It doesn’t take a genius to figure out that as the Chinese economy swings away from an export dependent model to a more services and consumer oriented one that demand for energy will increase. In fact, oil imports into China jumped a staggering 39.5% year over year in May. Now, it should be noted that the prior year was especially low, but imports are up 16.5% in 2016. With the barriers to U.S. exports removed, and car sales in China up 10.5% year over year, the demand should continue to grow.
Again, while U.S. exports are just starting to ramp up, exports from other countries will increase, and it makes sense that the big international integrateds will be the ones that the Chinese look to for product. We screened the Merrill Lynch research database and found three that make sense now that could help to fill the growing demand.
ConocoPhillips
This stock may offer investors solid upside potential despite the big dividend cut earlier this year. ConocoPhillips (NYSE: COP) is the world’s largest independent exploration and production company, based on production and proved reserves. Headquartered in Houston, ConocoPhillips had operations and activities in 21 countries, $30 billion in annual revenue, $97.5 billion of total assets and approximately 15,900 employees as of the end of 2015. Production averaged 1,589 thousand barrels of oil equivalents in 2015, and proved reserves were 8.2 billion barrels of oil equivalents as of last December 31.
Many Wall Street analysts feel Conoco can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, with visibility on future growth from a sizable position in the Permian. The company remains the one of the best values as short sellers circled after the dividend cut as many growth and income managers sold shares.
Conoco investors are paid a 2.15% dividend. The Merrill Lynch price target on the stock is $71. The Thomson/First Call consensus price target is much lower at $51.23. The stock closed most recently at $46.57 per share.
Royal Dutch Shell
This company has survived the plunge and 2016 rally in oil pricing as good or better than any other major integrated. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide. The company explores for and extracts crude oil, natural gas and natural gas liquids (NGLs).
Royal Dutch Shell also converts NGLs to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.
In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.
The company’s $50 billion acquisition of BG Group finally closed in February, and a reported 2,800 jobs will be cut. This continues the reorganization efforts that began last year with 7,500 job cuts.
Royal Dutch Shell investors are paid a huge 6.11 % dividend. Merrill Lynch has a $61.50 price target on the shares, and the consensus price target for the European oil giant was not posted. The stock closed Thursday at $52.32.
Total
This company is another giant European energy giant, this one based in France. Total S.A. (NYSE: TOT) is a global integrated energy producer and provider, a leading international oil and gas company, and the world’s second-ranked solar energy operator with SunPower.
The company operates through three segments. The Upstream segment explores and produces oil and gas; ships, trades and markets natural gas, liquefied natural gas and liquefied petroleum gas (LPG); generates power; and mines and markets coal.
The Refining & Chemicals segment refines and produces petrochemicals and provides sealing, insulation, fluid transfer and transmission and transportation solutions, as well as offers chemical processes and services for electronics, surface finishing and semiconductor manufacturing. It is also involved in trading and shipping crude oil and petroleum products.
The Marketing & Services segment supplies and markets petroleum products, including automotive fuels, biofuels, home heating oil and heavy fuel oil, lubricants, LPG, asphalt, aviation fuel, additives and special fuels, and special fluids through service stations for light vehicles and trucks.
The main drivers behind the company’s ability to stay profitable include an increase in oil and gas manufacturing and strong growth in the company’s very profitable refining division. Total is plenty big enough, as it has a $114 billion market cap and more than $134 billion in annual revenue. The company also has $10.76 in cash per share, which is almost seven times the market mean.
Total investors are paid a strong 4.72% dividend. The $51 Merrill Lynch price target compares to the consensus target of $52.07, as well as the share price of $48.71 on Thursday’s close.
It would seem that early on the bigger international companies may have an advantage, as the U.S. export ban just ended. However, with a giant population in a huge country, and car sales booming, it’s pretty easy to project more U.S. majors being involved in the not too distant future.
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