This time last year, the price of oil was plummeting as concerns about the COVID-19 pandemic were rising. Travel came to a near halt, and there was a sense of paralysis in the country due to the lockdowns and restrictions. In fact, April 20, 2020, was the first day in history in which oil recorded negative prices. U.S. oil benchmark West Texas Intermediate (WTI) fell from $17.85 a barrel at the start of the trading day to negative $37.63 by the close. Storage was full, and those stuck with futures contracts were crushed.
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What a difference a year makes. With April here and spring-like weather arriving across the country, WTI has rebounded to over $60 a barrel, while Brent crude is trading near $65. Despite the oil price rebound, energy shares have sold off some over the past month, and the analysts at Goldman Sachs had this to say after speaking with accounts and investors:

Many investors we have spoken to have felt that the stocks going into mid-March were discounting something close to these levels and therefore, despite the potential for a summer rally, were willing to monetize outperformers. After the pullback in the past month the energy select sector SPDR fund (NYSE: XLE from $53 to $48), we have received increased interest in stories that are perceived as attractively valued on mid-cycle levels on long-term estimates.

Four top stocks were highlighted, and while they are rated Buy at Goldman Sachs, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

ConocoPhillips

Shares of this large-cap company offer strong value for investors. 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 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. Goldman Sachs is very positive:

We see four key drivers of an attractive view on COP including:

(1) Leverage to an oil price recovery, particularly given the stock’s recent dislocation versus Brent prices, to which it has historically been highly correlated.
(2) Robust free cash flow generation, representing attractive capital returns potential.
(3) Asset quality accretion via the recently completed Concho transaction.
(4) Attractive valuation following underperformance versus peers.

While we continue to get pushback around federal land exposure, we see positive catalyst opportunities via the company’s March guidance update, a potential buyback announcement, and an oil demand recovery.

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Investors receive a 3.39% dividend. The Goldman Sachs price target for the shares is $66, and the Wall Street consensus target is $62.54. ConocoPhillips stock closed on Tuesday at $50.79 a share.

Devon Energy

This stock may be offering one of the best value propositions of the Goldman Sachs ideas. Devon Energy Corp. (NYSE: DVN) is an independent energy company that primarily engages in the exploration, development and production of oil, natural gas and 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.

Investors receive a 2.03% dividend. Goldman Sachs has a $29 price target, in line with the consensus target of $29.93. The last trade for Devon Energy stock on Tuesday hit the tape at $21.69.

This top pick has rallied nicely over the past year and actually could be a takeover target. Hess Corp. (NYSE: HES) is an exploration and production company that develops, produces, purchases, transports and sells crude oil, NGLs and natural gas. The company primarily operates in the United States, Denmark, Equatorial Guinea, the Joint Development Area of Malaysia/Thailand, Malaysia and Norway.
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Analysts across Wall Street are positive on the growth prospects for Hess driven from Guyana. While Exxon is the operator and has executed well in finding/developing resources in the region, most analysts believe investors can get greater leverage to Guyana as a percentage of the enterprise value through Hess, without the declines in the base assets that Exxon is likely to experience.

Shareholders receive a 1.42% dividend. The $82 Goldman Sachs price target is higher than the $78.43 consensus figure. Hess shares closed at $70.53 on Tuesday.

Marathon Petroleum

This is a solid way for more conservative investors to play the energy sector, and it resides in the U.S. Conviction list stock. Marathon Petroleum Corp. (NYSE: MPC) is one of the largest independent petroleum refining and marketing companies in the United States.

Until just recently, Marathon Petroleum operated approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, it operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.

Last year, the company announced it would sell Speedway to 7-11 in an all-cash deal valued at $21 billion, or $16.5 billion after-tax. The sale transforms the company’s balance sheet and creates options to revisit the corporate structure of MPLX. Many on Wall Street feel that with Speedway removed, the dislocation in refining value becomes even more transparent as the company trades much cheaper than its industry peers do. The deal now is expected to close in this quarter.

Shareholders receive a 4.41% dividend. Goldman Sachs has set a $64 price target. The consensus target is $60.25, and Marathon Petroleum closed most recently at $52.57.

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While oil stocks have rallied off the dreadful lows of last year, heading into the strongest seasonal time for the sector, and taking advantage of recent selling, may set up energy investors and those looking to add the sector for some solid summer gains.

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