Energy
Why Jefferies Wants Investors to Buy 4 Top Energy Stocks Now
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One thing energy investors are acutely aware of is that the oil downtrend has been brutal. The sector has underperformed for every year since 2012, which is unprecedented, and the amount and duration of stocks hitting 52-week lows was also unprecedented since energy sector data became available. Toss in short sellers absolutely slamming the stocks, and you end up with the excruciating bloodbath we have experienced.
In a new research report, Jefferies analyst Jason Gammell now sees more upside than downside to oil from current levels, and he thinks oil could average $39 a barrel in the second half of 2016. So not only could energy perform better, but it may be a harbinger for the broader market. With Russia and OPEC perhaps closer to an understanding, there could be some serious upside potential.
Jefferies has nine top picks, and here are four that look poised for solid upside.
Anadarko Petroleum
This top stock is down a stunning 65% since May of 2015. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate and natural gas liquids (NGLs).
The Midstream segment provides gathering, processing, treating and transportation services to Anadarko and third-party oil, natural gas and NGL producers, as well as owns and operates gathering, processing, treating and transportation systems in the United States. The Marketing segment markets oil, natural gas and NGLs in the United States; oil and NGLs internationally; and anticipated liquefied natural gas production from Mozambique.
The company’s asset portfolio includes U.S. onshore resource plays in the Rocky Mountains, the southern United States, the Appalachian basin and Alaska; the deepwater Gulf of Mexico, as well as others in Mozambique, Algeria, Ghana, Brazil, Colombia, Kenya, New Zealand and elsewhere.
In December, the company once again posted better-than-expected earnings and raised the guidance going forward. In addition to the strong performance, Anadarko is lowering costs and keeping the balance sheet as clean as possible.
Anadarko investors receive a 2.76% dividend. The Jefferies price target on the stock is a staggering $88, and the Thomson/First Call consensus target price is $65. Shares closed Friday at $39.09.
24/7 Wall St.Gulfport Energy
This stock was added to the Jefferies Franchise Picks list in December, and it is one of the favorites around Wall Street. Gulfport Energy Corp. (NASDAQ: GPOR) is an independent oil and natural gas exploration and production company with its principal producing properties located in the Utica Shale of Eastern Ohio and along the Louisiana Gulf Coast. In addition, Gulfport holds a sizable acreage position in the Alberta Oil Sands in Canada through its 24.9% interest in Grizzly Oil Sands.
Gulfport is a favorite of hedge fund managers. In fact, according to Insider Monkey, 36 hedge funds currently own positions in the stock. Jefferies notes that the shares had been weak on gas prices and a lower growth outlook, a move lower that may be overdone. With a multiple in line with peers and an expected ramp-up in production next year, the stock may be a great value at current levels, despite last week’s big rally
Jefferies has a $36 price target, while the consensus target is $35.86. The stock closed Friday at $29.55.
Schlumberger
Likely few investors would view this as a value stock, but given the debacle in the energy sector over the past year, the decline in share prices has pushed it almost to value levels. Schlumberger Ltd. (NYSE: SLB) remains the largest oilfield services company in the world for now. With far-reaching operations all around the globe, it could be poised for years of solid growth despite the huge turndown in oil pricing. Many Wall Street analysts think the company will continue to drive margins on execution, technologies and efficiencies. Russia, Saudi Arabia, Iraq and China are expected by some to be the strongest markets, if geopolitical concerns remain somewhat in check.
The company announced last August it would buy oil field services giant Cameron International in a deal expected to cost about $12.7 billion in cash and stock. Wall Street analysts note what they term the company’s “drive to disrupt the status quo,” which includes transformation initiatives like the gigantic purchase of Cameron. Trading at a low 6.6 times the firm’s normalized EBITDA estimates, the stock looks cheap.
For the fourth quarter the company announced revenue was $7.7 billion, a decline of 39% from the same quarter last year. Net income for the quarter fell into the red, with a net loss of $1.01 billion or ($0.81) per share, but in that net loss was $2.1 billion in asset impairments and restructuring charges related to reducing its workforce. All in all, the report was better than some expected, and we recently covered how the company is outpacing its major competition.
Schlumberger investors receive a 2.77% dividend. The $87 Jefferies price objective is higher than the consensus target of $81.26. The shares closed Friday at $62.82.
Pioneer Natural Resources
Many Wall Street analysts love this stock for a pure crude oil play, and it recently was upgraded by Deutsche Bank and Citigroup. Pioneer Natural Resources Co. (NYSE: PXD) was the ultimate shale-oil growth story for the past five years, and it has been eviscerated in the sell-off that started over a year ago. The stock had rebounded nicely since last summer but was hit hard recently and could be offering aggressive investors a potentially very timely entry point.
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. Wall Street analysts were very positive on the third-quarter results and noted that the company reiterated annual production growth guidance of 15% or more while cutting the number of rigs expected to operate. With a stellar balance and the new capital from a recent secondary offering, the company is poised to remain the top player in the Permian.
Speculation always swirls that this company could be a takeover target, as a big integrated wanting to make a bold move into West Texas could buy Pioneer. Another reason suitors may be circling is the stock is trading over $100 lower per share from highs set in the summer of 2014.
Pioneer investors are paid a tiny 0.7% dividend. The Jefferies price target is $165. The consensus figure is $156.28. Pioneer closed trading on Friday at $123.95.
While the rally last week was heartening, it will be interesting to see if gains can be held. If that is the case, then a slow progression back towards $40 could be underway.
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