With an enormous amount of institutional movement leading the charge, the energy sector has been absolutely hammered. In fact, the Energy Select SPDR Fund (NYSE: XLE) is down just under 12% since the beginning of the year. This despite numerous positives in the sector, not the least of which has been the OPEC and non-OPEC production cuts, led by Saudi Arabia.
In a recent report, Jefferies asks whether investors running for their lives from the sector could possibly be a sign that things are getting ready to change. This important detail was noted in the report:
Fundamentally, the analyst view is that inventory draws work with a lag (takes ships time to reach OECD countries) and that risk reward into the May OPEC meeting is positive, especially since the OPEC goal of drawing down inventories won’t be reached before the agreement expires on June 30.
That could very well lead to an extension of the production cuts. And that, combined with the contrarian short positions, the busy summer driving season and big demand around the world, could turn things around fast. We screened the Jefferies energy research universe for companies in exploration and production and in oil field services rated Buy. These five look great to buy on the dip.
Chevron
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has 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 the company will have a compound annual growth rate of over 5% for the next five years.
Chevron missed estimates badly, and combined with the dip in crude price, has sold off, giving investors a great entry point. Many analysts feel the company is the best positioned integrated.
Chevron shareholders are paid an outstanding 4.0% dividend. The Jefferies price target is a massive $147, and the Wall Street consensus price objective is $128.14. The shares closed Friday at $107.99.
Halliburton
This company is still down almost 25% from highs printed in the summer of 2014. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.
Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.
Halliburton shareholders are paid a 1.46% dividend. Jefferies has a $70 price target. The consensus target is $64.26, and shares closed Friday at $49.41.
Marathon Petroleum
This top refiner has been on a nice roll, but it still trades well below highs posted in late 2015. Marathon Petroleum Corp. (NYSE: MPC) recently was added to the Franchise Picks List, and it has a diversified business that operates through Refining & Marketing, Speedway and Pipeline Transportation segments.
The company owns and operates seven refineries in the Gulf Coast and Midwest regions of the United States, which refine crude oil and other feedstocks, and it distributes refined products through barges, terminals and trucks, as well as purchases ethanol and refined products for resale.
The company announced in January its plans to significantly accelerate its dropdown of assets with an estimated $1.4 billion of master limited partnership eligible annual earnings before interest, taxes, depreciation and amortization being transferred to MPLX.
Investors receive a 2.95% dividend. The $67 Jefferies price target compares with the consensus price objective of $61.85. The stock closed Friday at $48.87.
Noble Energy
Noble Energy Inc. (NYSE: NBL) is an independent energy company engaged in the acquisition, exploration and production of crude oil, natural gas and natural gas liquids worldwide. Its principal projects are located in DJ Basin, Marcellus Shale, Eagle Ford Shale and Permian Basin of the United States, as well as in deepwater Gulf of Mexico, offshore Eastern Mediterranean and offshore West Africa. As of December 31, 2015, the company had approximately 1,421 million barrels oil equivalent of total proved reserves.
Last year the company acquired about 7,200 acres in the southern Delaware Basin near Reeves County, Texas. The acquired properties are situated near the company’s existing acreage. Noble now boasts around 47,200 net acres and 12,000 barrels of oil equivalent per day in the area, up 20% with the purchase. The acquisition is part of the company’s increased investment in the basin and was announced in a late 2016 presentation. The deal was funded with cash on hand.
Shareholders are paid a 1.22% dividend. The Jefferies price target for the shares is $49. The consensus target is $48.44, and the stock closed Friday at $32.82 a share.
Schlumberger
This top oil services stock is another large cap pick for more conservative accounts. Schlumberger Ltd. (NYSE: SLB) is a supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. The company remains the largest oilfield services company in the world, with far-reaching operations all around the globe, and it could be poised for years of solid growth despite the huge turn down in oil pricing.
The company operates in the oilfield service markets through three groups. The Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. The Drilling Group consists of the principal technologies involved in the drilling and positioning of oil and gas wells, and the Production Group consists of the principal technologies involved in the lifetime production of oil and gas reservoirs.
Shareholders receive a 2.6% dividend. The $99 Jefferies price objective is higher than the consensus target of $97.31. The stock ended the day last Friday at $76.96.
These are five top stocks to buy that have all been blasted during the sell-off. While the timeline may take some time to play out as the Jefferies team thinks, the payoff for patient investors could be big.
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