A price jump and small cap companies do not always go hand in
hand, though psychologically they do. This is because a small
change in the price of these low-priced stocks makes the percentage
gain significant. But lack of key growth ingredients is always a
concern for these stocks.
Large cap stocks, on the other hand, look like slow moving
giants that generally do not promise much growth because of their
'been-there-done-that' attitude. These stocks have been in the
industry for a long time, seen ups and downs, have grown and are
sitting sturdily atop an industry. But it is this very experience
and niche position that makes large-cap stocks the blue-eyed boys
of their respective industries. Things take an interesting turn
when these giants come with fat growth opportunities as well.
But before we delve into discovering some such biggies from the
energy sector, a better understanding of their advantages over the
smaller ones is necessary.
Large Cap Benefits
Most of the large-cap companies have operations all around the
globe and are thus much less susceptible to geo-political risks
than the smaller firms. Moreover, the financial strength allows
them to explore potential growth regions, as is evident from the
fact that many biggies are now turning toward the emerging
Another important aspect of a company is its cash generation
ability and the strength of its balance sheet. Large-cap companies
have generally been in the industry for a long time and now sit on
a large resource base which offers a steady stream of cash
Further, the fact that most of these large-caps have substantial
institutional ownership is the icing on the cake. It is often
better to follow the footsteps of institutional investors because a
lot of research goes behind their choices.
Why the Energy Sector Deserves Attention Now
The near term outlook for oil remains positive given the
commodity's constrained supply picture. In particular, while the
Western economies exhibit sluggish growth prospects in terms of
demand, global oil consumption is expected to get a boost from
sustained strength in China, which continues to expand at a healthy
rate despite some moderation. Therefore,
, though volatile, are expected to remain strong, enabling oil
biggies to rake in cash.
However, greater focus remains on natural gas. We see a solid
long-term future for the commodity as demand soars, spurred by its
cost effectiveness and abundant supply in North America. In fact,
natural gas is expected to overtake coal to become the largest
contributor of electric power generation in the U.S. Continued
growth in shale gas production and technological advancements like
horizontal drilling and hydraulic fracturing should support this
3 Top Large-Cap Energy Picks
We have handpicked three energy stocks with a market
capitalization of over $10 billion, EPS growth of over 5% in the
past 5 years, a projected growth of over 10% in the next 5-year
period and current year EPS growth expectation of over 30%. These
stocks have been witnessing upward estimate revisions as well and
thus hold a favorable Zacks Rank #2 (Buy).
EOG Resources, Inc.
Based in Houston, TX, EOG Resources is a major independent oil
and gas exploration and production (E&P) company, with
operations in the U.S., Canada, offshore Trinidad, and the U.K.
North Sea. The company has historically concentrated on natural gas
but is now gradually increasing its stake in liquid-linked
Market Cap: 61.77B
Past 5-Yr. Growth: 10.6%
Next 5-Yr. Growth Projection: 10.8%
Current Year Growth Projection: 32.0%
Pioneer Natural Resources Co.
The Irving, TX-based company is an independent E&P company
with operations in the Spraberry Field in West Texas and the Eagle
Ford in Southern Texas. The company has been increasing acreage
over the past few years. Pioneer Natural Resources is expected to
continue its robust production growth and drill to profits in the
Market Cap.: 31.71B
Past 5-Yr. Growth: 22.4%
Next 5-Yr. Growth Projection: 15.3%
Current Year Growth Projection: 41.0%
Headquartered in Pittsburgh, PA, EQT Corp. is an integrated
energy company that focuses on natural gas supply activities in the
Appalachian area, including production and gathering, natural gas
distribution and transmission as well as energy efficiency
solutions. Increased drilling and investment in the deeper
Marcellus gas shale play will be its key growth driver.
Market Cap.: 16.34B
Past 5-Yr. Growth: 5.7%
Next 5-Yr. Growth Projection: 19.9%
Current Year Growth Projection: 71.3%
The inherent volatility in the sector simply cannot be ignored.
The Russia-Ukraine clash, current slowdown of the Chinese economy
and less-than-expected growth in Japan are only adding to the
looming uncertainty that threatens these companies. More recently,
oil prices flared up on the news of the Iraqi insurgency.
It's hard for the energy sector to emerge from this nagging
volatility. But large cap stocks are somewhat able to come out of
this stickiness thanks to their global and diversified operations.
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PIONEER NAT RES (PXD): Free Stock Analysis
EQT CORP (EQT): Free Stock Analysis Report
EOG RES INC (EOG): Free Stock Analysis Report
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