This time last year investors were pretty down on the prospects for oil, and with good reason. By February oil bottomed at $26 and things were pretty bleak for the future. What a difference a year makes, with OPEC and other nations committing to a production cut that goes into effect January 1, the price of oil has doubled from the 2016 lows and it’s a whole new ballgame for investors.
While it’s unlikely oil will double again, having underperformed the market four out of the past five years, there’s reason to believe that 2017 could be solid, especially since the sector tends to be a good late cycle/reflationary performer. We screened the Merrill Lynch energy sector research universe for stocks rated Buy that also paid dividends. We found four that look good for 2017.
This company may offer investors solid upside potential despite the big dividend cut earlier this year. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) 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 the company can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, and with visibility on future growth from a sizable position in the Permian. The company remains one of the best values as short sellers circled after the dividend cuts and many still remain short the stock.
The Merrill Lynch team noted in a recent report:
Conoco has redefined its investment case with the highest free cash leverage to a recovery in oil prices amongst the big oils. Management has addressed key questions around portfolio resilience: maintenance capex drops to $4.5 billion. Share buy backs prioritized over growth – 10% prospective free cash yield at $65 oil.
Conoco investors are paid a 1.95 % dividend. The Merrill Lynch price target on the stock is $70. The Wall Street consensus price target is much lower at $55.50. The shares closed last Friday at $51.37.
This company is expected to have a substantial portion of its total 2016 production in natural gas, and it also resides on the US 1 list. Devon Energy Corp. (NYSE: DVN) an independent energy company, 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. It also offers midstream energy services, including gathering, transmission, processing, fractionation and marketing to producers of natural gas, NGLs, crude oil and condensates through its natural gas pipelines, plants and treatment facilities.
Devon Energy’s third-quarter results set the tone for a very solid November after the company reported core earnings that were nearly double what Wall Street analysts were expecting. Fueling that result was the company’s continued ability to push down operating costs, which are now 37% below peak rates.
Shareholders are paid a small 0.5% dividend. The Merrill Lynch price target is at $61, and the consensus is posted at $50.69. The shares closed Friday at $47.02.