2 Energy Stocks to Buy After OPEC Production Cut

Susan Dziubinski: Earlier this month, OPEC took markets by surprise when it announced a production cut.

Before the cut, Morningstar expected the oil market to tighten this year, particularly in the back half of 2023. But as a result of the production cut, Morningstar’s analysts now think oil demand will outstrip supply in the second half of 2023, creating a supply deficit. And we expect that to provide a substantial boost to oil prices. Morningstar now assigns a much higher probability of oil reaching $100 per barrel in 2023.

However, Morningstar’s analysts haven’t changed the fair value estimates nor the economic moat ratings for any of the U.S. oil and gas companies they cover as a result of the pullback in production. Today we’re looking at two energy stocks that look undervalued after the OPEC announcement.

2 Energy Stocks to Buy After OPEC Production Cut

1. Equitrans Midstream ETRN
2. TC Energy TRP

Equitrans Midstream focuses on gas transmission and storage systems, gas gathering systems, and water services that support natural gas development and production across the Appalachian Basin. We think Equitrans has carved out a narrow economic moat and has one of the higher-quality revenue mixes among its peers, with more than 50% of its revenue coming from fixed-fee contracts with average lengths of about 13 years. We think the stock is worth $10.80 per share.

TC Energy TRP operates natural gas, oil, and power generation assets in Canada and the United States. Morningstar assigns TC a narrow economic moat rating, thanks to its combination of top-tier asset and contract quality, regulatory protection on existing pipelines, attractive near- and long-term pipeline projects, and a vast, diverse pipeline network. We expect the dividend to increase by 4% and think shares are worth $47 each.

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Morningstar energy and utilities strategist Stephen Ellis provided the research behind this segment.

Watch “3 Top Tech Stocks to Buy and Hold in 2023″ for more from Susan Dziubinski.