The oil and gas industries have been a burden to the stock market, as has just about anything tied to energy. Almost all the stocks in this group have been absolutely atrocious performers since the end of 2014. In fact, some of the largest companies among industry sub-groups have seen their shares fall 50%, 75% or even more. And the waves of expected bankruptcies are believed to only be at the starting point right now.
Amazingly, Wall Street analysts still think some of these companies offer incredible long-term upside. Some analysts have maintained Buy and Outperform ratings on these stocks and others have decided in recent weeks that the carnage has gone too far.
24/7 Wall St. offers a harsh warning here. If oil does not start to recover, and particularly if oil’s slide into oblivion continues, it should only be expected that these analyst calls will have seriously missed their marks or will prove to be far too early. There is also the notion that the stock market has been listing lower and lower since the end of 2015, and readers should note that most analyst calls were first defending the oil and gas sector even a year ago at far higher stock and oil prices.
OK, so now that you have been warned about some of the most obvious risks in energy stocks for now, here are four oil and gas stocks with recent analyst upgrades or very positive calls.
Antero Midstream
On February 9, Janney Capital Markets started Antero Midstream Partners L.P. (NYSE: AM) at Buy with a $27.00 fair value estimate (versus a $20.45 prior close). The firm believes the pullback in the stock presents an attractive opportunity that will provide superior long-term returns. For a counter take: just the day before, Antero Midstream was downgraded from Outperform to Neutral at R.W. Baird with a $23 price target.
The shares closed out last week at $19.24, against a 52-week trading range of $16.47 to $29.76. The stock has a from Thomson/First Call consensus analyst price target of $29.58 and a market cap of almost $3.4 billion.
Janney’s report said:
The uncertainty surrounding drilling schedules and production volumes appears to be at a peak frenzy. Historically, if investors buy good assets when things look the most gloomy, they are well rewarded. Our outlook for 26% annual distribution growth is underpinned by attractive drilling economics at its sponsor.
Exxon Mobil
Still one of the top picks from Merrill Lynch for 2016, Exxon Mobil Corp. (NYSE: XOM) has a Buy rating, and the firm recently pointed out that the company may have one of the few safe dividends in the oil patch. Exxon investors receive a sizable 3.6% dividend, and Merrill Lynch’s price objective for Exxon stock is $95.00 The consensus price objective is $79.86. Shares closed on Friday at $81.03, against a 52-week range of $66.55 to $93.07.
A Merrill Lynch report from February 12 said:
Energy analyst Doug Leggate cut his dividend outlook for all large cap US oil stocks, except Exxon (XOM) and Occidental Petroleum (OXY). Management teams are capitulating on growth targets and strategies have shifted to capital preservation as the industry moves into survival mode. Leggate notes that any optimism on an expected commodity recovery demands maximum balance sheet strength as a necessary screen.
If you want a counter view on Exxon Mobil: Credit Suisse has an Underperform rating but raised its price target to $73 from $68 in its call.
24/7 Wall St.Hess
Last week, Hess Corp. (NYSE: HES) was the Goldman Sachs top play among oil stocks that will do well ahead even if oil averages $35 per barrel for the next three years. Hess was the largest of the four Goldman Sachs picks, with a $12 billion market cap. The firm even added Hess to its prized Conviction Buy list. Hess was selected for its new projects, its flexibility in shale, having ample liquidity and an ability to find additional resources. The firm thinks that most of the negative news from the company itself on capital spending cuts and generating new capital is now mostly behind it.
The $59.00 Goldman Sachs price target would imply more than 50% upside from the $39 or so price then, and Hess closed out last week at $40.11, with a 2.5% yield. Hess has a $55.26 consensus analyst price target and a 52-week range of $32.41 to $79.00.
Kinder Morgan
An analyst call on Kinder Morgan Inc. (NYSE: KMI) may come from the tail-end of January, but it is a call that keeps resonating. It was a bit of a double upgrade from Credit Suisse. The first upgrade was raising its rating to Outperform from Neutral, and the second was raising its price target to $20.00 from $18.00. Most analysts are maintaining or cutting price targets elsewhere.
Credit Suisse’s John Edwards was the analyst behind the upgrade and his words were calling a bottom like no other firm has done: “Hard to see much downside from here, no matter what happens in energy markets.” On a side note, Stifel also issued a similar note by upgrading Kinder Morgan to Buy with a $17 price target. Kinder Morgan closed the second week of February at $14.96, within a 52-week range of $11.20 to $44.71.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
