As we pointed out in a recent Earnings Watch Party, companies are beating expectations at a record pace, yet stocks are not following suit. Stocks beating expectations have underperformed the S&P by an average of 0.1% on the day earnings are released according to Bloomberg.

This Long Idea falls into that category: beating both top and bottom-line expectations, but the stock barely budged on the day earnings were released. Most of the time, when a company beats on the top and bottom lines and the stock doesn’t move, the stock is already too high. That is not the case with this week’s Long Idea.

It is one of many stocks that the market has overlooked despite the strength of the company’s business. As the coming Golden Era for stocks takes hold, we expect this stock to benefit from a market that allocates value more efficiently and awards the businesses and stocks that can create the most shareholder value.

Below, we present a large excerpt from our latest Long Idea report, available to Pro and Institutional members. You can buy the full report a la carte here.

We’re not giving you the ticker for this pick, but we are happy to share much of our work because we want you to see how rigorous our research is.

This stock still offers favorable Risk/Reward based on the company’s:

  • position to profit from rising oil & gas production and demand,
  • “toll-taker” business model,
  • investments to capitalize on future demand,
  • strong cash flow generation and yield to investors, and
  • cheap valuation.

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U.S. Oil & Gas Demand Continues to Rise

2024 marked the seventh consecutive year that the U.S. produced more crude oil than any other country. U.S. crude oil production reached a record average of 13.2 million b/d, up from 12.9 million b/d in 2023. Production is projected to grow further to an average 13.6 million b/d in 2025 and 13.7 million b/d in 2026.

U.S. Natural Gas Liquids (NGL) exports have also consistently risen every year since 2010. U.S. NGL exports grew from 194 thousand barrels per day (Mbbl/d) in January 2010 to 3,280 Mbbl/d in November 2024. See Figure 1. This company benefits from continued NGL growth as the company’s second largest segment by revenue is its NGL Pipelines & Services segment (34% of revenue).

Figure 1: U.S. NGL Exports Between January 2010 and November 2024

Source: EIA

Quality Fundamentals

Strong oil and gas demand results in strong sales and profits for this company. In 3Q24, the company grew revenue and Core Earnings by 6% and 11% YoY, respectively. Core Earnings in the TTM period are the highest of any annual period in company history.

Longer-term, the company has grown revenue and Core Earnings by 2% and 8% compounded annually from 2013 through the trailing-twelve-months (TTM) ended 3Q24. See Figure 2. The company’s net operating profit after-tax (NOPAT) margin increased from 7% in 2013 to 13% in the TTM ended 3Q24, while the company’s return on invested capital (ROIC) improved from 10.7% to 11.8% over the same time.

Figure 2: Revenue and Core Earnings: 2011 – TTM ended 3Q24

Sources: New Constructs, LLC and company filings

…there’s much more in the full report. You can buy the report a la carte here.

Or, become a Professional or Institutional member – they get all Long Idea reports.