Energy

As Oil Supply Remains Tight, Jefferies Has 4 Energy Stocks to Buy Now

Lee Jackson

Published: May 31, 2016 10:25 am

Last Updated: January 13, 2020 7:23 am

When oil was getting crushed earlier in the year, all we heard was that supply remained huge and was overwhelming demand and storage capacity. That appears to be changing, and changing pretty fast. Many of the firms we cover here at 24/7 Wall St, are raising their 2016-2017 crude oil growth assumptions, some as much as 1.2 million barrels per day. Even with increased production from places like Iran, increasing demand, especially from high growth areas like China and India, could level that field pretty fast.

Jefferies was one of the firms that recently raise oil demand growth numbers, and a new research report its cites the continued disruption in the supply flow from Canada and Nigeria as a reason a reasonably firm bid has stayed under the market despite crude recently poking through $50. The report also points to four stocks investors should consider now, all are rated Buy.

Encana

This top stock has been absolutely mauled, down a gigantic 84% since the summer of 2014. Encana Corp. (NYSE: ECA) engages in the development, exploration, production and marketing of natural gas, oil and NGLs in Canada and the United States. It owns interests in plays such as the Montney in northern British Columbia and northwest Alberta, Duvernay in west central Alberta, Clearwater in central and southern Alberta, Deep Panuke in offshore Nova Scotia, Cadomin/Doig in northeast British Columbia, Horn River in northeast British Columbia and Granite Wash/Doig in northwest Alberta.

The Jefferies analysts are bullish on the company, and earlier this year elevated the stock to the Franchise Picks portfolio, which represents the highest conviction stocks at the firm. The company reported weaker first-quarter numbers year over year, but the Jefferies analysts feel that the big reduction and debt and the potential for the company to sell assets remain a positive.

The Jefferies price target was raised to a whopping $12, and the Thomson/First Call consensus target is much lower at $8.79. The shares closed most recently at $7.64.

Marathon Oil

This company is a leading integrated oil and gas firm with extensive upstream operations. Marathon Oil Corp. (NYSE: MRO) operates through three segments. The North America Exploration and Production segment develops, explores for, produces and markets crude oil and condensate, natural gas liquids (NGLs) and natural gas in North America.

The International Exploration and Production segment explores for, produces and markets crude oil and condensate, NGLs and natural gas in Equatorial Guinea, Gabon, the Kurdistan Region of Iraq, Libya and the United Kingdom, as well as produces and markets products manufactured from natural gas, such as liquefied natural gas and methanol in Equatorial Guinea.

The Oil Sands Mining segment mines, extracts and transports bitumen from oil sands deposits in Alberta and Canada, and it upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil.

Top analysts cite the company’s higher multiple businesses, and the upstream cash margins have room to move up as shale production increases and oil prices recover. They also point out the stock trades at a very attractive discount to net asset value relative to industry peers.

Marathon investors are paid a 1.55% dividend. Jefferies has a $16 target price for the stock. The consensus target is $14.88, and the stock closed Friday at $14.34 per share.
Oasis Petroleum

This is a smaller independent that could be an outstanding play for more aggressive accounts. Oasis Petroleum Inc. (NYSE: OAS) is an independent exploration and production company that focuses on the acquisition and development of unconventional oil and natural gas resources in the North Dakota and Montana regions of the Williston Basin.

The principal projects of Oasis are located in West Williston and East Nesson. As of December 31, 2015, the company had 484,745 net leasehold acres in the Williston Basin and approximately 218.2 million barrels of oil equivalent of estimated net proved reserves. The company sells its oil and natural gas to refiners, marketers and other purchasers that have access to pipeline and rail facilities.

The company posted first-quarter results that were generally in line with expectations, although revenues came in slightly below. Over the years, Oasis has come up in takeover chatter as some on Wall Street see the company as a solid bolt-on acquisition candidate.

The Jefferies team recently raised their price target to $13, and the consensus target is posted at $10.81. The stock closed Friday at $9.97.

Rice Energy

This company recently has started to catch some upgrades around Wall Street. Rice Energy Inc. (NASDAQ: RICE) an independent natural gas and oil company engaged in the acquisition, exploration and development of natural gas, oil and natural gas liquid properties in the Appalachian Basin. The company operates through two segments: Exploration and Production, and Midstream. As of December 31, 2014, it held approximately 86,000 net acres in the southwestern core of the Marcellus Shale and approximately 55,000 net acres in the southeastern core of the Utica Shale, located in Belmont County, Ohio.

Some on Wall Street see the company as a solid takeover candidate and think the potential for 20% or more growth over the next few years exists. Some analysts also have cited the fact that the midstream asset portfolio provides balance sheet flexibility, and they think that a capital outspend will be required through 2017 to achieve 20% growth.

The $22 Jefferies price target compares with the consensus price objective of $21.59, as well as the $19.72 share price at Friday’s close.

It is entirely possible the oil prices could stay range bound the rest of this year, but at least at the higher levels currently being printed some companies are starting to make money again. However, idle wells are not turned back on like a water spigot, and the low rig count could remain a positive for pricing.