In a recent report, Goldman Sachs (NYSE:GS) analysts identified the most idiosyncratic stocks Buy-rated stocks within its coverage across the natural resources sector, discussing factors such as the catalyst path, views from current levels, and investor pushback.
1) Calumet (CLMT): CLMT is highlighted as the most idiosyncratic Buy-rated stock in Goldman’s Integrated Oil and Refiners coverage.
The key catalyst for Calumet is the potential approval of a Department of Energy (DOE) loan, which would enable the company to significantly increase its production of Sustainable Aviation Fuel (SAF) from 60 million gallons per year to 230 million gallons per year. This expansion could position the company as a leading North American SAF producer.
On the other hand, some investors remain worried about the company's strategy if the DOE loan does not materialize, citing risks related to the current challenging Renewable Diesel (RD) margin environment. Despite these uncertainties, Goldman Sachs remains constructive on Calumet, especially with expectations of inflecting earnings from 2025 onwards.
2) Kodiak Gas Services (KGS): KGS stands out in the midstream sector, particularly after its recent acquisition of CSI Compressco (NASDAQ:CCLP).
“We continue to like KGS on a positive S/D backdrop which continues to support a compression pricing upcycle, focus on higher quality large HP (NYSE:HPQ) compression, and a clear capital allocation framework,” analysts wrote.
The acquisition is expected to drive synergy benefits, with near-term catalysts including potential revenue synergies and the completion of non-core divestitures.
However, the lack of detailed growth commentary in the second quarter of 2024 has weighed on the stock. Investors are primarily concerned about the secondary issuance by Kodiak's sponsor and the overall growth outlook for 2025. Still, Goldman Sachs views the stock's upside drivers as remaining intact for the second half of 2024.
3) PG&E Corp (NYSE:PCG): Goldman Sachs considers PCG the most idiosyncratic stock within the utilities space, primarily due to its dislocated valuation driven by historical wildfire risks in California. The company's significant improvements in operational and financial risk management, along with above-average earnings growth driven by robust capital investments, position it favorably.
Catalysts for the stock include potential credit rating upgrades and further cost efficiencies.
Meanwhile, the key investor debate revolves around whether the "California discount" due to wildfire risks will ever diminish, despite the progress made by both the company and the state.
4) Shoals Technologies Group (SHLS): SHLS is highlighted as the most idiosyncratic stock in the clean technology space.
The company's strong technology leadership and leverage to growth in the U.S. utility-scale solar sector are key positives.
On the other hand, near-term sentiment is dominated by concerns over wire shrinkback liability and ongoing intellectual property litigation, with the company expected to receive an initial ruling on August 16. The upcoming analyst day in early September is seen as a significant event that could provide clarity on multi-year financial targets.
5) Baker Hughes (BKR): Analysts view BKR as the most idiosyncratic large-cap stock in the energy services sector.
“We continue to like BKR for its internal efforts aimed at driving efficiencies and streamlining the businesses which we believe should help drive management’s 20% margin targets in OFSE and IET in 2025 and 2026, respectively,” they said.
Key catalysts include cost optimization initiatives and the conversion of a higher margin backlog in IET.
On the flip side, some investors raise concerns over the potential slowdown in LNG orders and the longer-term margin profile of the company. Nonetheless, Goldman Sachs believes that Baker Hughes' diversified offerings will continue to drive order strength, particularly in new energy and non-LNG segments.
6) Talos Energy (NYSE:TALO): Lastly, Talos Energy, a unique pure-play Gulf of Mexico producer, is identified as an idiosyncratic stock in the exploration and production sector.
Goldman notes that the company's recent acquisition of QuarterNorth and ongoing organic growth projects position it competitively, especially given the constructive oil commodity outlook.
Despite historical stock price underperformance due to various challenges, investor confidence is expected to improve with the company's execution of new projects and deleveraging efforts.
The main investor worry remains around Talos' execution capabilities and the volatile nature of Gulf of Mexico operations, particularly in relation to weather and maintenance impacts.