We recently published a list of 8 Most Undervalued Natural Gas Stocks To Buy According To Analysts. In this article, we are going to look at where BP p.l.c. (NYSE:BP) stands against other most undervalued natural gas stocks to buy according to analysts.
According to a report by McKinsey published on November 5, North America’s power and natural gas markets are undergoing a significant transformation. The global trading value for these commodities has surged to nearly $33 billion in 2023, a 50% increase from the previous year. This growth is driven by several key trends that are reshaping the market landscape and creating new opportunities and challenges for both new and established players. The North American power and gas trading value pool has tripled since 2018, reaching an estimated $10 billion of EBIT in 2023, which represents approximately 30% of the global total. The report expects these value pools to continue their upward trajectory in the medium to long term, despite a potential pullback in 2024–25 due to higher gas storage levels following a milder-than-normal winter.
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Global Natural Gas Prices Surge as Cold Weather Boosts Demand
On December 3, Reuters reported that natural gas prices in Asia, Europe, and North America have surged by 30% to 50% so far in 2024, and are expected to continue climbing over the coming months. The forecast for colder weather is expected to drive higher heating demand in key consumer regions, further boosting gas prices. This trend is anticipated to keep gas market sentiment bullish until the winter season ends, with prices likely to remain high well into 2025. The rapid restocking of declining gas inventories in Europe and Asia is also expected to spur strong gas demand, even if temperatures moderate. This will ensure that gas prices have little room to decline. The high and rising gas prices are expected to increase power costs across key global markets, potentially hampering economic growth in China, Europe, and other regions, and raising concerns about inflation.
Colder-than-average temperatures are forecast for major gas-consuming areas, including China, Japan, and mainland Europe. For instance, Seoul, South Korea, is expected to see average December temperatures of around -2.17°C, compared to a long-term average of -0.7°C. Similar below-normal temperatures are predicted for Shanghai, Tokyo, and Hong Kong, which will increase the demand for heating and accelerate the consumption of natural gas and coal. In Europe, gas inventories have already seen a significant decline. Between October 1 and the end of November, cumulative gas inventories in Germany, the Netherlands, Belgium, and France fell by 11%, compared to relatively flat inventories in 2023 and a 3.5% increase in 2022. This rapid drawdown, coupled with the need to rebuild stocks, will put additional pressure on gas prices. In the United States, while natural gas inventories are currently the highest in over five years, they are on the brink of the traditional draw-down period, which typically sees a 9% reduction in stockpiles over the final five weeks of the year. This will further tighten gas supplies and support market sentiment.
The confluence of regulatory changes, market dynamics, and weather conditions is reshaping the global natural gas and power markets, presenting both risks and opportunities for investors and industry players.
Aerial view of an oil rig illuminated against a night sky.
Our Methodology
To compile our list of the 8 most undervalued natural gas stocks to buy according to analysts, we used Finviz and Yahoo stock screeners to find the 25 largest gas companies trading below the forward P/E ratio of 15 as of December 9. We then sourced the analysts’ average price targets and picked the 8 stocks that had the highest upside potential, as of the same date. The list is sorted in ascending order of analysts’ average upside potential.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
BP p.l.c. (NYSE:BP)
Upside Potential: 34.15%
Forward P/E Ratio as of December 9: 7.03
Number of Hedge Fund Investors: 36
Stock Price as of December 9: $28.70
BP p.l.c. (NYSE:BP) is a vertically integrated multinational oil and gas company headquartered in London. The company operates in almost all aspects of the oil and gas industry and operates in over 80 countries worldwide. In late 2022, BP p.l.c. (NYSE:BP) acquired Archaea Energy for $4.1 billion. Archaea Energy is now one of the largest renewable natural gas (RNG) producers in the United States.
Archaea is making significant strides in the RNG sector. The company plans to bring in a total of 15 plants online this year, with seven of them fully operational and another eight in the process of integrating into the midstream pipeline network. These eight plants are currently flowing natural gas and working through the necessary adjustments to ensure the effective separation of molecules, which is crucial for the smooth operation and efficiency of the gas flow.
BP p.l.c. (NYSE:BP) is also focusing on reducing its debt to strengthen its financial position and improve overall stability. On December 6, Reuters reported that BP p.l.c. (NYSE:BP) is finding buyers for a stake of up to 49% in its U.S. natural gas pipeline network. With the potential sale, the company aims to raise as much as $3 billion. This move is part of CEO Murray Auchincloss’ strategy to reduce BP p.l.c.’s (NYSE:BP) debt, which has to $24.3 billion at the end of September, up from $22.3 billion a year earlier, due to lower-than-expected asset disposals. BP p.l.c. (NYSE:BP) also plans to divest stakes in its Lightsource BP solar business and its U.S. onshore wind division.
Overall, BP ranks 4th on our list of one of the most undervalued natural gas stocks to buy according to analysts. While we acknowledge the potential of BP to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.