Energy

With Oil Nearing 4-Year Highs, Merrill Lynch Has 5 Top Stocks to Buy Now

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It took some time, but the sanctions on Iran and the ongoing issues in Venezuela finally have started to push the benchmark pricing on oil higher. With West Texas Intermediate now closing in on $72 and Brent trading over $80, you can bet that producers, especially in the United States, are ratcheting up their output.

While there are still some transport issues from the Permian Basin, the bottom line is that the top stocks have not gone up in tandem with oil pricing, and some are offering outstanding entry points. We screened the Merrill Lynch energy research universe and found five top stocks that look like stellar additions to growth portfolios.

Anadarko Petroleum

This top company’s stock is still down a stunning 30% from highs printed in 2014, the last time oil traded at $70. 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. The other segments are Midstream and Marketing.

The company has reported impressive results this year, and Merrill Lynch said this in a recent research note:

Anadarko has the capacity to sustain buybacks at current levels, providing support to close a value gap we see at 50% Strong free cash flow, enabled by advantaged Brent leverage has a competitive free cash versus traditional large cap ‘yield’ names. …but with competitive growth. The company has made transition towards compelling value, with growth and yield.

Shareholders receive a 1.48% dividend. Merrill Lynch recently raised its price target to a whopping $100 from $95. The Wall Street consensus price objective is $85.63, and shares traded Wednesday morning at $66.70.

Exxon Mobil

This remains a top energy pick and is on the US 1 list at Merrill Lynch. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

Exxon reported quarterly profits that fell short of analysts’ expectations, marking the fourth time in the past five periods the company has disappointed. The miss was largely due to weaker earnings in Exxon’s refining and marketing segment due to heavier-than-anticipated maintenance and operational problems. Exxon’s business producing oil and gas bolstered earnings, with the company saying it is favoring oil output over gas drilling in its U.S. shale fields.

Investors receive a 3.97% dividend. The Merrill Lynch price objective is $110, while the consensus target is $88.88. The shares traded at $86.15 early Wednesday.

Marathon Petroleum

This company is poised to be the largest refiner and is a more conservative way to play energy. Marathon Petroleum Corp. (NYSE: MPC) is currently one of the largest independent petroleum refining and marketing companies in the United States. Based in Findlay, Ohio, it and owns seven refineries in the United States with total throughput capacity of around 1.7 million barrels per day.

The company operates approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, MPC operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.


Marathon Petroleum is in the long process of completing a massive purchase of another refining giant, rival Andeavor, for $23.3 billion. It is the biggest-ever deal for an oil refiner and would create the largest independent fuel maker in the United States.

Following the deal, Marathon will be the largest operator of refining capacity in the United States and analysts believe management can achieve the $1 billion in synergies that it suggests. In addition, many on Wall Street give the company no credit for the possible international maritime organization change, which implies additional potential upside.

Shareholders receive a 2.22% dividend. The $95 Merrill Lynch price target is less than the $98.95 consensus estimate. The stock was trading at $83.20.

Occidental Petroleum

This is one of the highest 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.

Top Wall Street analysts believe that the company’s firm transportation commitments leave it well positioned to reap the benefits of what could be a prolonged wide differential between Midland and U.S. Gulf Coast crude prices. Occidental has firm transportation commitments of 470,000 barrels per day from Midland to the Gulf Coast, about 19.5% of total capacity, which provides full flow assurance on its own Permian production as well as arbitrage opportunity on third-party volumes.

Shareholders receive a 3.85% dividend. Merrill Lynch has set its price target at $105. The consensus target is $96.57, and shares traded at $81.75.

Royal Dutch Shell

This company has survived the seesaw in oil pricing as good as or better than any other major integrated. 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.

Royal Dutch Shell recently announced the start of a $25 billion stock buyback program, and while second-quarter earnings were somewhat weak, free cash flow at the integrated giant remains strong.

Investors receive a 4.58% dividend. The Merrill Lynch price objective is $78. The consensus figure is $81.01, and the stock traded at $69.05.

With oil hovering near multiyear highs, you can bet that the big integrated companies are looking to produce and sell as much as possible, especially while the sanctions on Iran are totally put in place. These stocks are outstanding long-term buys for growth portfolios looking for income as well.

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