10 Low-Beta Energy Stocks With Upside

NEW YORK (TheStreet) -- Western Gas Partners (WES), Williams Partners (WPZ), YPF SA (YPF), Trina Solar (TSL), Petroleo Brasileiro (PBR), BreitBurn Energy Partners (BBEP), Enterprise Products Partners (EPD), InterOil Corporation (IOC), El Paso Pipeline Partners (EPB) and Linn Energy (LINE) are energy stocks trading at a lower beta.

EIA projects global oil consumption to grow by 1.7 million barrels per day (b/d) in 2011, from 86.7 million b/d in 2010. The agency adds that world consumption could increase by 1.6 million b/d in 2012. At close Tuesday (June 7, 2011), WTI crude traded at $98.2 per barrel, while Brent crude settled at $116.2 per barrel.

These 10 energy stocks are trading at a lower beta compared to peers and are relatively safe plays in a volatile market. In addition, these stocks have 15% to 84% upside potential, based on analysts' average 12-month price targets.
10. Petroleo Brasileiro ( PBR) is an integrated Brazilian oil and gas company engaged in the exploration and production, refining, transportation, and marketing of gas and power.

Net income for the first quarter of 2011 was reported 42% higher than the same period in 2010, driven by a demand surge for oil products in the domestic market. Higher oil prices and volumes during the year delivered a positive impact on the company exploration and production segment. Concurrently, spiking oil prices pressured the downstream business.

At the end of the first quarter, the company's leverage declined to 17%, much lower than Petroleo's established limit of 35%.

Experts peg 2011 capex at around $30 billion to $35 billion, up from $27 billion in 2010. Majority of the 2010 investments were utilized for pre-salt projects.

According to Bloomberg, the adjusted beta for the past six months stands at 0.95. Analysts' consensus estimate projects average gains at 45% over the next one year. The stock is trading at 8.5 times its estimated 2011 earnings.

9. InterOil Corporation ( IOC) is an independent energy company operating in the upstream, midstream and downstream segments.

Total revenue for the first quarter of 2011 was $243.7 million as against $178.8 million for the same period in 2010. Net profit was $0.7 million as opposed to a net loss of $3.1 million during the same quarter of the prior year. The company's operating segments of corporate, midstream refining and downstream were profitable, while the development segments of upstream and midstream liquefaction yielded net losses.

Improved performance of the refining and downstream segments and higher foreign exchange gains contributed toward InterOil's higher gross margins. Earnings before interest, taxes, depreciation and amortization for the quarter were a gain of $18.1 million compared to a gain of $4.9 million in first quarter of 2010.

"We continued prioritizing exploration prospect inventory by acquiring $7.3 million of additional seismic data which was expensed in the current quarter. Management believes the preliminary results of the seismic data demonstrate high prospectively for our acreage position, with three to four additional reef prospects. The Elk and Antelope fields are most important to us and our experienced management team is focused on delivering LNG results," said Phil Mulacek, CEO of InterOil in a press statement.

According to Bloomberg, the adjusted beta for the past six months stands at 0.94. Analysts polled by Bloomberg recommend 83% buy rating and upside of 84% over the next one year.

8. YPF ( YPF) is an Argentina-based integrated oil and gas player operating in 70 oil and gas fields with proven reserves of 2672 billion cubic feet of gas and 538 million barrels of oil. The company also sells automotive petroleum products through 1,632 service stations.

Operating income and net income surged 30% and 50% to $2.4 billion and $1.46 billion, respectively, during 2010. Rising oil prices boosted 2010 revenue to $11.1 billion, up 23% compared to 2009.

The stock has gained 23% in the last one year. Analysts expect YPF to post earnings growth of 10% to 12% in 2011, and the stock to deliver price appreciation of 23% over the next one year. According to Bloomberg, the adjusted beta for the past six months stands at 0.91. The stock is trading at 9.8 times its estimated 2011 earnings. A Bloomberg consensus has 50% analysts maintaining a buy on the stock.

7. Trina Solar ( TSL) is a China-based solar-power products manufacturer with a distribution network across Europe, North America and Asia.

Net revenue during the first quarter of 2011 was $551 million, rising 64% year-over-year from the same period last year. Solar module shipments during 2010 fourth quarter were approximately 320 MW, up 66% year-over-year.

Gross profit grew 45% year-over-year to $151 million. Gross margin was 27.5% vs. 30.9% in the first quarter of 2010. Operating margin was 15.3%, up from 22.6% in the prior year's first quarter.

Net income was $47.7 million, including net foreign exchange gains, compared to net income of $44.5 million during the first quarter of 2010.

"Despite decreased sequential demand linked to Italy's solar regulatory revisions, we realized notable market share gains in Germany, the rest of Europe and on a global basis. This included high-profile customer additions in Europe, North America and Asia," said Jifan Gao, CEO of Trina Solar, in a press statement. According to Bloomberg, the adjusted beta for the past six months stands at 0.86. The stock is expected to deliver 39% in the next one year.

6. BreitBurn Energy Partners ( BBEP) acquires and develops oil and gas properties in the U.S. The company's assets comprise of producing and non-producing crude oil and natural gas reserves in the states of Michigan, California, Florida, and Kentucky.

Adjusted earnings before interest, tax, depreciation, amortization, stood at $56 million in the first quarter of 2011 as against $59 million in the fourth quarter of 2010.

Consistent with the past seasonal trends, harsh winter conditions affected production. Total production in the first quarter of 2011 decreased to 1,629 million barrels of oil equivalent (Mboe) from 1,700 MBoe in the fourth quarter of 2010.

