5 Energy Stocks to Buy That Can Survive and Could Emerge Stronger

By Lee Jackson Updated Jan 13, 4:21PM EST · Published Dec 8, 9:15AM EST

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5 Energy Stocks to Buy That Can Survive and Could Emerge Stronger — © Thinkstock

The mere fact that Organization of the Petroleum Exporting Countries (OPEC) did nothing last Friday to curtail production is exactly the reason that, sooner rather than later, production cuts start coming. The deficits that the Saudis and other countries are facing from the lower oil prices will need to be addressed soon. Add in the fact that the Democrats are looking like they may join the Republicans in the fight to let domestic oil companies export around the world, and pricing should firm at some point in 2016.

In a new research report, Deutsche Bank recaps a recent trip to Denver to meet with companies, and while the current environment is still bleak, the meetings showed the analysts that some producers are in much better shape to get through the current tough times than others, and they could emerge even stronger for the next up-cycle.

In the report, Deutsche Bank had five top pick stocks to Buy.

EQT

EQT Corp. (NYSE: EQT) is expected to have a stunning 99% of its production come in as natural gas. This may prove huge for investors if another ruthless summer shows up, which some are now predicting. The company’s superior cost structure and above-average growth may help it exploit stable and rising natural gas prices. With an increasing reserve structure and a projected higher number of Marcellus wells to be drilled in the coming five years, the company exhibits industry-leading organic growth momentum.

EQT investors are paid a tiny 0.2% dividend. Deutsche Bank has a $86 price target, and the Thomson/First Call consensus target is higher at $90.11. EQT closed Monday at $53.08.

Encana

This company has seen some positive earnings revisions recently. Encana Corp. (NYSE: ECA) is a leading North American energy producer that is focused on developing its strong portfolio of resource plays, held directly and indirectly through its subsidiaries, producing natural gas, oil and natural gas liquids (NGLs).

The company recently completed the previously announced sale of its Haynesville natural gas assets, located in northern Louisiana, to GEP Haynesville (GeoSouthern). Total cash consideration to Encana from the transaction was $850 million, a big boost to the balance sheet.

The Deutsche Bank price target is $11, and the consensus is set at $11.25. Shares closed down big Monday at $6.71.
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Parsley Energy

This company is a smaller capitalization stock for aggressive investors to consider. Parsley Energy Inc. (NYSE: PE) is an independent oil and natural gas company focused on the acquisition, development and exploitation of unconventional oil and natural gas reserves in the Permian Basin in West Texas. As of December 31, 2014, Parsley’s acreage position consisted of 133,274 net acres, including 103,036 net acres in the Midland Basin and 30,238 net acres in the Delaware Basin, as well as estimated proved oil and natural gas reserves were 90.9 MMBoe.

Some Wall Street analysts think production will increase while capital spending drops going forward, and that the southern Midland Basin asset is at the end of the cost curve for U.S. oil production, where the company margins in 2017 could be as high as three times that of the peers in the region.

The Deutsche Bank price objective is $24. The consensus price target is $22.48 The shares closed Monday at $18.07.

Newfield Exploration

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 NGLs. It is focused on North American resource plays, and the company’s principal areas of operation include the Mid-Continent, the Rocky Mountains and onshore Texas. In addition, Newfield has oil developments offshore China.

For fiscal 2015, Newfield Exploration is forecasting a 40% decline in capital expenditures, 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 double digits this year.

Deutsche Bank has a $44 price target on the stock, and the consensus target is $44.48. Shares closed Monday at $35.41.

RSP Permian

This company was one of the production growth leaders in the third quarter. RSP Permian Inc. (NYSE: RSPP) is an independent oil and natural gas company focused on the acquisition, exploration, development and production of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin of West Texas. The vast majority of the company’s acreage is located on large, contiguous acreage blocks in the core of the Midland Basin, a sub-basin of the Permian.

The company reported 114% third-quarter production growth compared to last year’s quarter. RSP produced 24,000 barrels of oil equivalent per day (or Mboe/d) compared to 11.2 Mboe/d in the third quarter in 2014. The company’s overall production was comprised of 75% crude oil, 14% NGLs and 11% natural gas. It also completed 11 operated horizontal wells and five operated vertical wells in fiscal the quarter.

The Deutsche Bank price target is $33, and the consensus figure is right in line at $33.19. The stock closed Monday at $25.35.
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There is no way to sugarcoat the beating the sector is taking. Eventually though, the market will balance out and prices will go higher. These top companies are well run and may indeed come out of the downturn stronger than ever.

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.