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Jefferies Franchise List Energy Stocks Could Be Big Q4 Winners

By Lee Jackson Updated Jan 11, 4:39PM EST · Published Oct 10, 7:10AM EDT

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Jefferies Franchise List Energy Stocks Could Be Big Q4 Winners — © Wikimedia Commons

The fourth quarter is underway, and with earnings reports for the third quarter set to start pouring in, many investors are looking to add stocks to their portfolios that offer a little extra alpha for the end of the year run. With the potential for another positive year for the major indexes, there is also concern that the market is expensive and overbought. It makes sense now to perhaps book some winners or take off some losers and free up cash for new stocks for the stretch run.

We have covered the Jefferies Franchise List of high conviction stock picks for years, and the selections have provided investors outstanding total returns since inception in December of 2013, outperforming the S&P 500 in that category by a stunning 25.5%.

We found four Franchise List energy companies that could be perfect additions for the fourth quarter, as oil prices continue to rise and energy demand may increase during the winter months.

Chevron

This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.

The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate that the company will have a compound annual growth rate of over 5% for the next five years.

With Permian production and asset disposals targets reset, the company can raise the dividend 20% and buyback 15% of shares. Many analysts view the strategy update as appropriately conservative for one of the more oil-levered majors. The Chevron strategy through 2020 is focused on discipline, enabled by step change in capital efficiency driven by doubling Permian production.

Chevron missed second-quarter earnings expectations, but a share buyback resumption and solid operating outlook largely wiped away concerns. The company is estimated by some to be able to generate $30 billion in free cash flow in 2020. After that, portfolio oil leverage allows Chevron to grow the dividend and expand share buybacks.

Chevron shareholders are paid an outstanding 3.55% dividend. The Jefferies price target for the shares is $157, and the Wall Street consensus target was last seen at $146.28. The stock closed Tuesday’s trading at $126.82 per share.

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Golar LNG

This is the premier company in the world for liquefied natural gas (LNG) distribution. Golar LNG Ltd. (NASDAQ: GLNG) is one of the world’s largest independent owners and operators of LNG carriers and floating storage and regas units (FSRUs). The company has 14 vessels in its fleet, three LNG carriers slated for floating LNG platform (FLNG) conversion, 10 LNG carriers and one FSRU.

Collectively with Golar Partners and Golar Power, the fleet has 16 LNG carriers, three FLNGs/candidates and eight FSRUs. GLNG is the general partner for Golar LNG Partners. Its joint ventures, Golar Power and OneLNG, are focused on FSRU conversions and FLNG projects.

The analysts noted this in a recent report:

We believe the fundamentals for the LNG shipping market will continue to improve significantly as LNG shipping demand growth outpaces LNG shipping supply growth throughout the coming quarters and years. Investors are also likely to increasingly focus on Golar’s development of floating liquefaction (FLNG) projects making any announcements related to the FLNG projects potential catalysts for GMLP.

Investors in Golar LNG receive a 1.83% dividend Jefferies has a price target of $40, while the posted consensus price objective is $36.67. The stock closed most recently at $27.02.

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Marathon Petroleum

This company is poised to be the largest refiner and is a more conservative way to play energy. Marathon Petroleum Corp. (NYSE: MPC) is currently one of the largest independent petroleum refining and marketing companies in the United States. Based in Findlay, Ohio, it and owns seven refineries in the United States with total throughput capacity of around 1.7 million barrels per day.

The company operates approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, MPC operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.

Marathon Petroleum is in the long process of completing a massive purchase of another refining giant, rival Andeavor, for $23.3 billion. It is the biggest-ever deal for an oil refiner and would create the largest independent fuel maker in the United States.

Following the deal, Marathon will be the largest operator of refining capacity in the United States and analysts believe management can achieve the $1 billion in synergies that it suggests. In addition, many on Wall Street give the company no credit for the possible international maritime organization change, which implies additional potential upside.

Marathon Petroleum shareholders are paid a 2.19% dividend. Note that the $95 Jefferies price target is less than the $103.77 Wall Street consensus target, but the shares were last seen trading at $83.76 apiece.

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Williams Companies

This is another top energy idea for investors looking for dependable dividends. Williams Companies Inc. (NYSE: WMB) is now largely a pure-play domestic natural gas infrastructure company that has a 74% ownership interest in its underlying master limited partnership, Williams Partners.

The company has a lower risk, fee-based business model with some volume sensitivity. Natural gas demand continues to be driven by LNG exports, power generation and industrials. In addition to steady demand growth, Marcellus production and associated gas in the Permian are expected to continue to be primary supply drivers.

Shareholders are paid a very solid 4.91% dividend. Jefferies has set its price target for Williams Companies at $34. The posted consensus estimate is $33.74, and the shares closed most recently at $27.63.

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With oil hovering just under the $75 a barrel level, you can bet that the top energy companies are looking to produce and sell as much as possible, especially while the sanctions on Iran are being totally put in place. These stocks are outstanding long-term buys for growth portfolios looking to add exposure to the sector.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.