energy, Inc. (NYSE:CWEI) - An independent oil and gas company, engages in the exploration for and production of oil and natural gas primarily in Texas, Louisiana, and New Mexico, the United States. Clayton has outstripped the S&P’s 52-week return with a gain of 49.00%.
The company is trading below analyst’s estimates. Clayton Williams has a median price target of $112 by 4 brokers and a high target of $120. The last up/downgrade activity was on Jul 29, 2011, when Global Hunter Securities downgraded the company from Buy to Neutral.
Devon Energy Corporation (NYSE:DVN) - Together with its subsidiaries, engages in the exploration, development, and production of natural gas and oil; transportation of oil, gas, and natural gas liquids (NGLs); and processing of natural gas. Devon has outstripped the S&P’s 52-week return with a gain of 25.85%.
The company is trading below analyst’s estimates. Devon has a median price target of $101 by 23 brokers and a high target of $135. The last up/downgrade activity was on Mar 18, 2011, when RBC Capital Markets initiated coverage on the company with an Outperform rating.
Hess Corporation (NYSE:HES) - Together with its subsidiaries, operates as an integrated energy company worldwide. It operates in two segments, Exploration and Production and Marketing and Refining. Hess has outstripped the S&P’s 52-week return with a gain of 27.93%.
The company is trading below analyst’s estimates. Hess has a median price target of $95 by 14 brokers and a high target of $115. The last up/downgrade activity was on May 5, 2011, when Argus upgraded the company from Hold to Buy.
McMoRan Exploration Co. (NYSE:MMR) - Through its subsidiary, McMoRan Oil & Gas LLC, engages in the exploration, development, and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast area of the United States. McMoRan has outstripped the S&P’s 52-week return with a gain of 61.77%.
The company is trading below analyst’s estimates. McMoRan has a median price target of $22.50 by 8 brokers and a high target of $26. The last up/downgrade activity was on Oct 11, 2010, when CapitalOne southcoast upgraded the company from Neutral to Add.
Information was gathered from CNBC, Yahoo Finance, EIA.com and respective company websites.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.