Daily Stock Pick: August 17th, 2021

Stocks have recovered from their pandemic lows at an astounding rate, and JPMorgan sees more gains ahead.  “We remain bullish on stocks, particularly cyclical and value stocks, thanks to a strong earnings season, signs of receding risk from the delta variant, and normalization of bond-equity correlations,” JPM wrote in a note to clients yesterday.  

Our trade alert for today highlights a company expanding through partnerships with some key players in the green revolution.  What’s even better, a low P/E ratio and an impressive dividend indicate a sweet spot for investors seeking value.

Paris-based TotalEnergies SE (TTE) produces and markets energies including oil and biofuels, natural gas and green gases, renewables, and electricity.  Globally, it is among the largest producers of liquified natural gas (LNG), which is expected to increase in usage globally as efforts towards emission reduction increase. This bodes well for TTE, which has a significant presence in the value chain of LNG.

TotalEnergies is also gradually doing what it can to cut emissions from the mobility space and expand its transportation presence.  The company is working to develop EV charging infrastructure in Europe and has plans to install more than 150,000 EV charge points by 2025.  TTE has set an objective to have net-zero carbon emissions by 2050 and is making great strides to meet that target.  

TotalEnergies recently partnered with Veolia Environment (VEOEY) to develop microalgae with the long-term objective of producing biofuel, which will be utilized by customers attempting to reduce their carbon footprint, thereby contributing to TotalEnergies’ ambition of achieving carbon neutrality by 2050.     

They are also gradually building their clean electricity generation portfolio.  Since 2011, the acquisition of SunPower Corp (SPWR) has been enabling the company to expand solar operations.  It now plans to scale up renewable generation capacity to 25 GW by 2025.  TTE also targets to generate 40% of revenues in 2050 from low-carbon electricity sales. 

Last month the company announced a strategic collaboration with Amazon that will serve to accelerate TTE’s digital transformation while contributing to Amazon’s commitment to reach net-zero carbon emissions.  TTE and Amazon have signed power purchase agreements to commit 474 MW of renewable capacity in the U.S. and Europe with plans to expand their cooperation in the Middle East and Asia.  In return, Amazon’s Web Services will serve as a key provider to facilitate TTE’s move to the cloud, boosting its IT transformation, digitizing its operations, and digital innovation.   

On July 29th, the company reported quarterly earnings of $1.27 per share, beating the analyst consensus estimate of $1.11 by 14.41%. This is a 6250% increase over earnings of $0.02 per share from the same period last year. 

TTE has a low P/E ratio of 8.97, compared with 21.90 for the industry.  The current share price represents a P/B ratio of 1.2, which is lower than 76% of the companies in its industry, where the average P/B ratio is 3.0.  Considering this, TTE seems to be an incredible value right now.  The stock also sports a 6.56% annual dividend yield compared to the average energy stocks dividend of 3.2%  

One thing that caught our attention when it comes to TTE is the improving earnings outlook.  Over the past 60 days, the consensus estimate for 2021 earnings has risen more than 9%.  The 24 analysts offering 12-month price forecasts for TTE have a median target of $56.35, representing a 27% increase from its current price.   Of 28 analysts offering recommendations for TTE, 21 rate the stock a Buy, and 7 rate it a Hold.  There are no Sell ratings for the stock.   

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