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Aug
3
Jonathan Yates
Are Oil and Natural Gas Stocks at a Permanent High?
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Once again, oil and natural gas stocks are turning in a series of strong performances in the most recent earnings season.

Murphy Oil (NYSE: MUR) beat analysts expectations by 14%.  As a result, the share price for Murphy Oil is up more than 16% for the month.  Chevron (NYSE: CVX) continues to rise, up nearly 5% for the last four weeks of market action.  For 2013, Chevron is trading higher by more than 17%.  Americas Petrogas, (TSX: BOE), a Canadian oil and gas firm with operations in Latin America, reported more than a 600% increase in gross profits in its most recent quarter. The net income jump for Americas Petrogas was strong, too.

For investors, the question now becomes, “Are oil and natural gas stocks at a permanent high?”

There are many reasons why investors should be responding bullishly to that with the buying of shares of Murphy Oil, Chevron, Americas Petrogas and other oil and natural gas companies.  The most important is that demographics are on the side of oil and natural gas.  According to a recent report from The McKinsey Global Institute, the research affiliate of McKinsey & Co.,  the global consulting firm, there will be more than one billion consumers entering the consumer class in the decades ahead.

That will result in a tremendous demand for oil and natural gas.  Millions more will be driving motor vehicles.  That alone will increase the demand for oil. The mass migration to the cities will continue unabated, particularly in China.  From that, there will be a need for more natural gas to be produced.  Coal pollutes too much, which favors natural gas as an energy source for utilities operating in an urban area.

Oil and natural gas firms with global operations will naturally be favored, particularly those in areas of high growth such as Asia and South America. Based in Canada, Americas Petrogras is very active in Argentina and Peru.  About this appealing market opportunity, Barclay Hambrook, the Chief Executive Officer of Americas Petrogas, stated in a recent interview, that, “…we see few obstacles and lower and manageable risks.”

Making oil and natural gas stocks even more appealing for investors is the income received from these companies.

The average dividend yield for a member of the Standard & Poor’s 500 Index is around 2%.  For Chevron, it is 3.20%.  Murphy Oil has a dividend yield of 1.75%.  Both Chevron and Murphy Oil have the cash flow to increase the dividend yields and initiate share buyback programs to reward shareholders.

Americas Petrogas, Chevron, and Murphy oil all have strong capital structures, which results in a long term appeal for investors.  Coupled with the burgeoning need from the expanding middle classes in the most populous areas of the world, oil and natural gas will be much in demand for the future. As a result, the stock of Chevron, Murphy Oil, Americas Petrogas, and other oil and natural gas companies should be in greater demand too, which will result in the share prices rising!

 

 



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