Despite what President Trump said on Friday about oil being stored in ships and everywhere, the fact of the matter is the oil glut that has plagued the industry for years is almost gone, and with the OPEC production cuts holding firm, and demand still very high, the price of the black gold has surged to levels not seen in over three years.
At 24/7 Wall St. we cover all the top brokerage firms and investment banks, and slowly but surely, they are all coming around to the fact that exploration and production stocks, the large integrated giants and oilfield services companies are all cheap, having lagged the S&P 500 for years, and may be offering investors some of the best values around despite the big run-up in oil.
We screened our research calls for the top picks around Wall Street, and investors have a wide variety of companies to look at now. From mega-cap integrateds to small-cap exploration and production companies, there is something for everybody to like in the energy sector now.
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has a big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate that the company will have a compound annual growth rate of over 5% for the next five years.
The company’s production from the Permian Basin continues to exceed trajectory, and it provided investors with a reasonable bullish update at the March 6 investors day. The Merrill Lynch team noted this after the presentation:
With Permian production and asset disposals targets reset, we believe the company can raise the dividend 20% and buyback 15% of shares. We view the strategy update as appropriately conservative for one of the more oil levered majors. The Chevron strategy thru 2020 is focused on discipline enabled by step change in capital efficiency driven by doubling Permian production.
Chevron shareholders are paid an outstanding 3.9% dividend. The Merrill Lynch price target for the stock is $138, and the Wall Street consensus price target is $135.88. The shares closed trading on Friday at $122.31.
This one may offer investors solid upside potential and could start growing the dividend again. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, LNG and natural gas liquids (NGLs) worldwide.
Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects. Many Wall Street analysts feel the company can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, and with visibility on future growth from a sizable position in the Permian.
Merrill Lynch has grown progressively more positive on the shares and noted in a recent report:
Based on updated cash flow sensitivities we suggest operating operating cash flow could top $11 billion at $64 Brent, drawing more buybacks. With advantaged leverage to Brent and little production sharing contracts entitlement effects, we view Conoco as a strong free cash ‘yield’ name.
Conoco investors are paid a 1.92% dividend. Merrill Lynch has a $72 price target on the shares. The posted consensus price target is lower at $67.05. Conoco closed trading at $65.79 on Friday.
This is a top Permian Basin play for more aggressive accounts and is a top pick across Wall Street. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.
Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.
Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow, but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.
The $165 SunTrust price target is well above the consensus price objective of $155.82. The shares closed most recently at $128.40 apiece.