Energy

Energy Stocks to Buy With Up to 55% Upside Potential

Despite a lingering malaise on Wall Street for the energy sector, the prices for West Texas Intermediate (WTI) crude and Henry Hub natural gas continue to trade much closer to 52-week highs than lows. Toss in a little Russia-related geopolitical volatility to stir the pot, and investors may have the table set for strong energy sector gains this summer.

In a new research report, the energy team at RBC has dissected their top names to buy and have established a list of stocks rated Outperform at the firm with 25% to 55% upside to their price targets. Investors wary of continued 2014 price momentum stock price movements and volatility may want to add some of these top names to their portfolio now.

Here are some of the Outperform-rated stocks at RBC with 25% or more upside to their established price targets.

Anadarko Petroleum Corp. (NYSE: APC) is on the RBC list and 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. Worldwide, natural gas makes up just over half of Anadarko’s reserves, but 87% of the new wells it drilled in the United States last year were gas wells. The company has daily production of more than 2.5 billion cubic feet. Investors are paid a small 0.9% dividend. The RBC price target for this top energy stock is $105. The Thomson/First Call estimate is at $102. Anadarko closed Friday at $83.59, so a move to the RBC target would be a 25% gain for investors.

Denbury Resources Inc.‘s (NYSE: DNR) primary focus is on enhanced oil recovery using CO2, and its operations focus on two key operating areas: the Gulf Coast and Rocky Mountain regions. The company’s goal is to increase the value of acquired properties through a combination of exploitation, drilling and proven engineering extraction practices, with the most significant emphasis relating to tertiary recovery operations. Investors are paid a 1.5% dividend. The RBC price target for the stock is $21, and the consensus is right in line at $21.17. Shares closed Friday at $16.43. A move to the price targets would be a 30% gain.

EP Energy Corp. (NYSE: EPE) has struggled since coming public recently. As a leading North American oil and natural gas producer, EP Energy has a proven strategy, a significant reserve base, multiyear drilling opportunities and a strategic presence in fast-emerging unconventional resource areas. EP Energy is active in all phases of the exploration and production value chain — exploring for, acquiring, developing and producing oil and natural gas. RBC likes the management team and the company’s prospects, and the analysts have a $28 price target. The consensus target appears to be posted incorrectly. The stock closed Friday at $18.97 a share. A move to the RBC target would be a huge 45% gain for shareholders.

Goodrich Petroleum Corp. (NYSE: GDP) was hit hard late last month when its fourth-quarter results came in significantly below Wall Street expectations. The company reported fourth-quarter adjusted earnings per share of $0.57 and revenue of $50.6 million, compared to analysts’ consensus estimates of $0.48 and $62.74 million, respectively. Production averaged 80,800 Mcfe per day for the quarter. The sell-off in the stock might be offering patient investors the perfect entry point. RBC has a $22 price target, which is actually lower than the $22.91 consensus. Goodrich closed Friday at $13.86 a share. A move to the targets would be a gain of well over 50%.

Northern Oil and Gas Inc. (NYSE: NOG) is an exploration and production company with a core area of focus in the Williston Basin Bakken and Three Forks play in North Dakota and Montana. This is another company that missed fourth-quarter numbers and got hammered in early March, despite growing fourth-quarter production of 28% year over year. The RBC price target is $19, and the consensus is at $19.25. The stock closed Friday at $13.47. A move to the targets would be a gain more than 40% for investors.

Oasis Petroleum Inc. (NYSE: OAS) is a company that came in with outstanding earnings. For the full year, it reported adjusted EBITDA of $821.9 million. That was up 60% from the $512.3 million the company reported in 2012. Fourth-quarter growth was strong as well, as adjusted EBITDA rose 38% from last year’s fourth quarter to $225.4 million. RBC is a big fan of the stock and has a $60 price target, while the consensus figure is $54.93. Shares ended Friday at $42.09. A move to the RBC target would represent a 45% gain.

Rex Energy Corp. (NASDAQ: REXX) operates as an independent oil and gas exploration and production company in the Appalachian and Illinois basins in the United States. The company focuses on the Marcellus Shale, Utica Shale and Upper Devonian Shale drilling and exploration activities in the Appalachian Basin. The RBC price target for the stock is $24, and the consensus number is $23.75. From Friday’s closing price at $17.20, a move to the RBC target would be a 40% gain.

Swift Energy Co.‘s (NYSE: SFY) earnings were in line with what analysts expected, but its production guidance for 2014 was not. The company expects 2014 production to be between 11.3 million and 11.8 million barrels of oil equivalent. That is likely less than the 11.75 million barrels of oil equivalent the company produced in 2013. The RBC team is betting on a production turnaround. Their price target is $16, and the consensus target is $14.71. Swift Energy closed Friday at $10.45. A move to the RBC target would be an outstanding 55% gain.

With a stock market that is pretty much priced for perfection, the RBC names to buy offer investors stocks not trading at 52-week highs. They also offer investors the potential for some outstanding gains if price targets are hit. With oil and gas continuing to trade at attractive prices, some of these stocks could have solid quarters the rest of the year. That could go a long way to lifting them to some of the lofty RBC targets.

 

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