With the U.S. attack on Iran, an escalation in pricing for oil was a given. So, of course, investors have bid up energy stocks fast in a big way. However, the companies we are focusing on have strong cash flows, rising dividends, and are not overbought. This combination has attracted both passive income-focused and value-oriented investors back into energy stocks. While some of our favorite stocks have exploded higher and are out of the sweet-spot buy range they were in most of last year, we wanted to know which stocks are the top picks at Goldman Sachs, especially now that oil has gone through the proverbial roof and will stay high until the conflict is resolved one way or another.
While the mega-cap integrated giants have soared in price over the past six months, and are much more expensive now than they were last year, some of the other companies in the sector, that are strong in their respective energy silos, still offer outstanding entry points, and dividend yields that are reliable and have the potential to be raised. We screened the Goldman Sachs exploration and production energy database and found four companies that investors seeking dependable passive income may want to consider. All are rated Buy, and some have double-digit upside relative to the Goldman Sachs price targets.
Why we recommend Goldman Sachs energy stocks
Founded in 1869, Goldman Sachs is the world’s second-largest investment bank by revenue and is ranked 55th on the Fortune 500 list of the largest U.S. corporations by total revenue. The Wall Street white-glove giant offers financing, advisory services, risk distribution, and hedging for the firm’s institutional and corporate clients. In addition, they produce some of Wall Street’s most coveted research and serve as a bellwether for the financial industry.
Diamondback Energy
Diamondback Energy (NASDAQ: FANG | FANG Price Prediction) is a company engaged in hydrocarbon exploration and is headquartered in Midland, Texas. This red-hot energy play looks poised to press higher again and offers a solid 2.29% dividend. Diamondback Energy is an independent oil and natural gas company focused on the acquisition, development, exploration, and exploitation of unconventional and onshore oil and natural gas reserves in the Permian Basin in West Texas.
Diamondback Energy is focused on developing:
- The Spraberry and Wolfcamp formations of the Midland Basin
- The Wolfcamp and Bone Spring formations of the Delaware Basin, which are part of the Permian Basin in West Texas and New Mexico
The company also owns, operates, develops, and acquires midstream infrastructure assets, including 770 miles of crude oil and natural gas gathering pipelines and an integrated water system in the Midland and Delaware Basins of the Permian Basin.
The Goldman Sachs price target is $212, which is 20% above current trading levels.
Ovintiv
While off the radar of many investors, this is another total-return idea with Canadian and U.S. production, and it pays a 2.20% dividend. Ovintiv (NYSE: OVV) is an oil and natural gas exploration and production company that is focused on developing its multi-basin portfolio of assets located in the United States and Canada.
Its operations include the marketing of oil, natural gas liquids (NGLs), and natural gas.
The company’s segments include:
- USA Operations, include the exploration for, development of, and production and marketing of oil, NGLs, natural gas, and other related activities within the United States.
- Canadian Operations include the exploration for, development of, and production and marketing of oil, NGLs, natural gas, and other related activities within Canada.
Its assets include the Anadarko Basin, the Montney, and the Permian Basin. Anadarko is a liquids-rich play located in west-central Oklahoma. Montney is a condensate and natural gas play located in northwest Alberta and northeast British Columbia.
Goldman Sachs has a $66 target price, representing a 13% gain from current levels.
Permian Resources
Permian Resources (NYSE: PR) is an independent oil and natural gas company focused on driving sustainable returns. Trading at a reasonable 8.5 times earnings and offering a 3.15% dividend, this is an outstanding total return idea. Permian Resources focuses on acquiring, optimizing, and developing oil and natural gas properties. Its assets and operations are concentrated in the core of the Delaware Basin.
Its position comprises over 479,500 net leasehold acres and approximately 94,900 net royalty acres across the Permian Basin. Most of its assets are concentrated in the Delaware Basin, in Eddy and Lea Counties, New Mexico, and Reeves and Ward Counties, Texas.
The Goldman Sachs price target objective is $22. That would be a 14% gain for investors.
Viper Energy
Viper Energy (NASDAQ: VNOM) owns and acquires mineral and royalty interests in oil and natural gas properties in the Permian Basin. With a massive 4.998% dividend yield, this mid-cap energy play has significant upside to the Goldman Sachs target price. Viper Energy is an independent oil and natural gas company focused on the acquisition, development, exploration, and exploitation of unconventional, onshore oil and natural gas reserves, primarily in the Permian Basin in West Texas.
The company primarily focuses on oil and natural gas properties in the Permian Basin, which covers approximately 75,000 square miles centered on Midland, Texas. The Viper Energy assets consist of mineral and royalty interests underlying 1,197,638 gross and 34,217 net royalty acres, primarily in the Permian Basin.
It is estimated that proved oil and natural gas reserves totaled 179,249 thousand barrels of crude oil equivalent (MBOE). The company’s proven undeveloped reserves include approximately 529 gross horizontal well locations. The company’s proved reserves include approximately 50% oil, 25% natural gas liquids, and 25% natural gas.
With a Goldman Sachs price target of $59, that is a stunning 35% gain from current levels.
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