Energy
Oil Continues to Explode Higher: 4 Goldman Sachs Conviction List Picks to Buy Now
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This time last year, oil was plummeting as concerns about the pandemic were rising. Travel came to a near halt, and there was a sense of paralysis in the country due to the pandemic lockdowns and restrictions. In fact, April 20, 2020, was the first day in history where 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.
What a difference a year makes. With July almost here, and summer arriving across the country next Monday, WTI has rebounded to over $72 a barrel, while Brent crude is trading near $75. Many across Wall Street think the rally will continue as we are in the busy vacation travel season, and the country is continuing to open up. In an amazing data point that shows the sector strength, WTI has now had a record 14 straight days with an intraday high higher than the last. Plus, the sector does appear to be somewhat cheap on an enterprise value/EBITDA basis, trading at a discount to its five-year average.
Goldman Sachs has four top energy ideas on its Conviction List of top stocks to buy, and all make sense for investors looking to have a position or increase exposure to the sector. It is still important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Devon Energy
This stock may be offering one of the best value propositions among 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 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.
The Goldman Sachs price target on the shares is $37, while the Wall Street consensus target is $34.23. The last trade on Wednesday for Devon Energy stock hit the tape at $29.06 a share.
Marathon Petroleum
This is a solid way for investors who are more conservative to play the energy sector. 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 was expected to close in this quarter.
Shareholders receive a robust 3.64% dividend. Goldman Sachs has a price target of $71, and the consensus is in line at $70.92. Marathon Petroleum stock ended Wednesday trading at $63.28 per share.
24/7 Wall St.Suncor Energy
This is a top Canadian energy play for investors to consider. Suncor Energy Inc. (NYSE: SU) operates as an integrated energy company and primarily focuses on developing petroleum resource basins in Canada’s Athabasca oil sands.
Suncor explores, acquires, develops, produces and markets crude oil and natural gas in Canada and internationally. It also transports and refines crude oil, markets petroleum and petrochemical products primarily in Canada and markets third-party petroleum products.
With the North American majors pivoting more toward the Permian with potential free-cash-flow implications, the company does not expect its “industrial model” to change. The focus remains on reliable cash flow, steady capital allocation framework and top-tier cash returns. In addition, the company is trading at a discount to its historical multiple.
Shareholders receive a 3.05% dividend. The $29 Goldman Sachs price objective is much less than the $42.83 consensus target price. Suncor Energy stock closed at $25.16 on Wednesday.
Targa Resources
This top energy midstream company has had a string of positives lately. Targa Resources Corp (NYSE: TRGP) is a leading provider of midstream services and one of the largest independent midstream energy companies in North America. Targa owns, operates, acquires and develops a diversified portfolio of complementary midstream energy assets.
The company is primarily engaged in the business of gathering, compressing, treating, processing and selling natural gas; storing, fractionating, treating, transporting and selling NGLs and related products, including services to liquefied petroleum gas exporters; gathering, storing and terminaling crude oil; storing, terminaling and selling refined petroleum products.
Targa Resources has one of the premier asset positions in the Permian basin. With solid management, a strong balance sheet and attractive exposure to some of the most attractive U.S. energy basins, it remains a top pick across Wall Street.
Investors receive a 1.16% dividend. Goldman Sachs has set a $55 price objective. The posted consensus target is lower at $46, and Targa Resources stock closed most recently at $48.96 a share.
These four top Conviction List energy picks are perhaps off the radar for some investors but are offering outstanding growth potential and reasonable entry points as compared to some of the other companies in the sector. It may make sense to buy partial positions now and see if prices don’t back up some, as this is typically the worst two-week period of the year for the market.
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