Prior to President Joe Biden’s State of the Union (SOTU) address, the bullish narrative for liquefied natural gas specialist Cheniere Energy (NYSE:LNG) seemed straightforward: an energized Donald Trump will beat out the unpopular Biden administration. However, recent political rumblings make this race unexpectedly tight. Nonetheless, on the geopolitical front, rising demand and reduced supply make LNG stock a potential Buy. Plus, its discounted earnings multiple doesn’t hurt. Therefore, I’m bullish on LNG stock.
Pick the best stocks and maximize your portfolio:
- Discover top-rated stocks from highly ranked analysts with Analyst Top Stocks!
- Easily identify outperforming stocks and invest smarter with Top Smart Score Stocks
Domestic Politics Makes Cheniere Energy Stock Interesting
With former South Carolina Governor Nikki Haley suspending her campaign for the GOP nomination, Americans will get another rematch between Biden and Trump. However, for the Democrats, this head-to-head collision presents a problem. Prior to the SOTU address, Biden accrued a worryingly high disapproval rating. However, this dynamic also presented a clear road for LNG stock.
As a natural gas giant, Cheniere represents a major component of the broader hydrocarbon industry. However, social and political winds – particularly blowing from the left side of the spectrum – have pushed green and renewable energy infrastructure. Therefore, Cheniere and its ilk face a longer-term relevancy issue.
Nevertheless, as TipRanks contributor Yulia Vaiman pointed out, if former President Trump takes the White House for a second term, he “will likely loosen restrictions and regulations, leading to bright prospects for a number of sectors.”
Of course, one of those sectors is the oil and gas space. As Vaiman mentioned, energy giants “will surely cheer a backpedaling of environmental rules, as Trump pushes to boost domestic U.S. oil and gas production.” Basically, what’s good news for the former president should be good news for LNG stock.
Unfortunately, for those who are super-bullish on Cheniere, the political backdrop took a bizarre and unexpected turn. First, Biden was unusually up-tempo in his SOTU address, thereby addressing criticisms that he is too old for the job. As a result, the Republicans had to switch tactics, using the rebuttal to dent momentum.
However, Alabama Senator Katie Britt – who delivered the SOTU response – offered an odd, unorthodox speech. Widely mocked, the rebuttal turned into a skit on Saturday Night Live. Given the stakes at hand, Britt’s approach resulted in a misstep that could prove costly.
Because of the unexpected fumbling, it does impose a wrinkle in the bullish case for LNG stock. Still, the overriding narrative could be the geopolitical angle.
Global Realities Benefit Cheniere Energy
Energy consumption data shows that over 30% of households in the European Union are heated using natural gas. Therefore, the issue of securing this critical energy commodity is highly politicized. Obviously, this is one of the key reasons why Russia’s invasion of Ukraine has been such a vexing crisis. Russia exports energy, and Europe badly needs it.
Now, earlier this year, a Reuters article mentioned that Russian pipeline gas exports to Europe fell by 56% in 2023. However, experts in the field have noted that natural gas demand will grow later this year. China may be the top buyer, but consumption in Europe may also rise. If European nations remain committed to supporting Ukraine, then this gas has to come from somewhere.
Theoretically, then, LNG stock should be a big beneficiary. Cheniere can help supply the gas that the Russians will not.
To be fair, if the Biden administration manages to pull more surprises, that will likely require some adjustment to expectations. As Vaiman stated, if Biden wins a second term, certain pet projects, such as EV infrastructure buildouts and expanding the solar energy footprint, will take precedence. Presumably, that leaves little to no room for hydrocarbons.
On paper, that’s bad news for LNG stock. However, Biden – or at least his key advisors – may see the benefit in a nuanced position. After all, the president has actively pushed for supporting Ukraine. Part of that support means compromising. In this case, the U.S. must help meet some of Europe’s hydrocarbon shortfalls in exchange for the region’s cooperation.
Plus, natural gas isn’t as contentious politically as, say, private prisons. Even without the Ukraine crisis, President Biden can’t afford to take a hard line with the hydrocarbon industry. Let’s face it—oil and gas workers vote, too.
There’s Still Upside Potential Due to LNG’s Low Valuation
Although stakeholders of LNG stock are likely pushing for a Trump victory for the reasons Vaiman outlined, there is still upside potential for Cheniere, nonetheless. Specifically, LNG trades at a lowly trailing-year earnings multiple of 3.8x. In addition, the stock is down 8% year-to-date.
Stated differently, the market doesn’t really have the greatest expectations for LNG stock. After the Republican response to Biden’s SOTU address, that sentiment might be even more diminished. However, the geopolitical reality is that demand in other parts of the world – especially Europe – may rise. If so, this is an upside catalyst that Wall Street doesn’t seem to be reflecting in the stock’s pricing.
Is LNG Stock a Buy, According to Analysts?
Turning to Wall Street, LNG stock has a Strong Buy consensus rating based on 12 Buys, zero Holds, and zero Sell ratings. The average LNG stock price target is $201.08, implying 28.6% upside potential.
The Takeaway: LNG Stock Is Tricky but Still Looks Bullish
Prior to President Biden’s SOTU address, Donald Trump arguably appeared to have a clear path to victory. By logical deduction, due to Republicans’ penchant for oil and gas, LNG stock seemed like a Buy. Now, recent GOP fumbles put this narrative into question. Still, the broader geopolitical dynamic means that even Democrats may have to adopt a more nuanced position if they retain power.
So, Cheniere is a trickier play but likely still a bullish one. What makes LNG stock even more tempting is that it appears underappreciated and, thus, undervalued.
