A new research note from Merrill Lynch points out that oil prices have come under pressure in recent weeks in what appears to be a confluence of seasonal weakness, technical factors and strength in the U.S. dollar, which is what oil is priced in globally. The Merrill Lynch team feels that prospects for a seasonal rebound in demand points to an improving balance of risk. They also say that top stocks that get repriced during the oil sell-off could be good investment prospects.
Here are the five higher beta oil stocks rated as a Buy that Merrill Lynch prefers for a potential rebound.
Continental Resources Inc. (NYSE: CLR) is a top 10 independent oil producer in the United States, and the largest leaseholder and producer in one the nation’s premier oil fields, the Bakken play of North Dakota and Montana. Continental saw some very strong insider stock buying recently. The CEO bought 71,999 shares of the company’s stock at $67.50 for a total purchase of $4.9 million. It bodes well for investors to see such a large insider dollar commitment.
The Merrill Lynch price target is a massive $95. The Thomson/First Call consensus target is $83.20. Shares closed down almost 4% Thursday at $64.52.
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Concho Resources Inc. (NYSE: CXO) is a top energy play in the Permian Basin in West Texas. The company is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. The company is often touted as a possible takeover candidate. Concho completed a successful secondary stock offering in the summer that raised close to $1 billion plans to use the net proceeds from this offering to repay the debts under the company’s credit facility, as well as for corporate purposes that includes financing its three-year accelerated growth plan, capital expenditure tied to the recently announced midstream joint venture and potential future asset buys.
Merrill Lynch has a $165 price target on Conch, while the consensus target is $164.18. Shares closed Thursday down big at $130.36.
Pioneer Natural Resources Co. (NYSE: PXD) is another huge player in the Permian Basin and the Eagle Ford in Texas, and it has been a big winner for shareholders. The company was also one of the firms named by the U.S. Commerce Department to produce and export condensates. Rumors have swirled for some time that one of the big integrateds may target Pioneer as a takeover candidate. With their own frac fleet and huge Midland Basin play, Pioneer is a very attractive target.
The Merrill Lynch target for this top stock is posted at a gigantic $300. The consensus is lower at $248.88. Pioneer closed Thursday at $188.36 a share.
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Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas. It is focused on increasing shareholder value through strategies linked to generating attractive economic returns on capital employed and profitable growth in per-share reserves, production and cash flow. Cimarex intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions. It has a diversified base of high-quality production and attractive drilling opportunities and should be closing on a huge oil and gas asset sale by the end of this month.
Cimarex investors are paid a small 0.5% dividend. The Merrill Lynch price objective is $181. The consensus target is $168.91. Shares closed Thursday at $123.16.
Whiting Petroleum Corp. (NYSE: WLL) is a very large energy player in the Bakken shale, and it is currently ranked as the third largest producer there. Last year, Whiting sold off significant amounts of its assets that aren’t in the Bakken, including its Postle Field enhanced oil recovery assets for $817 million and its acreage in the Delaware Basin for $150 million. It has in turn been using the cash from the sales and deploying more assets into the higher-return Bakken this year and beyond. This makes it very attractive to a larger player looking to add to reserves.
The Merrill Lynch price goal for the stock is $110, and the consensus price target for the stock is set at $106.87. Whiting closed Thursday at $74.10.
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Not only do the Merrill Lynch analysts like the overall prospects of the top independent energy and production stocks, many of them have shown up in reports on Wall Street as possible takeover candidates. Take the large oil sector sell-off and combine it with the overall poor market action, and these top companies are being repriced to very attractive entry levels.
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