Despite Energy Caution, Analyst Has 4 Exploration Stocks to Buy

By Lee Jackson Published May 14, 8:15AM EDT

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There is good and bad news for energy investors. The good news is January’s lows are kind of a distant memory. The bad news is many of the top stocks in the exploration and production (E&P) segment may be fully valued after nice runs off the lows.

In a new research report, Deutsche Bank has limited the stocks to buy in the firm’s universe to a handful. The analysts see most stocks already reflecting numerous positives with increased valuations, and they see a potential pause in the group on the way. The Deutsche Bank team is staying with the stocks with solid, and in some cases underappreciated, resource and production growth. We highlight four stocks to buy now. All are rated Buy.

Energen

This oil and gas E&P company with headquarters in Birmingham, Ala., is rated a top pick at Deutsche Bank. Energen Corp. (NYSE: EGN) has 1.1 billion barrels of oil-equivalent proved, probable and possible reserves and another 2.2 billion barrels of oil-equivalent contingent resources. These all-domestic reserves and resources are located primarily in the Permian Basin. The company has been active in the region since the late 1960s and has made numerous major acquisitions in the past five years.

The company posted very solid fourth-quarter 2014 results back in February, but came in a little light with first-quarter numbers when they reported earnings last week.

The Deutsche Bank price target is $80. The Thomson/First Call consensus price target is $80.56. Shares closed Wednesday at $69.16.

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Newfield Exploration

This is the other current top pick stock at Deutsche Bank. Newfield Exploration Co. (NYSE: NFX) is an independent energy company engaged in exploration, development and production of crude oil, natural gas and natural gas liquids. The company is focused on North American resource plays and its principal areas of operation include the Mid-Continent, the Rocky Mountains and onshore Texas. In addition, Newfield has oil developments offshore China.

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

Deutsche Bank puts a $45 price target on the stock, and the consensus target is $41.33. Shares closed Wednesday at $35.34.

Concho Resources

This stock is a Wall Street favorite, and Concho Resources Inc. (NYSE: CXO) is one of the top energy plays in the Permian Basin in West Texas. It is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. It also may be a possible takeover candidate.

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 expenditures tied to the recently announced midstream joint venture and potential future asset buys.

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The company posted strong fourth-quarter results that beat estimates, and analysts love the company’s quality assets, low leverage and the ability to generate solid returns in today’s tough environment.

While the Deutsche Bank price target is $132, the consensus target is higher at $137.28. Shares closed on Wednesday at $118.07.

Gulfport Energy

Gulfport Energy Corp.’s (NASDAQ: GPOR) principal properties are located along the Louisiana Gulf Coast; in the Utica Shale, Eastern Ohio; in the Niobrara Formation, northwestern Colorado; and in the Bakken Formation, Western North Dakota and Eastern Montana. Deutsche Bank sees Gulfport as one of the best pure plays on the Utica Shale, and it also forecasts further delineation, downspacing pilots and infrastructure additions leading to higher market implied Utica values, a huge positive for the company.

Gulfport posted solid first-quarter revenue of $176.3 million in the period, beating Wall Street forecasts for $137.3 million. This continues a streak of solid performance by the company.

The Deutsche Bank price target is posted at $55, and the consensus target is $57.71. Shares closed on Wednesday at $45.79.

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The Deutsche Bank take is very smart. It is prudent now to buy energy stocks viewed as either undervalued or having incredible long-term prospects. Many of the stocks that have run up since January are fully valued now, so energy investors need to choose wisely.

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.