The best energy stocks right now as two major conflicts keep oil prices elevated

POWER POINT

What I'm hearing from energy insiders

Open. Closed. Down. Up.

That's the recent rhythm of the Strait of Hormuz (SOH). It's also the subsequent moves in crude oil prices.

I'm almost reluctant to write anything concrete here because by the time you read it, it may already be dated. But Power Insider has to go to 'print' (so to speak) and so at some point we have to just call it and go forth!

As I recently wrote, any energy investor has to stay very nimble these days. The news doesn't change from day to day but from hour to hour. The fluidity of the situation is painted by headlines from the U.S. military's Central Command. Witness these three only on Sunday.

Just after 8am ET Wednesday, this optimistic post landed.

A few hours later, things turned troubled.

Less than 5 hours after that, it really ramped up.

The speed and direction of the news has been almost impossible to keep up with.  In just the past couple of days, the world has seen more Iranian military attacks on ships - including two strikes on U.A.E. oil tankers, one resulting in a death - hits on Kuwait, and then news about a proposed 20% 'security fee' from President Trump, which then went away nearly as quickly as it came about.

By the way, a 20% toll on a supertanker full of oil could cost over $30 million dollars.  It would've eliminated all profit or economic incentive to move the cargo.  That fee was clearly a nonstarter for most shippers and oil companies.  Thus, it went away.  20% fee, we hardly knew thee!

So where does the oil market stand right now?   I laid out both the bull and bear cases for crude on CNBC TV this week.

Those seeing higher prices ahead point to the Iran risk, the draining of global inventories - including the U.S. SPR - and still-strong global economies.  OPEC just released a new economic forecast that keeps its 3.2% global growth estimate intact.

The lower price bear camp also points to the global storage releases, but as keeping the market well supplied.  They also note the big drop in China's oil demand and the increasingly important Russia story.  Ukraine is pounding Putin's refinery assets with long-range drone attacks.  Damaged refineries can't process oil.  That oil then has to be sold on the global market because it can't be refined domestically.  That actually increases the availability of Russian oil on the market, helping alleviate any Hormuz-related supply slowdown (see the RBI below).

The supertanker-sized question many of you may be asking: when does the price of oil begin to meaningfully impact stocks and the macro market?

Oil is already moving borrowing costs.  U.S. 10-year bond yields here in the U.S. have popped back above 4.6%, and powerful members of our Federal Reserve are saying we may need interest rate hikes to stave off growing inflation.

That's one part of a succinct breakdown from the team at Deutsche Bank:

"When the Iran conflict began earlier this year, we outlined a framework to think

about what it takes to generate a meaningful selloff for risk assets. We pointed out

3 criteria to look for, to get a big risk-off move after an oil shock (e.g. S&P 500 down

15%). Generally, at least one of the following is required:

1. Large and sustained oil price spike: An oil price spike of at least +50-100%

that is sustained over several months.

2. Hawkish policy response: The shock forces a sharp, hawkish pivot from

central banks to fight the resulting inflation (e.g. 1979, 2022).

3. Broader macro damage: The shock is big enough to tip an already-slowing

economy into recession or cause a meaningful economic slowdown (e.g.

1990 Gulf War).

Yet on all 3 of these criteria, today's shock has not met these thresholds, and is still not doing so, even after the latest jump in oil prices."

Not to be outdone, Seaport Securities' strategist Jonathan Golub says the overall stock market is still cheap, in part because earnings estimates keep going up.  He now has a forward P/E multiple of 19 ½ times earnings on the S&P 500.  Energy stocks are only 3% of the S&P 500, but they generate 5% of earnings. Golub stated on our show Power Lunch that energy company earnings are expected to double.  ExxonMobil, Chevron, ConocoPhillips, and others are greatly exposed to the rising price of oil, so as prices have gone higher, so too have earnings estimates.  Whether this earnings optimism will be rewarded remains to be seen; the market will discover in just a couple of weeks.  Circle Friday, July 31st on your calendar!

The news moves fast.  Stay focused.  Stay nimble.  And stay tuned.   I have a feeling the Hormuz headlines aren't over yet.

