Why Origin Energy Ltd Climbed 3.7% Today

Origin Energy Ltd [ASX:ORG] rose 3.77% today, to a high of $6.60 a share. But they weren’t the only energy provider that saw their share price climb.

Magnum Gas & Power Ltd [ASX:MPE] and Planet Gas Ltd [ASX:PGS], two lesser known energy providers, rallied 100% and 75% respectively.

What happened?

The Australian domestic gas industry is at a critical point. There is a shortage of gas supply projected for the next two years. The Australian Energy Market Operator said on Thursday that shortages could take place in the summer of 2018/19.

It’s not great news for gas users. As Brickworks Ltd [ASX:BKW] stated:

Including the forecast increase in electricity prices, Brickworks will pay an extra $20 million per year in energy costs by 2019 — more than twenty five percent of our Building Products 2016 earnings. And only one of the major gas retailers was able to provide a firm offer for gas in 2019.

For gas suppliers, it’s terrific news. Gas price will increase, boosting revenues and earnings for companies like Origin.

What now?

There could be opportunities in the energy sector. And Origin might be one of them. But, for the moment, Origin is not generating a profit. I’d suggest you look at companies that are instead.

An example would be AGL Energy Ltd [ASX:AGL]. They reported a $325 million profit for the first half of FY17. But I’d urge you to be mindful of their valuation. AGL is trading at 46.25-times their current earnings. That means if earnings remain constant, investors will redeem their investment in 46.25 years.

AGL’s earnings will likely increase as gas prices rise. But you’ll need to have a long-term view on the stock to make any real substantial returns.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

PS: We likely won’t see another turnaround in resources like we did in 2016. And if we do, it could be a while. Unless commodity prices suddenly move higher, earnings will likely stagnate.

That’s why some investors prefer the smaller end of the market.

Smaller miners are a riskier investment, there’s no running away from it. But they could potentially grow earnings 10-fold in a short space of time. Resource specialist Jason Stevenson is no stranger to explosive resource stocks.

Read more about these in this free report, The Top 10 Australian Mining Stocks.


Harje Ronngard is the lead Editor at Money Morning. He’s also the Editor of Wealth Eruption and Gold & Commodities Stock Trader, and co-Editor of the Third Wave Portfolio.

The aim of both Wealth Eruption and the Third Wave Portfolio is to find misunderstood opportunities. These are the type of investments that multiply small amounts of money five- to 10-times in size.

Harje has an academic background in investments and valuation. He’s had experience across a range of asset classes, from futures to equities.

For any investment, Harje believes you only need to ask two questions. What is it worth? And how much does it cost? These two questions alone open up a world of opportunities, which Harje shares with Money Morning readers five days a week.


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