Energy
5 Buy-Rated Oil Stocks Trading Under $10 With Massive Upside Potential
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Baron Rothschild, an 18th-century British nobleman and member of the renowned banking family, is credited with saying that “the time to buy is when there’s blood in the streets.” He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. If he were alive today, one can be pretty sure he would be looking at the oil stocks and the energy sector.
After seeing the May forward West Texas Intermediate contract trade negative prior to expiration, it doesn’t get much worse than that, and with the price of crude oil hitting its lowest level since the last century, it’s a pretty good bet that the proverbial baby has gone out the window with the bathwater.
We decided to screen the BofA Securities energy research universe looking for quality energy stocks that are rated Buy and trading under the $10 level. While probably a much better play for aggressive accounts that are somewhat contrarian, just remember that in the past stocks like Apple, AMD, Bank of America and many more traded in the single digits during desperate times.
Five stocks hit our screens and could be huge winners for patient investors who can see beyond the current turmoil.
Apache
This company was long considered an industry leader but its stock has been absolutely battered. Apache Corp. (NYSE: APA) is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids (NGLs). The company has operations in onshore assets located in the Permian and Midcontinent/Gulf Coast onshore regions, and offshore assets situated in the Gulf of Mexico region. It also holds onshore assets in Egypt’s Western desert and offshore assets in the North Sea region, including the United Kingdom.
Apache also has an offshore exploration program in Suriname. As of December 31, 2019, it had total estimated proved reserves of 551 million barrels of crude oil, 186 million barrels of NGLs, and 1.6 trillion cubic feet of natural gas. The company remains an acquirer/exploiter/explorer and a fiscally conservative company that has grown its reserves and production consistently via acquisitions and organic projects.
Investors receive a 1.06% dividend. BofA Securities has a gigantic $22 price target on the shares, while the Wall Street consensus target is $17. Apache stock closed trading on Wednesday at $9.42, up nearly 10% on the day.
Devon Energy
This stock has been hit as oil has tumbled and is at the lowest level in over 25 years. Devon Energy Corp. (NYSE: DVN) is an independent energy company that primarily engages in the exploration, development and production of oil, natural gas and natural gas liquids (NGLs) in the United States and Canada. It operates approximately 19,000 wells.
The company also offers midstream energy services, including gathering, transmission, processing, fractionation and marketing to producers of natural gas, NGLs, crude oil and condensate through its natural gas pipelines, plants and treatment facilities.
Production is weighted toward crude oil while growth opportunities are liquids focused, anchored by the Delaware Basin, SCOOP/STACK, Eagle Ford Shale, Canadian Oil Sands, and the Barnett. Devon also owns equity in the publicly traded midstream master limited partnership EnLink.
Shareholders receive a 4.52% dividend, which could be at risk. The BofA Securities price target is a whopping $15, while the consensus is set at $12. The last trade for Devon Energy stock on Wednesday hit the tape at $9.74, up almost 8% on the day.
Noble Energy
Noble Energy Inc. (NYSE: NBL) is an independent energy company engaged in the acquisition, exploration and production of crude oil, natural gas and NGLs worldwide. Its principal projects are located in Denver-Julesburg Basin, Marcellus Shale, Eagle Ford Shale and Permian Basin of the United States, as well as in deepwater Gulf of Mexico, offshore Eastern Mediterranean and offshore West Africa.
The company has been in the process of a reset in operating cash flow toward gas in Israel, which trades at above two times U.S. gas prices and could substantially contribute to cash flow this year.
Investors receive a 1.15% dividend. The $10 BofA Securities price target is less than the $15 consensus target. Noble Energy stock rose almost 8% on Wednesday and closed at $7.25.
Parsley Energy
This is a smaller capitalization stock for aggressive investors to consider. Parsley Energy Inc. (NYSE: PE) is an oil and gas producer with 227,000 net acres in the Permian Basin. The majority of acreage sits on the Midland side of the basin, but the company also holds a small acreage position in the Delaware Basin. Through strategic acquisitions and acreage swaps, it has grown its acreage position since its initial public offering and has over 7,900 horizontal locations across multiple prospective zones
The company is catalyst rich and a Permian Basin pure play. Parsley Energy has some of the strongest wells in the basin, generating returns that are among the best in the industry. It is also rapidly de-risking its drilling inventory and is well positioned to continue to beat its strong growth projections.
Shareholders receive a 1.91% dividend. BofA Securities has set a $12 price target. The consensus target is $27.07, and Parsley Energy stock closed trading Wednesday up just shy of 10% at $7.70.
WPX Energy
This is another smaller cap company with solid upside potential and also another top Permian Basin play. WPX Energy Inc. (NYSE: WPX) is an independent oil and natural gas exploration and production company that engages in the exploitation and development of unconventional properties in the United States. Its principal areas of operation include the Permian Basin, the Williston Basin in North Dakota and the San Juan Basin in New Mexico and Colorado.
WPX is a premier Permian-levered operator with sector-leading debt-adjusted cash flow growth supported by strong execution in the core Delaware, all while trading at Williston valuations primarily due to its relatively high financial leverage.
The BofA Securities analysts have a $7 price target. The posted consensus price objective is $9.12, and shares ended Wednesday at $4.58, after a gain of close to 11%.
All these companies have been eviscerated by the relentless and withering selling. However, the analysts have done their work by looking for companies that are poised to survive this year and hang around until prices improve.
While they are not suitable for conservative accounts, there could be some big money made on these names. In addition, it is not out of the question that all could be ripe candidates if massive industry consolidation takes place over the rest of 2020 and next year. Note that if the cash situation worsens, all the companies paying dividends could lower or eliminate them.
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