J.P. Morgan Says Top Energy Stocks May Have Bottomed, Even If Oil Has Not

By Lee Jackson Published Nov 11, 8:40AM EST

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Needless to say, one group that has underperformed as the stock market racks up new highs is the energy sector. For investors looking to stay long the stock market, one of the best places to look may be this sector. A new report from the analysts at J.P. Morgan says that exploration and production stocks, which have been absolutely hammered, may have bottomed, even if the price of oil hasn’t yet.

The J.P. Morgan analysts say that at this juncture, investors looking to buy energy stocks should buy the exploration and production ones with operational momentum and strong balance sheets, two traits the firm views as often related. While the analysts like eight top stocks to buy, we have focused on the large and mid-cap stock picks.

Anadarko Petroleum Corp. (NYSE: APC) is not only a top stock to buy at J.P. Morgan, but some think the company is a very possibly an acquisition target. Anadarko is one of the biggest independent oil and gas producers in the country, with exploration or production work in all major domestic drilling areas, as well as in South America, Africa, Asia and New Zealand. While the company is a leading player in areas known as “tight plays,” which some think would precipitate reduced drilling activity in U.S. tight oil plays as companies seek high-grade drilling inventories and manage their balance sheets, the future is still very bright.

Anadarko investors are paid a 1.1% dividend. The J.P. Morgan price target for the stock is $110. The Thomson/First Call consensus target is higher at $119.04. Shares closed Monday at $92.34.

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EOG Resources Inc. (NYSE: EOG) is another top stock that looks like a potential takeover candidate. It is the top producer in the Eagle Ford Shale and it has solid positions in both the Bakken and Permian Basin, making it a perfect fit for an integrated looking to expand in those areas. The company recently reported that the cost of completing a well in the Leonard shale of the Permian’s Delaware Basin fell to $5 million this year, compared with $6.9 million in 2011. The huge drop in costs helps to mitigate the sharp drop in crude.

EOG investors are paid a tiny 0.7% dividend. J.P. Morgan has a $99 price target. The consensus target is much higher at $114.44. EOG closed Monday at $98.50.

Noble Energy Inc. (NYSE: NBL) should have almost 54% of its total 2014 production in the form of natural gas, and that certainly helps to hedge against falling oil prices, especially if we have another brutal winter. Noble is also one of the many American firms expected to benefit when Mexico opens the door for exploration and production from outside companies for the first time in 70 years.

Noble investors are paid a small 1.3% dividend. The J.P. Morgan price target is $76, and the consensus figure is at $78.30. Nobel closed trading Monday at $56.23.

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Pioneer Natural Resources Co. (NYSE: PXD) had a large secondary offering last week, and the stock is still trying to rebound from it. Pioneer is a huge player in the Permian Basin and the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second largest oil reservoir in the Midland Basin. In addition, the company owns its own frac fleets, allowing Pioneer to be a low-cost, high-margin producer, which could prove to be huge with oil prices at $80 for a protracted time. Pioneer was also one of the firms named by the U.S. Commerce Department to produce and export condensate.

The J.P. Morgan price target is $201, and the consensus is set at $228.80. Pioneer closed trading on Monday at $171.86.

Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States. The company 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. It intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions. Cimarex has a diversified base of high-quality production and attractive drilling opportunities, and it should be closing on a huge oil and gas asset sale by the end of this month.

Cimarex investors are paid a small 0.6% dividend. The J.P. Morgan price objective is set at $156, and the consensus price target is $158.93. Shares closed Monday at $115.88.

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All the J.P. Morgan price targets are below consensus, which shows that the firm is cautious. That said, all five stocks have very good prospects, and if the price of oil holds steady or moves higher they should show solid results going forward.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.