WALL STREET'S TAKE

While many investors remain more focused on the latest developments in Iran, what's happening in Russia is also driving a handful of U.S. energy stocks.  Ukraine continues to pound Putin by hitting Russian refineries deep inside that country. Those drone strikes are driving up the prices of many refined oil  products, such as diesel fuel.  That move is one reason stock buyers are flocking to U.S. refining companies.  Six stocks keep powering to new highs.  PBF Energy (PBF) has doubled this year and Par Pacific (PARR) and Delek (DK) aren't far behind.

A big note if you're considering some of these stocks.  A few are at or above their mean Wall Street price target.  Caveat emptor!

We wrote recently about nuclear power and how it's back to growth mode.  One stock we discussed was uranium producer Cameco (CCJ).  Truist Securities is out with a positive note on the stock.  Truist analyst Christopher Souther is initiating coverage of CCJ with a buy rating and a $129 target.  That's a whopping 40% upside from here.  Souther says he views Cameco as a "high-quality, vertically integrated uranium platform with strong positioning to a favorable long-term supply-demand outlook and rising uranium pricing."  He also notes that while Cameco has had a "meaningful re-rating in recent years," he thinks improved contract pricing is coming, which commands a higher multiple.

Speaking of power .. lets talk about the bitcoin-turned-AI power providers like TeraWulf (WULF).  Easton, Maryland-based 'WULF' is one of a group of companies that began as bitcoin power providers but pivoted to power for A.I.  To be clear, these companies - TeraWulf along with Hut 8 (HUT), Cypher Digital (CIFR) and CleanSpark (CLSK) - may get lumped together, but they are not the same.  Their models are different, and demand investors view and value them individually and on their merits.  That said, they do have a loose affiliation in that they all produce power; power that is needed by the big datacenters and hyperscalers.  These companies make money by signing large, long-term contracts to provide power. TeraWulf just signed a massive 20-year, $19 billion (or more) deal with Anthropic.  CleanSpark just landed its own two decade agreement with a big tech customer in Georgia.  We spoke about it on CNBC with the CEO.   And a few months ago, Hut 8 inked a 15-year, $9.8 billion dollar deal of its own.

These gains haven't deterred star Morgan Stanley analyst Stephen Byrd.  He remains 'unashamedly bullish' on many of these stocks.  His $72 dollar target on TeraWulf implies a tripling from here.  His $48.50 target on Cipher Digital is more than a double.  Part of the bullish rationale is that these huge deals the companies are signing should reset their valuations.

RBI → We need to figure out a new name for these companies as "bitcoin-turned-AI power providers" is way too lumpy.  We threw that out to you on X and you turned in some good, and funny, ideas.  Check it out.

If you are bullish around data centers, there is one big(ish) piece of news to note: New York has become the first state to ban new data centers.   At least for one year.  You can read more in the CNBC story here.  So what to make of it?

TeraWulf CEO Paul Prager gave us a statement about NY's move against data centers, saying: "The Executive Order should bring greater clarity and a sensible, practical path forward led by the recognized experts at the [Public Service Commission]."  Prager continued, referring to one of his power projects in the state, "Lake Mariner is operational, fully permitted, and on pace - the gold standard for power-secured, development-ready AI infrastructure.   And it [the moratorium] does not change our expectations for Lake Hawkeye."

New York is competitive and likes to be first.  Let's see if this power move by the state is the first of its kind around America.  Investors take note.

TAKE A LOOK

Carlyle's Jeff Currie explains why you shouldn't be focused solely on oil prices.

watch now

INSIDE LINE

This week's Inside Line is with David Crane.  David is the current CEO of investment platform Generate and has been the CEO of five publicly traded companies and was Under Secretary for Infrastructure in the Department of Energy under then President Joe Biden

RANDOM, BUT INTERESTING

Russia's energy infrastructure continues to get pounded by Ukrainian drones. Ukraine isn't just hitting small Russian refineries near the border, it's hitting large oil facilities hundreds of miles inside Putin's land. While those blasts are spiking prices for products Russia isn't able to make if a refinery goes down - think diesel fuel - it is forcing Russia to sell that oil on the global market. J.P.Morgan lays it out in the chart below.

Ukrainian strikes on Russian oil infrastructure helping keep prices stable is definitely random but interesting.

THE GRID