The company has managed operating costs competently. General and administrative expenses dropped to $24.5 million, below the lower end of the guidance range of $25.0-$27.0 million. Full-year lease operating expenses per boe stood at $17.7, less than the lower end guidance range of $18.3 to $20.8 per boe, and 1% lower than 2009 operating expenses per boe. According to Bloomberg, the adjusted beta for the past six months stands at 0.8. The stock is trading at 7.1 times its estimated 2012 earnings and has an impressive 78% buy rating.

5. Enterprise Products Partners ( EPD) provides a range of services to producers and consumers of natural gas, natural gas liquids, crude oil, refined products and petrochemicals in the U.S., Canada and Gulf of Mexico.

During the quarter, the company's crude oil, NGL, refined products and petrochemical pipeline volumes were 4.1 million barrels per day, marginally higher than volumes in the first quarter of 2010. Total natural gas pipeline volumes increased 6% to 12.8 trillion British thermal units per day for the first quarter of 2011.

Net income was $435 million and gross operating income stood at $875 million vs. net income of $392 million and gross operating income of $875 million in the same quarter of the prior year.

The company's distributable cash flow was $694 million, backed by record crude oil, petrochemical, refined and natural gas pipeline volumes, up 20% year-over-year.

Michael A. Creel, president and CEO of Enterprise, commented in a press statement," "Enterprise has approximately $5 billion of infrastructure projects currently under construction. Our largest single project is the Haynesville Extension of our Acadian Gas system. This $1.6 billion project is on schedule to begin operations in September 2011 and currently under budget. We have 21 projects totaling more than $2.5 billion in capital under construction to serve producers in the Eagle Ford shale. Most of these NGL, natural gas and crude oil infrastructure projects are scheduled to begin service in 2012."

Analysts expect the stock to deliver an upside of 16% in the next one year with analysts' buy ratings of 90%. According to Bloomberg, the adjusted beta for the past six months stands at 0.76. The stock is trading at 19.6 times its 2011 estimated earnings.

4. Linn Energy ( LINE) is an independent oil and natural gas company, with approximately 2.7 Tcfe of proved reserves.

LINN increased production to an average of 312 million cfe per day in the first quarter 2011, compared to 213 Mcfe per day for the first quarter 2010.

Year-to-date 2011, the company executed acquisition agreements worth $637 million, entered a new operating region in the Williston Basin play, and consolidated its presence in the Permian region. The recent $649 million public equity offering helped fund these acquisitions.

Linn retired 81% of high-cost debt, which could reduce interest expenses. Management has raised 2011 guidance and expects distribution coverage ratio for the remainder of the year to average approximately 1.40 times. The stock has 92% buy ratings and is likely to deliver 19% over the next one year, according to analysts' consensus estimate. According to Bloomberg, the adjusted beta for the past six months stands at 0.75. The stock is trading at 13.8 times its estimated 2011 earnings.

3. Western Gas Partners ( WES) is a partnership firm formed by Anadarko Petroleum ( APC) to own, operate, and develop midstream energy assets.

Operating profit rose to $38.1 million from $37.1 million in the first quarter of 2010, while net profit increased to $37.9 million from $32.2 million in the same period. Weather related issues impacted operations during the quarter.

However, first-quarter performance was characterized by an increase in gross margin on better output from high-margin areas and the addition of the Platte Valley assets.

Capital expenditure incurred during the first quarter, excluding acquisitions, stood at $13.7 million, with 30% spent on maintenance. The stock is expected to gain 16% over the next one year and is trading at 17.9 times its estimated 2011 earnings. According to Bloomberg, the adjusted beta for the past six months stands at 0.75. Analysts recommend 64% buy ratings on the stock.

2. Williams Partners ( WPZ) is an integrated natural gas company focused on exploration and production, midstream processing and gathering, and interstate natural gas transportation.

Net income reported for first quarter 2011 was $307 million vs. $322 million in the prior-year quarter. A higher net interest outgo of $37 million due to new debt issuances led to declines in net income in the first quarter.

Cash distribution during the quarter grew 9% from the first quarter of 2010 and earnings guidance for both 2011 and 2012 has been revised upwards. Williams Partners has raised its adjusted segment profit guidance by 7% for 2011 and 5% for 2012, on the expectation of higher NGL margins.

Up ahead, Alan Armstrong, CEO of the general partner of Williams Partners, said in a press statement, "In addition to our growth opportunities in the Marcellus Shale, we're also expecting some significant growth projects in the Gulf of Mexico over the next two years."

Analysts' consensus estimate pegs average gains at around 15% over the next one year. According to Bloomberg, the adjusted beta for the past six months stands at 0.73. The stock is trading at 13.4 times its estimated 2011 earnings.

1. El Paso Pipeline Partners ( EPB) owns and operates natural gas transportation pipelines and storage assets in the U.S.

Net revenue for the first quarter of 2011 and full year 2010 jumped 10% and 20% to $366 million and $1.34 billion, respectively. Net income for the first quarter of 2011 and full year 2010 rose 8% and 19%, respectively.

The company's adjusted earnings before interest, tax, and depreciation (EBITDA) was $230 million for the first quarter 2011, up 35% from first quarter 2010. The company's 2011 target is $895 million to $920 million, higher than 2010.

The company recently acquired an additional 25% stake in Southern Natural Gas for $667 million, taking its share to 85%. The stock has 92% buy ratings and is likely to return 23% over the next one year. According to Bloomberg, the adjusted beta for the past six months stands at 0.69. The stock is trading at 13.9 times its estimated 2011 earnings.

>>To see these stocks in action, visit the 10 Low-Beta Energy Stocks With Upside portfolio on Stockpickr.

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