Cheniere Energy, Inc. (LNG): A Deep Dive Into One of the Cheapest Stocks Recommended by Hedge Funds

We recently compiled a list of the 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. In this article, we are going to take a look at where Cheniere Energy, Inc. (NYSE:LNG) stands against the other very cheap stocks to buy according to hedge funds.

As we approach the third half of 2024, the market’s performance continues to draw in both investors and analysts alike. After rising by an average of 24% the year before, the 500 largest-cap US equities finished the second quarter of this year with an impressive gain of over 3%, on average. Overall, the unexpectedly resilient U.S. economy and the frenzied AI boom have propelled equities to unprecedented levels.

Even though the markets are currently worried about a slowdown, most recent economic indicators complement this market performance, demonstrating the US economy’s resilience. The Commerce Department revealed a 3.1% YoY gain in Q4,2023 for the economy, primarily due to solid consumer expenditure on dining out, healthcare, and automobiles. The world’s largest economy’s growth prediction was slightly revised by the IMF to 2.6% this year, pointing out the country’s robust and adaptable nature to changes in the global economy. According to Economic Intelligence’s consumer goods and retail outlook study for 2024, global retail sales are projected to rise by 6.7% in 2024, bolstered by a 2% increase in volume, regardless of a dip in inflation.

This brings us to industries that are selling at a discount, of which, broadcasting is one, at an EV to EBITDA ratio of 7.31. According to The Business Research Company, the television and radio broadcasting markets have expanded significantly in recent years. It is expected to grow from $439.41 billion in 2023 to $466.83 billion in 2024, at a CAGR of 6.2%. According to Future Market Insights, North America has the largest market share globally for television broadcasting services, followed by Asia Pacific.

The introduction of digital transmission and the Internet caused a major transformation in the television industry. Broadcast television and cable coexist with cable substitutes like HBO Max, Netflix, and Amazon Prime Video. Many others have completely cut their cable connections, opting to get all of their television needs met online. The Motion Picture Association of America reports that the film and television industries have a major economic impact, employing 2.5 million people annually and paying out over US$ 188 billion in compensation.

Another industry trading at a reduced price is air transportation, which has an EV to EBITDA ratio of 6.17. The Business Research Company reports that the size of the air transport market has expanded dramatically in recent years. The projected CAGR is 6.8%, which would see it rise from $1,016.38 billion in 2023 to $1,085.37 billion in 2024. Furthermore, it is anticipated that during the next several years, the size of the air transport sector will rise significantly. With a 6.5% CAGR, it will reach $1,394.51 billion in 2028.

The future expansion of the air transport market is anticipated to be driven by the growth of e-commerce and online shopping. For example, in September 2022, the US Department of Commerce’s International Trade Administration reported that consumer e-commerce accounted for 30% of the UK’s total retail market (up from 20% in 2020), with over $120 billion in e-commerce sales annually. In the UK, 82% of individuals will have made at least one online transaction by 2021.

Methodology:

We selected stocks with an institutional ownership of over 70% and a PE ratio under 10, as of June 25 for our list of 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. We narrowed down our selection to 10 stocks that were the most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them as of Q1 of 2024. In cases where two or more stocks have the same number of hedge funds, we’ve used the PE ratio as a tie-breaker.

In order to identify cheap stocks, we searched for companies with a strong earnings track record by evaluating their EPS over the last two to three years. Secondly, we only considered stocks that received “buy” or “strong buy” recommendations from analysts.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here.)

Close-up of a liquefied natural gas terminal expelling plumes of smoke.

Cheniere Energy, Inc. (NYSE:LNG)

Number of Hedge Fund Holders: 69

PE Ratio as of August 1: 8.59 

Cheniere Energy (NYSE:LNG), the largest producer of liquified natural gas (LNG) in the United States and the second largest in the world, has liquefaction facilities capable of producing around 45 million metric tonnes per annum. Among the company’s assets are two of the biggest LNG export facilities in the world: the Corpus Christi LNG terminal in Texas and the Sabine Pass LNG facility in Louisiana.

Their flagship plant, the Sabine Pass (SPL) LNG Terminal in Louisiana, operates six trains and is one of the world’s largest LNG production hubs. Speaking of growth ambitions, the company hopes to have its first LNG at Corpus Christi Stage 3 by the end of the year. The objective is to have all seven trains operational by the end of 2026. Furthermore, the project is 56% complete and running ahead of schedule.

LNG is viewed as an extremely cheap company to buy right now since its PE ratio of 8.59 is lower than the industry’s weighted average PE ratio of 12.77.

In comparison to the industry average of 1.24, LNG presents a more favorable value proposition with a PEG ratio (5 years projected) of 0.60. Considering its industry, this implies that LNG could be rather cheap.

Cheniere Energy (NYSE:LNG) is one of the best very cheap stocks, with a PE ratio of 8.16 and hedge fund sentiments of 69 in the first quarter, up from 64 in the last quarter. Thomas Bailard’s Bailard Inc. is the largest stakeholder in the company, holding 6,587 shares worth $1.15 million. Despite being cheap, analysts are optimistic about the stock and have given LNG a ” strong buy” rating with an average target price of $196.8 and an upside potential of 11.55%.

In addition to the company’s improved profit forecast, plans for larger dividends and share repurchases, skyrocketing LNG prices, and strong demand from Europe as it looked for alternatives to Russian gas, Cheniere’s shares have surged by nearly 971% since its start.

Although gas quality concerns had a minor impact on first-quarter output, the company earned $4.25 billion, above analyst expectations of $3.97 billion. The company’s dividend increased by 10.13% in Q1 compared to the same quarter last year. LNG intends to boost its dividend by 15% in 3Q24, indicating growth potential.

An all-time high of $1.2 billion was paid in Q1 of 2024 for the buyback of over 7.5 million shares by Cheniere Energy. This action is a reflection of Cheniere’s opportunistic share buyback strategy and dedication to shareholder returns. LNG has considerably reduced the gap between debt paydown and share buybacks, having deployed over 75% of its $4 billion, three-year buyback program in just 50% of the period.

Cheniere Energy operates across the full LNG value chain, from natural gas procurement and liquefaction to storage, transportation, and delivery to international markets. Cheniere is able to take advantage of economies of scale and optimize its operations because of its vertical integration. Moreover, the company keeps its debt at a manageable level.

TimesSquare Capital U.S. Focus Growth Strategy stated the following regarding Cheniere Energy, Inc. (NYSE:LNG) in its first quarter 2024 investor letter:

“The strategy’s top detractor was the -5% retrenchment from Cheniere Energy, Inc. (NYSE:LNG), which operates liquid natural gas (LNG) liquefaction facilities for the global transportation of LNG. While revenues and earnings were as expected, management’s initial guidance for the new fiscal year was lower than anticipated. Cheniere was conservative—appropriately so in our view—regarding plant volumes as election-year noise surrounding the regulatory environment could dampen LNG exploration and export activities.”

Even though Cheniere Energy (NYSE:LNG) has the usual risks of market volatility, regulatory changes, and geopolitical tensions, its excellent financials, shareholder-friendly capital allocation policies, and substantial upside potential make it an appealing investment.

Overall LNG ranks 2nd on our list of the very cheap stocks to buy. You can visit 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds to see the other very cheap stocks to buy that are on hedge funds’ radar. While we acknowledge the potential of LNG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LNG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.

 

Disclosure: None. This article is originally published at Insider Monkey.