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Trying to predict where energy prices are heading is tough enough, but in a time of war it’s even more difficult. Now, add in a war that also involves a massive slowdown in shipping in one of the most important channels in the world. It may not be an impossible task, but it’s darn close.
Even the smartest energy insiders on the planet are now doing a fair bit of guessing. If you tell us when and how the war ends, it might be a little bit easier. But right now it is not embarrassing to admit “we don’t know” because, quite frankly, we don’t.
The U.S. ‘blockade’ of Iranian ports around the Strait of Hormuz (SOH) is under a week old. When the U.S. naval blockade was announced, some worried it would make things worse by further enraging Iran or the rogue Iranian military, who may then attack ship traffic, ports, or people. Thankfully, it’s been relatively calm. However we may be just one drone strike, one stray Iranian missile, or one nasty Hormuz mine blast from an escalation. An assault directly on an American warship would send oil prices soaring. It’s a scary and tentative time.
That said…
MY TAKE → The Strait of Hormuz is not as important to global energy as it was just a few weeks ago. Here’s why. Over the past few years, both Saudi Arabia and the UAE have very smartly built back-up pipelines. Those pipelines – a whopping 7 million barrels per day capacity in Saudi and about 1.5 million per day flowing across the UAE – have cut the flow of shipborne oil out of the Hormuz by half.
We know the Strait matters massively to more than just oil. I’ve been very clear on concerns about shortages of fertilizer, jet fuel, other refined products and even helium for semiconductor manufacturing. Even if the Strait returns to pre-war shipping levels soon – by the way, something absolutely no one is counting on – it could take months to get back to any state of normal for energy and related supply chains. The understatement of the year is that this is an incredibly uncertain time. So much so that I’m really certain of two things:
First, the live ship map from MarineTraffic.com is the most important map in the world right now to global markets.
Second, this war will end. When it does, what then? Will the U.S. go on as it did before the war, or keep pushing to be the world’s total energy powerhouse?
Many investors are betting on the latter. Although, the United States is already at record oil high production, and we are currently seeing no meaningful jump in drilling activity, a sign that the big players are not yet ready to commit to spending more money.
There are some smaller players who are nimble enough to add more barrels, but we’ll have to wait until ConocoPhillips, ExxonMobil and Chevron roll out earnings and capital spending updates at the end of the month (dates below in the calendar).
With all this in mind and so many unknowns, what is an investor to do? So where to invest right now?
MY TAKE → After I spoke with energy investors and insiders, this theme became clear: Invest in the companies that are fulfilling the energy security of America.
Fundstrat founder and CEO Tom Lee says to keep your eyes on the longer-term prize and focus on three kinds of security: sovereign security, cybersecurity, and energy security. For energy, Lee also says to hone in on the trillion-dollar power buildout. He and his team love GE Vernova (GEV). The Boston-based company is winning on many fronts in energy, from natural gas to wind power, as the Binghamton, New York-born CEO recently told us in an interview in Houston. Take note, however, that GE Vernova’s stock price is nearly $70 above the average price target of $917. The shares are up 51% this year. Perhaps watch for some upgrades soon.
Lee is also bullish on pipeline company ONEOK (OKE), which AT $84.84 a share is about $12 below its average Wall Street price target of $92.53. He also likes Texas Pacific Land (TPL), a unique company that, according to data research firm FactSet, has only four analysts following it. One of those analysts has a rare sell rating on TPL, while another has an underweight rating. Lee is clearly not concerned, perhaps eyeing the 23% drop from its recent highs. The Fundstrat boss also clearly likes the inside line on power lines, favoring industry giant Quanta Services (PWR).
Strategy Asset Managers’ Tom Hulick agrees with Tom Lee on the pipeline theme, recommending giant Kinder Morgan (KMI) to clients. He says it’s never been a better time to be an oil and gas transport company, and he’s not worried about it trading near all-time highs. Hulick loves KMI’s nearly 80,000 miles of pipeline and calls it “great core energy infrastructure.”
Here are some other energy stocks worth adding to your shopping list. These are the 10 energy stocks with the most upside according to the consensus price targets of analysts.
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