Energy

8 Top Oil and Gas Stocks That Analysts Think Have Bottomed Out

Lee Jackson

Published: April 11, 2018 9:55 am

Last Updated: January 12, 2020 1:33 am

If any sector has taken a beating this year, it is energy. Whether it is exploration and production companies, large integrated oils, oilfield services leaders or energy master limited partnerships, all have been hit hard. The curious item is that the price of oil has had a solid rise since last summer, up over 50%, and is trading at levels where many of the top companies are making solid profits. Plus, current geopolitical risk in the Middle East has oil prices soaring, with the West Texas Intermediate over the $66 level Wednesday morning.

We screened our 24/7 Wall St. research database and looked at recent reports from the top companies on Wall Street. We found eight companies trading near 52-week lows that are rated Buy and have some solid upside to their price targets.

Chevron

This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has a big Permian Basin exposure. 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.

The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas. Some on Wall Street estimate that the company will have a compound annual growth rate of over 5% for the next five years.

The company’s production from the Permian Basin continues to exceed trajectory, and it provided investors with a reasonable bullish update at the March 6 investors day. The Merrill Lynch team noted this after the presentation:

With Permian production and asset disposals targets reset, we believe the company can raise the dividend 20% and buyback 15% of shares. We view the strategy update as appropriately conservative for one of the more oil levered majors. The Chevron strategy thru 2020 is focused on discipline enabled by step change in capital efficiency driven by doubling Permian production.

Shareholders receive a 3.77% dividend. The Merrill Lynch price target for the shares is $138, and the Wall Street consensus target is $135.88. Shares closed Tuesday at $118.85.

ConocoPhillips

This one may offer investors solid upside potential and could start growing the dividend again. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids (NGLs) worldwide.

Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects. Many Wall Street analysts feel the company can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, and with visibility on future growth from a sizable position in the Permian.

Merrill Lynch has grown progressively more positive on the shares and noted in a recent report:

Based on updated cash flow sensitivities we suggest operating operating cash flow could top $11 billion at $64 Brent, drawing more buybacks. With advantaged leverage to Brent and little production sharing contracts entitlement effects, we view Conoco as a strong free cash ‘yield’ name.

Investors receive a 1.83% dividend. Merrill Lynch has a $72 price target, and the consensus target is $66.67. Conoco closed Tuesday at $62.34.

Enterprise Products Partners

This is one of leading North American providers of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) provides a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, NGLs fractionation, import and export terminaling, and offshore production platform services.

One reason why many analysts may like the stock might be its distribution coverage ratio. That ratio is well above one-times, making it relatively less risky in its sector. The company’s distributions have grown for several quarters, and last year Enterprise Products announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.4225 per common unit, or $1.70 on an annualized basis.

Investors receive a 6.75% distribution. The $34 RBC price target compares with the consensus target of $31.48. Shares closed Tuesday at $25.19.

Exxon

This remains a top Wall Street energy pick, despite being down over 15% in the past month, and it was just added to the Merrill Lynch US 1 list. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

For 75 years in a row, Exxon has raised its dividend on a split-adjusted basis. Thanks to the company’s vertically integrated model in the oil and gas business, its profitability doesn’t suffer through commodity price swings like a company that’s a pure play in one segment of the value chain.

Shareholders receive a 4.0% dividend. Merrill Lynch has set its price objective at $100. The consensus estimate is $85.98, and shares closed Tuesday at $77.07.

Halliburton

This stock is still down over 20% from highs printed in January and remains a top large-cap oil services pick on Wall Street. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.

Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.

The company posted solid fourth-quarter results that topped analysts’ estimates, driven by better pricing and increased activity in every reporting region. Earnings per share beat the highest consensus estimates on robust review, with particular strength internationally.

Shareholders receive a 1.47% dividend. The RBC price target is a whopping $65. The consensus target is $63.19, and shares closed at $48.82.

MPLX

This company reported very solid numbers but may be more off the radar for some investors. MPLX L.P. (NASDAQ: MPLX) is a diversified, growth-oriented MLP formed in 2012 by Marathon Petroleum to own, operate, develop and acquire midstream energy infrastructure assets. It is engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of NGLs; and the transportation and storage of crude oil and refined petroleum products.

Despite the issues from the recent Federal Energy Regulatory Committee ruling, the company posted strong fourth-quarter results and announced capital expenditures for 2018 would be right at $2.2 billion, above Wall Street estimates.

MPLX unitholders receive 7.42% distribution. The $44 RBC target price is above the $42.06 consensus target. Shares closed at $32.76.

ONEOK

The volatile price of natural gas over the past year has weighed some on this top energy stock. ONEOK Inc. (NYSE: OKE) primarily engages in natural gas transportation, storage and natural gas and NGLs gathering, processing and fractionation in the Bakken, Mid-Continent and Permian. The company recently closed the roll-up of its underlying master limited partnership, ONEOK Partners.

The company has a strong presence in the Oklahoma SCOOP/STACK (NGL gathering/takeaway system, G&P), the Williston Basin (G&P, NGL takeaway) and the Permian Basin (NGL gathering, NGL takeaway, natural gas takeaway), which RBC feels provides high-return growth opportunities.

The analysts are also positive on the company’s primarily fee-based earnings, which account for 90% of the total earnings.

Investors receive a 5.28% dividend. The RBC price objective is at $70. The consensus target is $63.88, and shares closed at $58.31.

Royal Dutch Shell

This company has survived the seesaw in oil pricing as good as or better than any other major integrated stock. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and NGLs.

Royal Dutch Shell also converts natural gas to liquids 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.

Shell’s fourth consecutive quarter of dividend coverage at lower oil prices helps reaffirm the positive investment case for the company. Earnings have continued to surprise Wall Street to the upside, and analysts are bullish on the company’s cost reduction targets.

Investors receive a 5.71% dividend. Merrill Lynch has set its price objective at $74. The consensus figure is $77.94 and shares closed at $68.28.

Eight of the biggest and best companies in the energy sector, many of which are near 52-week trading lows, and all are well liked on Wall Street by some of the top energy analysts. Paying good dividends and distributions, they make sense for long-term growth portfolios that also value consistent income and positions in the energy sector.