Analyst Has 4 Top Energy Stocks to Buy for a Possible OPEC Cut This Week

By Lee Jackson Updated Jan 9, 1:18PM EST · Published Nov 28, 8:25AM EST

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[cnxvideo id=”655402″ placement=”ros”]One of the major problems for the top oil-producing countries in the Middle East is that for most of them, oil is their export bread-and-butter. With oil prices not able to push through the $50 level and stay there, there are some severe hardships in terms of revenue, especially for the big producers like Saudi Arabia. With the OPEC members meeting on Thursday in Vienna, a production cut could spike the price of crude.

Needless to say, if OPEC does agree on production cuts, oil should see a pop in the spot price and the top companies in the sector could jump as well. We screened the Merrill Lynch research database for energy companies rated Buy that also pay dividends. We found four that look outstanding.

Anadarko Petroleum

This top company is still down over 40% from the highs printed in 2014. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate and natural gas liquids (NGLs).

The Midstream segment provides gathering, processing, treating and transportation services to Anadarko and third-party oil, natural gas and NGLs producers, as well as owns and operates gathering, processing, treating and transportation systems in the United States. The Marketing segment markets oil, natural gas and NGLs in the United States; oil and NGLs internationally; and anticipated liquefied natural gas production from Mozambique.

The company’s asset portfolio includes U.S. onshore resource plays in the Rocky Mountains, the southern United States, the Appalachian basin and Alaska; the deepwater Gulf of Mexico; and in Mozambique, Algeria, Ghana, Brazil, Colombia, Côte d’Ivoire, Kenya, Liberia, New Zealand and other countries. As of December 31, 2015, it had approximately 2.1 billion barrels of oil equivalent of proved reserves.

Anadarko investors are paid a minuscule 0.31% dividend. The Merrill Lynch price target for the stock is $95.The Wall Street consensus price objective is just $73.14. Shares closed trading on Friday at $63.75.

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ConocoPhillips

This company may offer investors solid upside potential despite the big dividend cut earlier this year. 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. The company remains one of the best values as short sellers circled after the dividend cuts and many still remain short the stock.

The Merrill Lynch team noted this in a recent report:

Conoco has redefined its investment case with the highest free cash leverage to a recovery in oil prices amongst the big oils. Management has addressed key questions around portfolio resilience: maintenance capex drops to $4.5 billion. Share buy backs prioritized over growth – 10% prospective free cash yield at $65 oil.

Investors are paid a 2.23% dividend. The Merrill Lynch price target is $80. The consensus target is $53.57, and Conoco closed Friday at $44.76.

Occidental Petroleum

This is one of the higher yielding domestic stocks in the energy sector. Occidental Petroleum Corp. (NYSE: OXY) is an oil-levered multinational organization with principal business segments in oil and gas and in chemicals. The oil and gas segment explores for, develops, produces and markets crude oil and natural gas, primarily in the U.S. Permian Basin, Colombia, Bolivia, Libya, Oman, Qatar and Yemen. The chemicals segment manufactures and markets basic chemicals, vinyls and performance chemicals.

With a rock-solid balance sheet and a commitment to dividend coverage, investors look safe for now. Occidental has paid quarterly cash dividends continuously since 1975, and it has increased its dividend each year since 2002.

The market has shown a mixed reaction to the company’s gigantic first bolt-on acquisition in the Southern Delaware basin, where it acquired 35,000 net acres in Reeves and Pecos for $2 billion. Overall, Merrill Lynch is positive on the deal.

Shareholders receive a solid 4.36% dividend. Merrill Lynch has a $87 price target, and the consensus target is set at $77.71. Shares closed on Friday at $69.75.

Royal Dutch Shell

This company has survived the plunge in oil pricing plunge as good as or better than any other major integrated stock. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and natural gas liquids.

Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.

In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

The company generated 3.83 billion cubic feet per day of natural gas in the second quarter of this year from its integrated gas operations and another 6.40 billion cubic feet per day from its upstream operations. It produced solid third-quarter results that exceeded Merrill Lynch expectations. The firm noted in a recent research report:

We increase our estimates and price objective as a result of results – remaining above consensus. We reiterate our Buy rating and continue to see Royal Dutch Shell as our preferred Integrated Oil Supermajor.

Investors receive a 6.37% dividend. The $58 Merrill Lynch price target is less than the consensus target of $59.94. The shares closed Friday at $50.18.

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While Iran is giddy it is free to export again, it is at the point where it needs to consider its neighbors, and it appears the nation is starting to get the point that production levels need to be cut. All of these stocks make good sense for long-term growth and income portfolios.

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.