Despite the sharp rise in oil prices, some of the top stocks have continued to trade at less than their net asset value using current NYMEX price. With supply becoming stretched as a result of the sanctions placed on Iran and the continuing issues in Venezuela, there is a good chance the price of West Texas Intermediate can stay over the $70 a barrel level the rest of 2018. While that is tough for consumers, it is huge for some of the top exploration and production companies.

In a new research report, the energy team at Baird feels the discount to net asset value is an important metric for investors to consider.

The Baird team noted this in the research report:

The stocks are trading at 85% of current net asset value (NAV) using NYMEX prices. The 2018 WTI/Henry Hub average prices, including futures, are $67.76/$2.94, respectively. The 2023 futures (the basis of our long-term NAV price assumptions) are $58.15/$2.64. Over at least the past 10 years, the exploration and production group has tended to trade close to NYMEX NAV. The median stock on our coverage list has 28% potential upside to its 12-month price target.

Here we focused on the large capitalization companies, and Baird has four that are rated Outperform.

Cimarex Energy

This is a top play for investors looking to the Permian Basin. Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States.

The company is focused on increasing shareholder value through strategies linked to generating attractive economic returns on capital employed and profitable growth in per-share reserves, production and cash flow. It intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions.

Cimarex has a diversified base of high-quality production and attractive drilling opportunities. It should be noted that hedge funds have initiated sizable new positions in the company over the past year, and like its brethren in the Permian, many consider the company a very solid takeover target.

Investors in Cimarex are paid a small 0.77% dividend. The Baird price target for the stock is $136, and the Wall Street consensus target was last seen at $121.88. The stock closed Friday’s trading at $92.94 per share.

Continental Resources

This company has very large exposure to crude oil. Continental Resources Inc. (NYSE: CLR) is primarily a producer of onshore U.S. oil and has positioned itself in two growing hydrocarbon discoveries in the country: 1) the Bakken oil play in Montana and North Dakota, and 2) the SCOOP/STACK in Oklahoma, giving the company good growth opportunities for years to come.

Many on Wall Street feel that the company’s investment thesis is virtually unmatched. Investors get core Permian-like acreage at a non-Permian valuation. Of greatest importance, Continental is one of few diversified large-cap stocks that offers investors exposure to low-cost oil outside of the Permian. With current capacity and distribution issues in the Permian, this is another solid reason to own shares.

Driven by significantly better results when utilizing the high-intensity completions, and having an unhedged 2018 and 2019 oil production profile, Continental Resources is estimated to generate a 5.4% to 5.6% free cash flow yield at the strip. Toss in an expansive low-cost oily resource inventory that could provide decades of drilling locations with a reasonable valuation, and the shares are compelling.

Baird has a price target of $75 on Continental Resources, which compares with the posted consensus target of $75.72. The shares closed Friday at $68.28 apiece.

EOG Resources

This leading energy company shows up well on many Wall Street screens. EOG Resources Inc. (NYSE: EOG) is one of the largest independent exploration and production companies operating in the United States, Canada, Trinidad, the United Kingdom and China.

The company has a big well in Loving County in the Delaware Basin. Top analysts say the well ranks as one of the best they have ever seen in the basin, and it could easily impact other companies drilling in the region. EOG’s average dollar gross per well on a yearly basis is a stunning $4.3 million, which ranks third among all operators.

EOG Resources shareholders are paid just a 0.72% dividend. The $157 price target at Baird is well above the $142.20 consensus target on Wall Street. The stock ended last week at $127.57 a share.

Pioneer Natural Resources

Many Wall Street analysts love this stock for a pure crude oil play. Pioneer Natural Resources Co. (NYSE: PXD) operates a modern fleet of more than 24 top performing drilling rigs throughout onshore oil and gas producing regions of the United States and Colombia. Pioneer production services are supported by 100 well-servicing rigs, more than 100 cased-hole, open-hole and offshore wireline units, and a range of advanced coiled tubing units.

Pioneer is a huge player in the Permian Basin and the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second-largest oil reservoir in the Midland Basin. With a stellar balance sheet, the company is poised to remain a top player in the Permian as it expects to deliver solid production growth in 2018 and beyond.

The company’s unmatched depth of low-cost inventory and balance sheet allow it to compete favorably in both mild and moderate recovery case scenarios. In addition to asset and financial strength, many analysts feel that Pioneer offers the second highest multiple contraction among the large-cap Permian pure-play peers, as well as the highest free-cash-flow yield.

Pioneer investors are paid a tiny 0.05% dividend. Baird has set its price target at $225. The consensus price objective is $244.82, and the stock closed trading most recently at $174.19.

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These four top companies are all trading at a discount to the NYMEX net asset value and offer investors some very exciting potential upside. Plus, with additional sanctions being imposed on Iran in November, supply may tighten some, driving oil prices even higher.

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