Experts Think Half of Oil Industry May Go Bankrupt: 3 Safe Mega-Cap Dividend Energy Stocks to Buy

The inexorable slide to $20 per barrel oil is what some experts are predicting now. With oil briefly dropping below the $30 mark this week, some have started to believe that the $20 level is a self-fulfilling prophesy. So what are investors to do? Everybody knows that sooner or later the supply and demand will balance out. In addition, there are already rumblings from some of the OPEC nations that it’s past time for a meeting and a possible production cut.

Earlier this week, Fadel Gheit from Oppenheimer said that half of all shale drillers could go bankrupt, and last month John Arnold the legendary energy trader who formed Centaurus Advisors said he expects half of the U.S. energy industry to go bankrupt this year if the price of oil does not rebound.

Sector disasters bring opportunity — see the housing meltdown in 2007 and 2008. Numerous sectors then provided huge opportunity for those with the capital to step in. We screened our Wall Street research database and found three companies rated Buy that will survive this downturn and can prosper in the future.

Chevron

This is very solid story for investors looking to stay long the energy sector. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. It sports a sizable dividend, and has a solid place in the sector when it comes to natural gas. Some on Wall Street estimate Chevron will have a compound annual growth rate of over 5% for the next five years, and the stock trades at a modest valuation discount to some of its mega-cap peers.
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Chevron management is aggressively pursuing cost-saving initiatives and has already completed over 2,200 supplier engagements with more in progress. Cost savings and improving investor sentiment may be a key for the mega-cap integrated as it has struggled mightily over the past year. While many on Wall Street concede that the oil market could be oversupplied for longer than most thought, massive overseas demand and production slowdowns should help pricing the rest of the year and into 2017.

The company’s Permian Basin assets are a goldmine, and that the Australian liquefied natural gas business will transition from a yearly $8 billion capital consumption drag to a $2 billion to $3 billion contributor. Combined with the much lower overall capital spending for the 2016 to 2018 period, the company is poised to not only hang around, but end the sector slump in a much better position.

Chevron investors receive a massive 5.01% dividend. Deutsche Bank has a $103 price target on the stock. The Thomson/First Call consensus price target is $97.82 .Shares closed trading on Thursday at $85.47, up over 5% on the day.
ConocoPhillips

This company may offer investors among the best total return possibilities for 2016 and is on the Merrill Lynch prestigious US 1 list. ConocoPhillips (NYSE: COP) is the self-described world’s largest independent exploration and production company based on production and proved reserves. Headquartered in Houston, Conoco had operations and activities in 25 countries and has spent the past five years divesting assets. Although it is cash rich, the company have somewhat dampened earnings and growth expectations for some time.

Many Wall Street analysts feel Conoco can accelerate growth from reloaded portfolio depth in the Bakken and Eagle Ford, with visibility on future growth from a sizable position in the Permian. The company lowered its 2015 spending target in response to the lingering slump in crude prices.

Chairman and CEO Ryan Lance has said that the company expects oil prices to start to move higher late this year, but it is significantly reducing capital and operating costs, while maintaining its commitment to safety and asset integrity. He also said Conoco retains the flexibility to adjust capital spending in response to market factors. The 2016 capital budget was announced recently at $7.7 billion. Merrill Lynch feels that, with the capex below $8 billion and additional asset sales, the dividend should remain safe, a key reason for investors to consider.

Investors receive a strong 7.18% dividend. The Merrill Lynch price target is a whopping $77. The consensus target is much lower at $57.63. Conoco closed Tuesday at $41.25, up almost 6%.

Exxon Mobil

This is one of Merrill Lynch’s top 10 picks for 2016. The firm is very positive on Exxon Mobil Corp. (NYSE: XOM) long-term as the overall corporate strength of the massive integrated giant plays a significant part in its usually solid earnings reporting pattern. A very solid reason for adding the stock to a long-term growth portfolio is the fact that it has consistently demonstrated disciplined investing, operational excellence and technological innovation.

The company’s global downstream chemical segment plays a huge part for Exxon, a part that many on Wall Street don’t fully appreciate as the segment contributes an estimated 16% of overall total revenue.

Exxon Mobil recently appointed the head of its refining business as its new president, which makes him the probable successor to CEO Rex Tillerson, a move that was designed to avoid raising eyebrows on Wall Street. The new president, Darren Woods, is a 23-year company veteran, and should keep the goliath on the steady path for growth and progress.

Exxon investors receive a 3.69% dividend. The $100 Merrill Lynch price target is higher than the consensus price objective of $83.05. Shares closed Thursday at $79.12, up 4.6%.
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Oil won’t stay this low forever. Eventually somebody will blink and cut production. In the meantime, it just makes sense for energy investors to stay with the large cap leaders that have survived these market downturns in the past. Taking a shot on anything less is only for very aggressive accounts.