We cover almost all the top firms on Wall Street, and most do a fine job with overall market coverage. In addition to casting the proverbial broad net, some also are very proficient in covering specific sectors like energy. One of those companies is RBC, which is considered among the leaders in the coverage of the sector, and its Global Energy Best Ideas list is one of the reasons why.
For March, the RBC Global Energy Best Ideas List was up 2.3%, compared to the S&P Global Energy Sector’s increase of 1.7%. Since its inception in February 2013, the RBC Global Energy Best Ideas List is up 14.2%, compared to the S&P Global Energy Sector exchange traded fund at −4.5%. While past performance is no guarantee for the future, a good track record is worth following.
We studied the April research and found five companies with shares that trade in U.S. dollars that look like outstanding plays going forward. With sentiment toward the sector improving, and oil prices consistently over the $60 a barrel level and rising, energy is a good area to look at for the second quarter.
Centennial Resource Development
Shares of this off-the-radar company could have solid upside potential. Centennial Resource Development Inc. (NASDAQ: CDEV) is a pure-play Permian oil and gas producer. The company holds 87.9 thousand net acres across the Delaware Basin, with its largest position in Reeves and Pecos, Texas, (76.1 thousand net acres) and recently acquired position in Lea County, New Mexico, (11.9 thousand net acres), the company’s legacy position, which was held since the time of its initial public offering in late 2016, covers 42.5 thousand net acres in Reeves, Pecos and Ward counties.
The company posted solid fourth-quarter results with 2020 production targets raised to 65,000 barrels of oil equivalent per day. It also highlighted positive well results (3rd Bone Spring) that suggest inventory upside. It should be noted that the company’s 2018 capex outlook came in above expectations.
The RBC price target for the shares is $26, and the Wall Street consensus target is $26.10. The stock was trading early Tuesday at $17.15.
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Halliburton
This stock is still down over 20% from highs printed in January and remains a top large-cap oil services pick on Wall Street. 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.
The company posted solid fourth-quarter results that topped analysts’ estimates, driven by better pricing and increased activity in every reporting region. Earnings per share beat the highest consensus estimates on robust review, with particular strength internationally.
Halliburton shareholders are paid a 1.56% dividend. The RBC has a whopping $65 price target, while the consensus target is $63.19. The shares were trading early Tuesday at $46.00.
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ONEOK
The volatile price of natural gas over the past year has weighed some on this top energy stock. ONEOK Inc. (NYSE: OKE) primarily engages in natural gas transportation, storage and natural gas and natural gas liquids (NGLs) gathering, processing and fractionation in the Bakken, Mid-Continent and Permian. The company recently closed the roll-up of its underlying master limited partnership, ONEOK Partners.
The company has a strong presence in the Oklahoma SCOOP/STACK (NGL gathering/takeaway system, G&P), the Williston Basin (G&P, NGL takeaway) and the Permian Basin (NGL gathering, NGL takeaway, natural gas takeaway), which RBC feels provides high-return growth opportunities.
The analysts are also positive on the company’s primarily fee-based earnings, which account for 90% of the total earnings.
Investors receive a 5.51% dividend. The $70 RBC price objective compares with the $63.88 consensus target. The shares were trading early Tuesday at $55.80.
Parsley Energy
This is a smaller capitalization stock for aggressive investors to consider. Parsley Energy Inc. (NYSE: PE) is an oil and gas producer with 227,000 net acres in the Permian Basin. The majority of acreage sits on the Midland side of the basin, but the company also holds a small acreage position in the Delaware Basin.
The company had 222 million barrels of oil equivalent of proved reserves at the end of 2016, of which 61% was oil. Through strategic acquisitions and acreage swaps, it has grown its acreage position since its initial public offering and has over 7,900 horizontal locations across multiple prospective zones.
Parsley is a catalyst rich and a Permian Basin pure play. The company has some of the strongest wells in the basin, generating returns that are among the best in the industry. Parsley is also rapidly de-risking its drilling inventory and is well-positioned to continue to beat its strong growth projections.
RBC has set its price target at $36. The consensus target is $37.55, and the stock was trading early Tuesday at $27.60.
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Patterson-UTI Energy
This remains a top oil services pick across Wall Street. Patterson-UTI Energy Inc. (NASDAQ: PTEN) is the second-largest land driller in North America and a large pressure pumping provider. Its operations are particularly focused in the Marcellus and in Texas.
Patterson-UTI and its subsidiaries operate land-based drilling rigs in oil and natural gas producing regions of the continental U.S. and western Canada. Universal Pressure Pumping, Inc. and Universal Well Services, Inc. provide pressure pumping services primarily in Texas and the Appalachian region. For the three months ended September 30, 2017, the company had an average of 161 drilling rigs operating.
The company remains the fifth largest Pressure Pumper with a 1.5 million HHP frac fleet (currently 83% utilized) with exposure to ancillary rental equipment business through Great Plains Oilfield Rental. The recent acquisition of MS Energy (directional drilling) complements its contract drilling business and provides attractive growth opportunities for investors.
Investors are paid a small 0.4% dividend. The RBC price target is $34. The consensus price objective was last seen at $25.15, and the shares were trading early Tuesday at $17.05.
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These five top stocks to buy from different energy sub-sectors all make sense for accounts looking to add energy exposure. With the busy summer driving and energy season right around the corner, now is a good time to consider adding positions.
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