The energy sector is lighting up this earnings season.
We got our first peek last Friday with Schlumberger Inc. (SLB).
2018 was definitely a year to forget for the company.
Oil prices were on the decline throughout the fourth quarter.
All signs pointed towards a miserable report, and negative sentiment was strong.
So strong, in fact, that SLB shares traded at their lowest price to book level since the 1980s!
However, despite all the reasons why earnings should’ve been bad… they were anything but.
Even after bottom-of-the-barrel oil prices, Schlumberger still met earnings per share and revenue estimates.
Investors didn’t just approve, they sent shares up over 9% in one day!
And there’s more hidden upside where that came from…
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SLB’s earnings were proof that bearishness sentiment on the energy sector was way overblown
The company shot 9% higher, not from blowing analyst estimates out of the water… but by merely meeting expectations after a tough year for the industry.
Analysts aren’t looking for crazy surprise beats on oil and gas companies.
Heck, expectations are about as low as the share prices themselves in the energy sector.
But energy stocks have been STARVED of good news for so long that price movements will be explosive this quarter over anything but the worst news.
So get ready…
Energy stocks are about to hit a gusher this quarter.
And I’ve got two in mind that you should be looking at right now…
Petrobras is Positioned to Pop
Brazil-based Petróleo Brasileiro S.A. – Petrobras (PBR) is off to a strong start this year, with shares up over 19%.
At the same time, shares have outperformed the S&P by nearly four times since the beginning of the month.
But despite the recent rise in price, analysts at Bradesco and Morgan Stanley are maintaining price targets north of $20.
That means they are looking at potential upside of at least 33% from the stock’s current price.
Plus, PBR’s earnings have been a gusher, beating estimates by 35% or more in each of the last four quarters.
In fact, two of the four quarters blew away analysts by more than 100%.
With plenty of sector momentum going into this season’s reporting, PBR is definitely one to keep an eye on as the company reports on February 28th.
Here’s another oil and gas stalwart to watch…
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After outperforming the S&P 500 so far this year, you may think shares of Energy Transfer LP (ET) are starting to look expensive.
But according to Morningstar, shares are still significantly undervalued.
That’s because the company has an extensive network of more than 71,000 miles of oil and gas pipelines in North America.
ET charges a toll on the volume of oil that passes through its pipe.
And because American oil companies are producing and transporting oil at a record pace, ET profits no matter what oil’s price is.
In other words, ET is insulated from the swings in the prices oil and gas.
So it’s no surprise that the aggregate analyst price target for the shares is 50% higher than the current market value.
Here’s the bottom line.
Energy stocks are positioned to pop this earnings season on rising energy prices.
And if you want to catch the ride higher, look no further than Petrobras and Energy Transfer.
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