In the winter of last year, Goldman Sachs started to warn about significantly higher oil prices coming, and you could bet that the potential from a Russia versus Ukraine war was not the main thesis for its call at that time. But what a difference a year can make, and with the potential for Russia’s supply to get cut off, things could get very dicey.
To give you an idea of the increase over the past 15 months, the week that President Biden took office, West Texas Intermediate was trading in the low $50s per barrel. WTI closed Monday at $104, down almost 3%, as China has basically shut down over yet another COVID-19 wave. That is an incredible 100% increase from just 15 months ago.
Drivers across the United States have been hit hard by the increase, with some cities in California reporting $6 per gallon for gasoline, a gigantic increase for those that have to drive any distance to and from work. Russia exports about 5 million barrels of oil per day, and approximately 3 million barrels of refined products. If that comes out of the world supply for any length of time, we could be in big trouble.
What should investors do now, especially those that think the energy train has left the station? Go with the big boys that can grow some production supply and keep a balance during these trying times. Also bear in mind the companies that move oil and gas are also big beneficiaries of the increases in the higher prices. We screened our 24/7 Wall St. energy research database and found six top stocks to Buy that pay big dividends and still have room to run to the posted Wall Street price targets.
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While all six 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.
Enterprise Products Partners
This is the largest publicly traded energy partnership and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD | EPD Price Prediction) provides a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, natural gas liquids (NGL) fractionation, import and export terminaling, and offshore production platform services.
One reason many analysts may have a liking for the stock might be its distribution coverage ratio. This ratio is well above 1 times, making it relatively less risky among the master limited partnerships.
Investors in Enterprise Products Partners stock receive a 7.69% distribution. The Goldman Sachs price target is $30, and the consensus target is $28.77. Shares traded early Tuesday at $25.30.
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Exxon Mobil
Despite the huge rally in oil, this mega-cap energy leader trades below levels posted in 2018 and still offers investors an excellent entry point. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.
Top Wall Street analysts expect the company to remain a key beneficiary in this higher oil price environment, and most remain very positive about the company’s sharp positive inflection in capital allocation strategy, its upstream portfolio and its leverage to a further demand recovery, with ExxonMobil offering greater downstream/chemicals exposure relative to peers.
The company pays investors a 4.56% dividend, which will continue to be defended. BofA Securities has a $120 price target for Exxon Mobil stock. The consensus is just $81.55, and shares traded Tuesday morning at $80.15.
MPLX
This is the top holding for the Alerian MLP energy exchange-traded fund. MPLX L.P. (NYSE: MPLX) is primarily engaged in crude oil and refined products transportation and terminaling in the U.S. Midwest and Gulf Coast regions, as well as natural gas gathering and processing in the northeast from its prior acquisition of MarkWest Energy in 2015. MPLX was formed by independent U.S. refiner Marathon Petroleum.
The company’s assets include a network of crude oil and refined product pipelines; an inland marine business; light-product terminals; storage caverns; refinery tanks, docks, loading racks and associated piping; and crude and light-product marine terminals. It also owns crude oil and natural gas gathering systems and pipelines, as well as natural gas and NGL processing and fractionation facilities in key U.S. supply basins.
Investors receive an 8.31% distribution. The $37 Raymond James price target compares with the $36.56 consensus target for MPLX stock, as well as the $32.85 share price on Tuesday.
Phillips 66
This extremely diversified energy company has a long and successful operating history and is a Goldman Sachs Conviction List member. Phillips 66 (NYSE: PSX) operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties. The company holds many of these assets within its master limited partnership, Phillips 66 Partners.
The company benefits from the tax-advantaged structure while still operating a more diversified operating business that also contains many assets that are not ideal master limited partnership assets, such as its fast-growing chemical manufacturing business and its super-profitable refined products marketing business.
After stellar results for the fourth quarter were posted, the analysts said this:
Phillips 66 remains our top idea within our Refining coverage, where we continue to see headroom for incremental capital returns this year, are constructive on a positive rate of change at Refining in 2022, and continue to see attractive non-refining value in Midstream, Marketing, and Chemicals.
Investors receive a 4.88% dividend. Goldman Sachs has set a $95 price target. The consensus target is up at $99.71. Phillips 66 stock traded on Tuesday at $81.55 a share.
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Total Energies
This French integrated giant is another great way to play an energy rally from the European side. TotalEnergies S.E. (NYSE: TTE) operates as an integrated oil and gas company worldwide. Its Exploration & Production segment engages in oil and natural gas exploration and production activities in approximately 50 countries.
The company’s Integrated Gas, Renewables & Power segment engages in the LNG production, shipping, trading and regasification activities; trading of liquefied petroleum gas (LPG), petcoke and sulfur, natural gas and electricity; transportation of natural gas; electricity production from natural gas, wind, solar, hydroelectric and biogas sources; energy storage activities; and development and operation of biomethane production units, as well as provides energy efficiency services.
The Refining & Chemicals segment refines petrochemicals, including olefins and aromatics; and polymer derivatives, such as polyethylene, polypropylene, polystyrene and hydrocarbon resins, as well as biomass conversion and elastomer processing. This segment also engages in trading and shipping crude oil and petroleum products.
The Marketing & Services segment produces and sells lubricants; supplies and markets petroleum products, including bulk fuel, aviation and marine fuel, special fluids, compressed natural gas, LPG and bitumen; and provides fuel payment solutions. It operates approximately 15,500 service stations.
Investors are paid a stellar 4.84% dividend. The TotalEnergies stock has an $80 price target at BofA Securities. The $59.38 consensus target is closer to the $50.90 share price on Tuesday.
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Williams Companies
This top energy company is a solid pick for investors who are more conservative and looking for exposure to LNG. Williams Companies Inc. (NYSE: WMB) operates as an energy infrastructure company primarily in the United States.
Its Transmission & Gulf of Mexico segment comprises Transco and Northwest natural gas pipelines, as well as natural gas gathering and processing, and crude oil production handling and transportation assets in the Gulf Coast region. The Northeast G&P segment engages in the midstream gathering, processing and fractionation activities in the Marcellus Shale region, primarily in Pennsylvania and New York, and the Utica Shale region of eastern Ohio.
The West segment comprises gas gathering, processing and treating operations in the Rocky Mountain region of Colorado and Wyoming, the Barnett Shale region of north-central Texas, the Eagle Ford Shale region of South Texas, the Haynesville Shale region of northwest Louisiana and the Mid-Continent region, which includes the Anadarko, Arkom, and Permian basins. It also includes NGL and natural gas marketing operations, as well as storage facilities.
The company owns and operates 30,000 miles of pipelines, 34 processing facilities, nine fractionation facilities and approximately 23 million barrels of NGL storage capacity.
Shareholders receive a 5.02% dividend. Raymond James has set a $36 price objective on Williams Companies stock, and the consensus target is $33.95. The shares were trading at $32.75.
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These six companies can profit from higher energy prices but offer more conservative investors different ways to play the sector. With everything from the world’s largest integrated energy giant to the top energy MLPs, one of the biggest refining companies and an LNG leader, six ways to generate income and participate in the biggest rally in the energy and oil space since 2011.
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