Tag Archives: XOM

Hot Safest Stocks To Watch Right Now

Gold prices have been all over the place in the past one year, but some gold stocks have moved in only one direction: south. As of this writing, Canada-based gold miner Eldorado Gold (NYSE:EGO) is down a whopping 66% in one year. South African miner Sibanye-Stillwater (NYSE:SBGL) is swiftly closing in, having shed as much as half its value with the bulk of the decline coming in just the past couple of months. Among the larger gold miners, Kinross Gold (NYSE:KGC) is down about 11% in one year, or 15% year to date.

Are any of these gold stocks worth buying now? A case-by-case analysis should help you decide.

Hot Safest Stocks To Watch Right Now: Brookfield Renewable Powerr Fund(BEP)

Personally, I think dividend investors will get the best bang for their buck from a dividend stock with companies that can offer a rather generous yield an maintain a reasonable growth rate. For a company to be able to achieve these two things over the long haul, it needs to have a business model that has quite a bit of clarity several years out, and a management team with a proven track record of capital allocation. Brookfield Renewable Partners checks every one of these boxes.

Brookfield Renewable owns and operates about $25 billion in power-generating assets globally, most of which are hydropower stations. The assets it owns have contracts in place that give an immense amount of revenue clarity for several years into the future. Being able to project revenue with such certainty allows Brookfield to distribute such a large portion of its cash to shareholders in the form of a dividend currently yielding 6.6%. 

Having assets that throw off a lot of cash isn’t that uncommon, though. What’s rare is a management team like Brookfield’s that can effectively manage the growth of the business when so much cash is dedicated to investors. One thing that Brookfield’s management has proven to be quite adept at is sniffing out undervalued investments and buying them at discounted or distressed rates. Examples were when it bought hydropower stations in Colombia at an auction where it was the only participant as well as the acquisition of TerraForm Global when its former parent, SunEdison, was in bankruptcy proceedings. Buying assets when they are out of favor has led to higher rates of return.

This formula, coupled with prudent management of the balance sheet, has worked exceptionally well for the company as it has outpaced the S&P 500 on a total return basis by a wide margin. As long as Brookfield sticks to this strategy, its stock should continue to reward investors for a long time. 

Hot Safest Stocks To Watch Right Now: Enterprise Products Partners L.P.(EPD)

Enterprise Products Partners came public nearly 20 years ago to little fanfare. The master limited partnership (MLP) raised a little under $250 million at the time to fund development projects and acquisitions. That seed money jump-started the company’s growth journey, which has seen it become an energy infrastructure powerhouse over the years. As a result, initial investors have done quite well. Overall, Enterprise has generated a total return of more than 1,730%, which would have turned a $5,000 investment at its IPO into more than $86,500. For comparison’s sake, the S&P 500’s total return over that time frame is 268%, which would have turned $5,000 into just $13,400.
A main driver of that return has been Enterprise’s spectacular ability to increase its distribution to investors. Since its IPO, the MLP has increased its payout 64 times, including in each of the last 55 consecutive quarters. That growing income stream has generated the lion’s share of the company’s total return.
While Enterprise Products Partners might not repeat that performance over the next 20 years, it still has plenty left in the tank. The company recently put the finishing touches on $5.3 billion of growth projects and has another $4.9 billion under construction. Those expansions should fuel continued distribution increases so that it can create more value for investors in the coming years.

Hot Safest Stocks To Watch Right Now: Exxon Mobil Corporation(XOM)

ExxonMobil is one of the world’s largest integrated energy giants. It produces oil and natural gas on the upstream side of its business and chemicals and refined products on the downstream side. This helps to even out its performance when energy prices are volatile — a fairly common condition. This balanced model also speaks to the highly conservative culture of the energy giant, which is further highlighted by its impressive 36-year streak of annual dividend increases and its low debt level. (Long-term debt is just 10% of the capital structure.) 

That conservatism, however, can leave it flat-footed when markets are moving quickly. That’s exactly what’s happening right now. ExxonMobil started pulling back on capital spending during the deep oil downturn that started in mid-2014, and has been late to hit the accelerator now that crude prices have recovered. For example, first-quarter earnings were up roughly 15% year over year, but many of its integrated peers have been doing better. For example, Royal Dutch Shell, which made a huge acquisition during the downturn, saw Q1 earnings advance nearly 63%.    

Another key problem is that ExxonMobil’s production has been weak: It fell slightly in each of the last two years, and did so again, year over year, in Q1. Recently, the Motley Fool’s Tyler Crowe described Exxon as "testing" its investors — and that situation isn’t likely to end for a couple of years, as the company’s large growth projects aren’t expected to add materially to its revenues or profits until 2020. In the meantime, investors get to watch capital spending rise with little return on that investment.

