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 Schlumberger Limited (NYSE:SLB) 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.
READ ALSO: 10 Oil Stocks with Biggest Upside Potential According to Analysts and 7 Best Emerging Markets Stocks To Buy Now.
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.
A close-up of a wellhead, showing off the company’s production of oil and natural gas.
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).
Schlumberger Limited (NYSE:SLB)
Upside Potential: 40.06%
Forward P/E Ratio as of December 9: 11.43
Number of Hedge Fund Investors: 65
Stock Price as of December 9: $40.96
Schlumberger Limited (NYSE:SLB) is a global leader in providing cutting-edge technology and services for the energy sector. The company focuses on natural gas exploration, production, and management. Schlumberger Limited (NYSE:SLB) also provides advanced solutions for pressure and flow-rate measurement, artificial lift production equipment, and intelligent well-completion solutions.
Schlumberger Limited’s (NYSE:SLB) OneSubsea segment, which delivers integrated subsea systems, including wellheads, manifolds, and control systems play a critical role in natural gas development. The company has developed advanced subsea compression systems that are critical for maintaining and optimizing the production of natural gas in deepwater environments. These systems help extend the life of mature fields and improve the recovery rates of new discoveries. Schlumberger Limited (NYSE:SLB) has been focusing on its subsea compression solutions, such as the Subsea Gas Compressor (SGC), which is designed to handle the harsh conditions of deepwater environments, ensuring reliable and efficient gas production.
In the international gas market, Schlumberger Limited (NYSE:SLB) is focusing on expanding its presence in regions with strong gas investment, such as Asia, the Middle East, and the North Sea. The company plans to continue investing in digital products and services that enhance efficiency and productivity, which are particularly valuable in long-cycle gas and deepwater projects. By doing so, Schlumberger Limited (NYSE:SLB) aims to support the growing demand for natural gas, which is expected to play a significant role in the global energy transition due to its lower carbon footprint compared to other fossil fuels.
Overall, SLB ranks 3rd on our list of one of the most undervalued natural gas stocks to buy according to analysts. While we acknowledge the potential of SLB 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 SLB 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.