Welcome to another edition of Stock of the Week. Today we’re looking at an energy infrastructure play that delivers an essential service throughout the U.S.

Are your Spidey senses tingling? They should be. Because this is precisely the type of energy play investors should be looking for right now…

The stock is up 8% over the past six months, beating broad trends and continuing its record of outperforming the markets.

Given what I’m seeing in its financials right now – I run through the key numbers in this week’s video below – I’m projecting a 40% rise in share price over the next 12 months.

You won’t want to miss this one.

Click on the image below to watch it.

Transcript

Welcome, everyone, to another edition of Stock of the Week. I’m Alpesh Patel, the editor of GVI Investor and the CEO of a hedge fund and a private equity fund.

Targa Resources (TRGP) is my Stock of the Week this week. It’s a midstream energy infrastructure corporation and one of the largest infrastructure companies delivering natural gas and natural gas liquids in the U.S.

You can feel your Spidey senses tingling when you hear some of those key words, can’t you?

What is it about this company? Well, its Grand Prix Pipeline enhances its competitive capabilities to move supply from gathering and processing through the Targa value chain to key demand markets.

In other words, it gets stuff done.

Targa is a simply structured C corporation and has received consensus “Buy” ratings from market analysts. Not that I care too much about what the analysts think… What’s more important to me is my analysis and what the financials look like.

This is where it gets interesting.

Its CROCI, or cash return on capital invested, is 13.1%. That’s one of the highest cash returns on capital invested of any company based in the U.S. It’s in the top quartile, the top 25% of companies. And we know from that ratio used by Goldman Sachs, invented by Deutsche Bank, that it is a very important ratio for forecasting future price movements.

The stock is up 8% over the past six months. Now, the market’s been down this year, so being up 8% is not too bad.

Looking at some of the performances in recent years… 2022, up. 2021, up. 2019, up. It’s had some volatile years when it’s not done so well, but I think given the sector it’s in and that it’s had a record of outperforming the market, it’s got a lot of things going for it.

Now let’s look more deeply… Cash return on capital invested, return on capital employed, return on equity – the returns it gets on its shareholder equity – and turnover are going up. Operating cash flow is going up… All of these are good signs.

Pretax profits haven’t been consistently rising. But not everything is always greenlighted on a company. You just need enough things to be on the up.

Turnover is forecast to grow 53%. You’re not surprised, are you, given what’s happening in the world? The three-year average was 17.4%.

Earnings before interest and tax… The forecast growth is steady at 7%. Those are big numbers. Pretax growth is at 80.6%.

Forecast P/E is around 21. Now, that’s a little bit rich. The share price relative to profitability at a multiple of 21 is a little bit rich. It’s a little bit expensive, in other words. But having said that, like I said, not everything gets a tick, but that’s enough ticks for me on the company.

I’m projecting a 40% rise in the share price in 12 months. That’s the average of what I think could happen. But even if it does less than that, we should still be getting a really good return on this one. And the trend’s been set since January of last year.

So all in all, a pretty good Stock of the Week.