XOM Price to Tangible Book Value Chart


It’s no wonder, then, that ExxonMobil’s dividend yield is on the high side of its historical range at around 4%. And the company’s tangible book value is lower than it has been since the late 1980s. Don’t expect a quick turnaround, either, as large projects in Guyana, Brazil, and Mozambique, among other locations, will take time to develop. But once they are up and running — they’ll account for roughly half of the energy giant’s upstream earnings by 2025 — investors will likely reward ExxonMobil stock with a higher valuation. It is also working on large new downstream projects that will help to boost results, but they too are a few years from completion.   

While these long-term plans play out, however, patient investors can collect large yields backed by a growing dividend at a conservative energy company. That’s a worthwhile trade-off in my opinion.

Hot Safest Stocks To Watch Right Now: Buckeye Partners L.P.(BPL)

Buckeye Partners is a relatively small midstream energy limited partnership, and a more aggressive play for investors. The partnership’s core assets are pipelines and storage. It differentiates itself from many of its peers because it has a truly international presence, with storage assets located in the Caribbean, Europe, Asia, and the Middle East. The problem is that Buckeye’s distribution coverage ratio has been notably weak, falling to just 1 in 2017. Investors are worried that the partnership’s current round of capital spending will compel it to cut the distribution.   

That’s not an unreasonable expectation. However, management has steadfastly continued to assert that it will support the dividend. As recently as June 5, they stated: "Given our current outlook, we have no intentions of cutting Buckeye’s distribution." And a cut would likely be a last-resort move, given that the partnership has increased its distribution annually for 22 consecutive years. Moreover, management has taken the long view before, letting the coverage ratio fall below 1 in 2013 and 2014 while it waited for investments to bear fruit.   

BPL Financial Debt to EBITDA (TTM) Chart


The partnership is also fairly conservative financially, with a debt-to-EBITDA ratio of around 4.9, which isn’t particularly out of line with its midstream peers or its own history. However, the fear of a distribution cut is a big headwind in an asset class that’s specifically designed to push income through to unit holders, which is why Buckeye’s distribution yield is a massive 14% today.

The partnership doesn’t expect to issue any new units through the end of 2019, which would make it even harder to cover distributions. Although the recent use of hybrid debt and issuance of a new class of units that have a payment in kind distribution (which temporarily allows the partnership to avoid cash distributions on the units) suggests Buckeye is getting aggressive in order to raise non-dilutive cash, management believes that it still has plenty of financing options available should it need additional funds. Buckeye is openly calling 2018 a transition year, with major projects, like expansions in Texas, Chicago, and Michigan/Ohio, not expected to add materially to the top or bottom lines until 2019 or 2020.     

If you can take the long view along with management, Buckeye’s huge yield is worth the risk for investors who can handle a little uncertainty. When coverage picks back up, the market is likely to push the unit price higher.

Top Financial Stocks To Invest In Right Now

The stock market may be experiencing some volatility as it continues to push up against new highs, but that doesn’t mean there aren’t some good values still to be found. A rising market tide lifts all boats, but some stocks are sporting supremely discounted valuations anyway.

Although waiting for a major correction would give you a chance to find more stocks with cheap valuations,here are three companies that are bargains right now.

Top Financial Stocks To Invest In Right Now: Wal-Mart Stores, Inc.(WMT)

 Investors looking for the perfect stock during retirement should aim for a relatively stable company with competitive advantages that’s returning consistent value to shareholders. Few companies can claim to do those things as well as Walmart and over the past decade Walmart has consistently repurchased shares and increased its dividend.

While Walmart’s dividend increases have slowed recently as the company made key acquisitions, its fiscal year 2019 increase to a quarterly $0.52 dividend is still a healthy 2.4% yield. It was the 45th consecutive year the company increased its dividend and during fiscal 2018 the retail juggernaut returned a staggering $14.4 billion to shareholders in the form of dividends and share repurchases – rest assured, Walmart will consistently return value to shareholders.

Walmart has also made smart moves to invest in its future, especially its 2016 Jet.com acquisition and 77% stake in Flipkart in May. Initially, the investing community believed that Walmart vastly overpaid for Jet.com, an unproven e-commerce business, in a desperate attempt to do something with its online sales. It took barely a year for investors to come around to its e-commerce moves, and Morningstar.com estimates Walmart can grow online sales 35% annually to boost online sales from 5% of total sales during fiscal 2018 up to around 15% within three to four years.

