After a strong run off the 2020 lows, the spot price for oil has backed up pretty dramatically. In fact, after hitting a 2021 high in July of $75.26 a barrel for West Texas Intermediate (WTI), the spot price fell all the way back to $62.14 on August 20, a big 20% decline. While prices have rallied back some, and Wednesday WTI was trading at the $68 level, many top stocks pulled back and are offering investors looking for energy exposure some outstanding entry points.

A new Goldman Sachs research report focuses on the companies with no hedges on their production. Big oil companies will often sell futures contracts at levels where they are prepared to deliver oil. They also protect their upside with hedges below the current pricing in case there is a big sell-off. Those with no hedges have no downside protection per se, but they can enjoy all the upside, and with prices back near the $70 level, they are making solid profits and generating free cash flow.
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The Goldman Sachs report noted this:

Investors continue to focus on producers that are on track to generate attractive free-cash-flow which can allow for attractive cash returns to equity shareholders over time. Specifically, with second quarter 2021 results, investors appeared focused on which Exploration and production companies are most exposed to a potential upcycle in gas prices into 2022. At our base case scenario, we highlight Buy-rated stocks with no oil hedges and exposure to our bullish 2022 oil price outlook.

While all four of the featured stocks are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

ConocoPhillips

This large-cap company offers strong value for investors and reports earnings tomorrow. 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.
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Goldman Sachs is very positive and said this earlier this summer when discussing the prospects for big oil:

While we expect upstream oil/gas producers to inflect positively quarter over quarter given stronger pricing realizations as commodity prices recover, we expect refining to act as a headwind and chemicals a tailwind to earnings/cash flow for more integrated companies.

Investors receive a 3.07% dividend. The Goldman Sachs price target for the shares is $68, and the Wall Street consensus price target is up at $77.24. ConocoPhillips stock closed on Wednesday at $56.02 a share.

Hess

This top pick has rallied nicely off the 2021 lows 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.

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 1.44% dividend. Goldman Sachs has a $97 price target, while the consensus target is higher at $100. Hess stock closed at $69.34 on Wednesday.

Magnolia Oil and Gas

This smaller cap company has been on a wild ride this year and its shares look poised to move higher. Magnolia Oil and Gas Corp. (NYSE: MGY) engages in the business of acquisition, development, exploration and production of oil, natural gas and NGLs reserves in the United States.
The company’s properties are located primarily in Karnes County and the Giddings Field in South Texas principally comprising the Eagle Ford Shale and the Austin Chalk formation:

1. World-class acreage footprint located in the core of the Eagle Ford, substantially de-risked
   -Full field development allows for operational efficiencies and improved performance
   -Well known, repeatable acreage position targeting multiple benches and representing some of the best economics in North America
2. Giddings Field: Redeveloping as an Emerging Play
   -Emerging, high-growth asset with extensive inventory potential and significant development flexibility
   -Held-by-production nature of asset allows for systematic delineation and optimization of play while staying within asset cash flow
   -Modern high-intensity completions have resulted in a step-change improvement in well performance
   -At least 1,000 locations based on conservative spacing assumptions

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Magnolia Oil and Gas stock investors receive a 1.10% dividend. The $18 Goldman Sachs price target is higher than the $17.04 consensus estimate. Shares close at $14.51 on Wednesday.

Occidental Petroleum

This energy company made huge news with a Warren Buffett-backed purchase of Anadarko Petroleum in 2019. Occidental Petroleum Corp. (NYSE: OXY) engages in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, Africa and Latin America.

The company’s Oil and Gas segment explores for, develops and produces oil and condensate, NGLs and natural gas. The Chemical segment manufactures and markets basic chemicals, including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates and calcium chloride.

Its Midstream and Marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, carbon dioxide and power. This segment also trades around its assets, consisting of transportation and storage capacity, and it invests in entities.

Goldman Sachs has set a $35 price target on Occidental Petroleum stock. The $34.09 consensus target is also well above Wednesday’s final trade of $24.63 per share.

These four top oil stocks could be poised to have a big end of the year and a very strong 2022 if the Goldman Sachs pricing estimates of $72 per barrel for next year are accurate. All these stocks offer investors positive exposure to the energy sector and, after the recent oil price movement, they are priced right.

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