The improving price of oil could create valuable opportunities for investors in the years ahead. However, while rising crude prices tend to lift all boats, some energy stocks could go even higher thanks to their stronger growth potential. Three such energy stocks often overlooked by investors are MPLX (NYSE:MPLX), Core Labs (NYSE:CLB), and Parsley Energy (NYSE:PE). Here's why this trio is worth a closer look.
Robust income growth
Midstream company MPLX was initially created by refiner Marathon Petroleum (NYSE:MPC) as a vehicle to own its midstream assets. However, after a deal to acquire fast-growing rival MarkWest, MPLX has quietly become quite a compelling growth-oriented master limited partnership that few in the market are following. Not only does the company pay a very lucrative distribution, which is currently yielding 6.2%, but thanks to a strong backlog of projects already under construction, that payout is expected to grow by 12% to 15% this year and by double digits again next year.
Furthermore, the company has an enormous pipeline of expansion opportunities to drive growth through the end of the decade. For starters, it estimates that it still has $12 billion to $15 billion of MLP-type assets that can be dropped down over the next few years, including pipelines, terminals, railcars, and marine assets. In addition to that, MPLX says that there is another $6 billion to $9 billion in synergistic capital that it can deploy in service of Marathon Petroleum. Finally, MPLX estimates that it has another $8.3 billion in organic growth investments. Added up, that's upwards of $32 billion in investment opportunities, which is substantial for a company that has a current enterprise value of $15.5 billion.
Oil-field service companies typically earn low margins due to intense competition. In fact, during the current downturn, some companies were operating at negative margins just to keep their equipment working. That's what makes Core Labs stand out: It earns robust margins thanks to the propriety technology backing its services. In fact, last quarter the company converted $0.28 of every dollar in revenue into free cash flow, which was the highest of all the major oil-field service companies.
However, what makes this stock even more compelling is its view that the oil market is just about to turn the corner. The company continues to project that the second quarter will mark the bottom of a "V-shaped" recovery in the oil market. Given that view, Core Labs also expects its results this quarter to hit bottom, with the company predicting its revenue, operating income, and margins to pick up starting next quarter. In other words, now's the time to buy this overlooked energy stock before its earnings start to surge.
Good bloodlines in a great play
Parsley Energy may be tiny compared to most of its peers, but it has two things going for it that could make it a great energy growth stock. First, its CEO, Bryan Sheffield, is a third-generation oil executive -- his father, Scott Sheffield, is the current CEO of Pioneer Natural Resources (NYSE:PXD). That's noteworthy given that Pioneer's stock has more than tripled with the elder Sheffield at the helm. Moreover, Pioneer is one of the few oil companies that are growing during the current environment, partially due to prudent management prior to the downturn as well as its strong position in the core of the Permian Basin.
The Permian Basin is another thing Parsley Energy has going for it -- it owns a concentrated acreage position in what is thought to be the core of the basin. It's a position that is yielding drilling returns north of 60% at current prices, with enormous upside as prices improve. Because of this, Parsley Energy is just scratching the surface of its potential.
Most investors haven't heard of MPLX, Core Labs, or Parsley Energy -- yet. However, while the market is overlooking these energy stocks right now, it won't ignore them forever if they are able to grow as fast as they expect to in the future. That's why you'll want to make sure to take a closer look at this trio before they're discovered.
Matt DiLallo owns shares of Core Laboratories. The Motley Fool owns shares of and recommends Core Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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