With more than 11,700 stores in 28 countries and 2018 revenue of $500 billion, Walmart is a powerhouse in scale, pricing power, and distribution. Don’t be surprised if it’s one of a few, if any, that will challenge Amazon.com with e-commerce and grocery delivery. In the meantime, it will continue to dish massive value to shareholders through dividends and share repurchases.

Top Financial Stocks To Invest In Right Now: Magellan Midstream Partners L.P.(MMP)

Magellan is a large and diversified midstream partnership. While it doesn’t produce oil, it is a vital cog in the oil industry, helping to move the energy source from where it is produced to where it eventually gets used.

The partnership is among the most financially conservative players in the midstream space. Its debt-to-EBITDA ratio is at the low end of the industry and its distribution coverage is currently being targeted at a solid 1.2 times. Add in a business that is over 85% fee-based and the partnership’s generous 5.5% yield looks easily sustainable. That’s the core reason why income investors should like Magellan right now — a large and safe distribution.   

However, the midstream partnership also has plans to spend roughly $1.7 billion on capital projects between 2018 and 2020 (with additional projects waiting in the wings). Most of these projects either have customers lined up or are at facilities where demand indicates a need for expansion. In other words, Magellan is also taking a conservative approach to its growth spending. These capital outlays, meanwhile, should support distribution growth of as much as 8% a year through 2020. 

A little history adds even more allure here. Magellan has increased its distribution every quarter since its IPO — including right through the deep energy downturn that started in mid-2014. Magellan tends to trade at a premium to its peers, but remains around 20% off of the highs it reached when oil prices were peaking. With oil coursing through its midstream veins, Magellan is a name that conservative income investors should be looking at very closely today.   

Top Financial Stocks To Invest In Right Now: Exxon Mobil Corporation(XOM)

The energy sector has seen a lot of volatility in recent years, with oil prices having plunged from triple-digit levels all the way down below the $30-per-barrel market before rebounding convincingly. Yet crude oil hasn’t regained all of its lost ground, and nervousness about the tenuous nature of the energy market’s recovery has left even shareholders in industry stalwart ExxonMobil unconvinced about the industry’s future.

Even as the oil giant’s dividend has continued to rise, share prices at ExxonMobil have dropped, and that’s been enough to give the stock an attractive 4.1% dividend yield right now.

ExxonMobil’s major stumbling block has been that it has had increasing difficulty finding ways to replace production, having fallen behind some of its most prominent rivals in pursuing new lucrative projects. The oil giant has long been an industry leader, and it has the financial capacity and determination to use its position as leverage to get involved in deals that smaller companies can’t afford to pursue. 

It could take a while for ExxonMobil’s earnings results to catch up to its ambitious plans, but eventually, the company is in a good position to make good on its strategic promises to its core investors.

Top Financial Stocks To Invest In Right Now: LGI Homes, Inc.(LGIH)

I’m overgeneralizing a little bit, but most new homes can be lumped into three distinct categories: starter homes, move-ups, and luxury. Most homebuilders will have a blend of these homes in their inventory, a few will focus on the luxury market, but LGI Homes focuses pretty much exclusively on the starter home market and has built its business to specifically cater to the demographics of these customers.

LGI is much more of a no-thrills builder than its peers. It doesn’t offer several premium package options like kitchen or bathroom upgrades or several different architectural designs. Instead, it focuses on a few more cookie-cutter designs that can be built relatively quickly and keep costs down such that LGI can sell more affordable homes. The company also targets land purchases, lot purchases, or lot agreement contracts in places that are away from metro areas but have easy access to highways and are close to retail and employment centers. This buying strategy is also a way to provide a lower price point on entry homes. 

Management also uses a more targeted marketing approach to reach its buyer demographic. It specifically seeks out first-time buyers and renters with its marketing campaigns that offer move-in ready homes that don’t require a down payment and offers them at comparable rates to rentals in the area with the possibility of building equity. It has been an incredibly successful tactic, as new homes sold has increased 10 times over the past decade.

LGI isn’t without flaws. It carries a rather high debt load compared to its peers, and targeting buyers with no down payment might give some investors the chills because of potentially questionable customer creditworthiness. These two things suggest that if we were to see a housing market swoon, LGI Homes could be one of the first to suffer.

The one thing I can say to assuage these concerns is that LGI Homes was one of the few homebuilders to remain profitable every year since 2003, so management has handled a tough market crash before. Also, there is a lot of pent-up demand from millennials putting off their first home purchase, and high housing prices in the conventional markets are likely going to push first-time buyers into these more friendly price-point abodes. With shares of LGI trading at just 10.7 times earnings, LGI stock could be a great pickup.