ASX 200 energy share with ‘material long-term upside’ ahead: fundie

S&P/ASX 200 Index (ASX: XJO) shares closed at 8,949.4 points on Tuesday, down 0.04%.

The world is waiting for a second round of negotiations between the US and Iran to start as the global energy shock continues.

It was initially reported that Iran had refused to participate in further discussions unless the US withdrew its blockade of Iranian ports.

Meanwhile, US President Donald Trump said he is not inclined to extend the ceasefire if an agreement is not reached this week.

The US has reportedly seized an Iranian vessel trying to run the blockade, while Iran has fired at ships in the Strait of Hormuz.

The war is causing large daily market fluctuations depending on what the President says and what occurs at sea each day.

In a newsletter, Tim Riordan and Michael Teran from Blackwattle said the market “showed a decisive defensive rotation” last month.

Energy (+19%) was the standout sector, the only one to post a gain, as Brent crude spiked 43% on supply disruption fears.

Defensives also held up well, with Utilities (+5%), Insurance (+4%) and Staples (+2%) outperforming.

The ASX 200 was sold off in early March. The market began rebounding later in the month, but has yet to fully recover.

Meanwhile, the US S&P 500 Index (SP: .INX) and Nasdaq Composite Index (NASDAQ: .IXIC) have both recovered to new record highs.

Riordan and Teran, who run Blackwattle’s Mid Cap Quality Fund, said:

Despite the volatility, equity sentiment remains well short of outright fear, with the market expecting the energy disruption to be short lived.

Amid all this noise, Riordan and Teran have highlighted an ASX 200 energy share that they think has “material long-term upside” ahead.

Whitehaven Coal Ltd (ASX: WHC)

The Whitehaven Coal share price rocketed 18% in March, but has fallen 14.4% in April, as energy prices continue to fluctuate.

Blocked shipments of gas in the Strait of Hormuz have pushed many power plants to switch to thermal coal.

Riordan and Teran commented:

Thermal coal rose 23% in March as buyers sought alternative energy sources, with coal a key beneficiary of the supply disruption to global LNG markets.

The analysts said Whitehaven is one of the ASX 200’s largest and highest quality coal producers.

We continue to see material long-term upside for WHC as an ‘improving / enduring quality’ business and view WHC as one of the highest quality mining companies on the ASX, with strong financials and a management team with an excellent track record of capital deployment.

While coal prices have been volatile in recent months, the longer-term supply and demand dynamics remain favourable, and WHC
continues to generate strong free cash flow whilst maintaining a net cash balance sheet.

We back WHC to execute on numerous multi-year internal levers to maintain and improve the business quality beyond commodity prices, including cost reduction and production improvement in their metallurgical coal mines, paydown of the deferred BHP acquisition payments, Vickery expansion and sell down, Daunia/Winchester South expansion and sell down, and further disciplined capital management.

ASX 200 energy share price snapshot

Whitehaven shares have risen 66% over the past 12 months compared to a 53% ascension for the S&P/ASX 200 Energy Index (ASX: XEJ).

The post ASX 200 energy share with ‘material long-term upside’ ahead: fundie appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• 4 ASX 200 shares newly upgraded this week
• Whitehaven shares are up 80% in a year. Here’s why investors still see upside
• Whitehaven Coal announces US$900m notes issue and debt refinancing
• Why Beetaloo, Fortescue, Orora, and Whitehaven Coal shares are dropping today

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.