Ecopetrol SA ADR (NYSE:) is an integrated (it does exploration and production, pipelines and refinery and retail) energy company that is based in Colombia. It has about 60% of its operations there, but also has operations in Brazil, Peru and the Gulf of Mexico.
It’s important to remember that the Andean nations — especially Colombia, Ecuador and Peru — have significant amounts of oil and natural gas. As a matter of fact, Colombia is nestled between Venezuela and Ecuador, both Organization of Petroleum Exporting Countries (OPEC) members.
Colombia likely never became a member simply because it has always had a strong relationship with the U.S., and OPEC membership makes that relationship a bit tenser. Also, Colombia was a bit later to the energy game and has built much of its energy business domestically, rather than having outside firms come in and drill on its lands.
Some of that was due to the long-standing civil war in the country that made exploration and production a much more dangerous proposition than it did in neighboring countries.
But now, those issues are behind the nation and EC is making up for lost time.
What’s Next for EC Stock
The most significant opportunity now for EC stock is to make up for all the lost demand from Venezuela, as that country is paralyzed by its current political problems.
Ecopetrol released its Q1 earnings earlier this month and everything is looking up. Earnings are up, demand is up, refining operations (the profitable aspect of the business) are up, margins are rising. And a weaker dollar is also a boon for EC.
What’s more, a slow-growth global economy helps emerging markets manage their growth a bit better. And relatively high and stable oil prices are also beneficial to integrated oil companies since equipment is cheaper to buy and spending in local currencies is less costly.
Looking forward, if the U.S. and China continue their trade war, it means China will be looking for other vendors to ship liquified natural gas (LNG) to it. While EC isn’t big into that side of the business, given the fact that China is already deeply involved in Venezuela’s energy business, it wouldn’t be surprising if they began talking to EC stock about building out facilities for LNG export.
Asia is already a good client of Ecopetrol exports., and this current trade war likely won’t be the last. And China has been actively seeking partnerships with countries beyond the U.S. for strategic industrial metals and energy products.
But all this isn’t reflected in EC stock at the moment. After a strong 14% run so far this year, it’s still off 17% in the past 12 months. However, EC stock does deliver a generous 5.7% dividend, which is always helpful.
My Portfolio Grader rates the stock a C here, or hold. Drilling down, its Fundamentals grade is an A and its Quantitative (momentum) grade is a C. And therein lies the rub.
Basically the stock isn’t getting much attention because there are energy stocks in the U.S. that are easier to follow. But few are integrated oil firms. And that is the interesting aspect of EC. It flies under the radar. Granted it’s a bit risky, but energy prices and demand look like they’re on an upswing and EC will be a beneficiary.
is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, , Accelerated Profits and . His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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