RBC Has 4 US Energy Best Idea Stocks to Buy

By Lee Jackson Published Apr 7, 8:25AM EDT

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One of the best rules for investors has always been the most simple: Buy low and sell high. When an industry like energy, and especially oil, is cut in half there is almost always one thing to try to remember. While the stocks may not go back to the former highest levels when oil was $105, they usually will retrace a fair amount of the sell-off, especially the irrational chunk. In a new research report, RBC Capital Markets picked four domestic exploration and production (E&P) stocks that make good sense for investors.

The RBC team has done an outstanding stock selection job for clients as evidenced by the outperformance not only in March versus the S&P Global Energy sector, but the outperformance since the Global Energy Best Ideas list debuted in February of 2013. The four U.S. exploration and production stocks on the list are: Concho Resources Inc. (NYSE: CXO), Devon Energy Corp. (NYSE: DVN), Newfield Exploration Co. (NYSE: NFX) and Pioneer Natural Resources (NYSE: PXD).

Concho Resources

This independent oil and natural gas company is one of the top energy plays in the Permian Basin in West Texas. The company is engaged in the acquisition, development and exploration of oil and natural gas properties, and it also may be a possible takeover candidate.

ALSO READ: 4 Oil Services Stocks to Buy Without Major Oil Recovery

Concho completed a successful secondary stock offering last quarter that raised close to $650 million. The company plans to use the net proceeds from this offering to repay the debts under the company’s credit facility, as well as for corporate purposes that include financing its three-year accelerated growth plan, capital expenditure tied to the recently announced midstream joint venture and potential future asset buys.

The company posted strong fourth-quarter results that beat estimates, and it remains one of the best run independent E&P companies for investors to consider.

The RBC price target for the stock is $138. The Thomson/First Call consensus price target is $127.21. Shares closed up big on Monday at $121.16.

Devon Energy

This company is expected to have 48% or more of its total 2015 production in natural gas. The company is an independent driller, primarily active in the United States. More than 70% of Devon’s U.S. reserves are in natural gas, with most of that lying in Texas’ Barnett Shale. The company plans to invest a total of more than $1.1 billion in the Eagle Ford shale and drill more than 200 wells. Daily production is just under 2 billion cubic feet. This is a pure-play natural gas stock that investors can feel very comfortable holding for a long time, one not pegged to the oil markets.

Devon investors are paid a 1.5% dividend. The RBC price target is set at $76, but the consensus price target is much lower at $70.81. Devon closed Monday at $63.41 a share.

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Newfield Exploration

This independent energy company is engaged in exploration, development and production of crude oil, natural gas and natural gas liquids. It is focused on North American resource plays, with its principal areas of operation in the Mid-Continent, the Rocky Mountains and onshore Texas. In addition, Newfield has oil developments offshore China.

For fiscal year 2015, Newfield Exploration has forecast a 40% decline in capital expenditures (capex), which although high, is in line with its peers. Although there will be a capex decline, product growth at the company in terms of barrels per day is expected to jump 18% this year.

RBC put a $38 price target on the stock, and the consensus target is $37.82. Shares closed up big on Monday at $37.73, a gain of almost 4%.

Pioneer Natural Resources

This stock was the ultimate shale-oil growth story for the past five years, and it was eviscerated in the sell-off, but it has started to fight its way back. Pioneer is a huge player in the Permian basin and the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second largest oil reservoir in the Midland Basin.

In addition, the company owns its own frac fleets, allowing Pioneer to be a low-cost, high-margin producer, which could prove to be huge if prices stay lower for a protracted period. Pioneer was also one of the firms named by the U.S. Commerce Department last year to produce and export condensate.

Pioneer investors are paid a tiny 0.05% dividend. The RBC price target is $180, above the consensus target of $171.68. Pioneer closed trading on Monday at $173.58.

ALSO READ: 3 Top Deutsche Bank Picks for Oil Services Upcycle

While most of these stocks are well off their lows, they all make sense for investors looking to add quality independent E&P stocks to an aggressive growth portfolio.

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.