4 Must-Buy Energy Stocks as Oil Surges Over $70 a Barrel

By Lee Jackson Updated Jan 11, 11:56PM EST · Published May 8, 9:50AM EDT

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4 Must-Buy Energy Stocks as Oil Surges Over $70 a Barrel — © Thinkstock

For the first time in almost four years, the price of oil has gone over the $70 mark, and there is a good chance it will stay there and could even go higher. With the president perhaps ready to reimpose sanctions on Iran, demand going higher and all the inventory glut that had plagued the industry for the most part gone, the prospects look good for those long the black gold.

Surprisingly, after being absolutely trounced for some time, many of the top companies in the industry have not caught up to the deck price of oil. We screened the Merrill Lynch energy stocks universe looking for good deals in oil and oilfield services stocks, and we found four that still offer tremendous value. All are rated Buy at Merrill Lynch.

Anadarko Petroleum

This top company is still down a stunning 30% from highs printed in 2014, the last time oil traded at $70. 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 other segments are Midstream and Marketing.

The company reported impressive first-quarter results, and Merrill Lynch said this when covering the earnings:

Adjusted earnings per share of $0.52 beat consensus of $0.40 on lower DD&A and strong oil production that topped guidance led by the US onshore. Half of Permian production is exposed to basis in 2018, but Enterprise and Cactus 2 should leave the company fully covered by 2019. With oil prices at current levels we believe Anadarko can reload share buybacks after the program concludes by mid year.

Shareholders receive a 1.52% dividend. Merrill Lynch recently raised its price target to $95 from $87. The Wall Street consensus price objective is $74.23, and shares closed trading Monday at $66.

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Enterprise Products Partners

This is one of the top players in the beat-up energy master limited partnership arena. 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 6.44% distribution. The Merrill Lynch price target is $29 and the consensus target is $31.48. Shares closed Monday at $26.54.

Exxon Mobil

This remains a top Wall Street energy pick and is on the US 1 list at Merrill Lynch. 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.

Recently, Exxon announced estimated first-quarter 2018 earnings of $4.7 billion, or $1.09 per share assuming dilution, compared with $4.0 billion a year earlier. Cash flow from operations and asset sales was $10 billion, including proceeds associated with asset sales of $1.4 billion.

During the quarter, the corporation distributed $3.3 billion in dividends to shareholders. Capital and exploration expenditures were $4.9 billion, up 17 percent from the prior year.

In addition, the company recently raised its dividend by a nickel to $0.82 per share, which now translates to a nifty 4.2% dividend. The $100 Merrill Lynch price objective is well above the consensus estimate of $85.98. Shares closed Monday at $77.74.

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Schlumberger

This top oil services company is expected to benefit from increased exploration and production spending, and it is also a member of the Merrill Lynch US 1 list. Schlumberger Ltd. (NYSE: SLB) is the world’s largest provider of services and equipment used in drilling, evaluation, completion, production and maintenance of oil and natural gas wells. Revenues in 2017 totaled $30.4 billion, and EBITDA was $6.9 billion.

The company operates in the oilfield service markets through three groups: Reservoir Characterization, Drilling and Production. Reservoir Characterization Group consists of the principal technologies involved in finding and defining hydrocarbon resources. These include WesternGeco, Wireline, Testing Services and Schlumberger Information Solutions.

Shareholders receive a 2.89% dividend. The Merrill Lynch price objective is $75. The consensus target is $79.72, and shares ended Monday at $69.21.

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These four top stocks all have solid upside potential to the Merrill Lynch price targets and have yet to catch up with the commiserate price move in oil. With the Middle East geopolitical factors hanging over the sector, prices could possibly move to the mid $70s fast.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.