After oil collapsed in early 2016, the bears continued to circle like vultures and maintained that $20 a barrel or even lower was possible. Of course after the February lows were put in, crude rallied and now is up 100% from the $26 bottom. The question for investors is what to do going forward? The OPEC cuts announced in November became effective January 1, and while oil has traded up, another 100% gain in 2017 is unlikely.
One thing is for sure, there are solid opportunities for investors to consider for 2017. In a new Merrill Lynch research report, Doug Leggate and his outstanding team make the case that stock selection this year is vital, and they note that their top ideas have catalysts, rate of change and binary value.
Here are the five top large cap picks at Merrill Lynch right now.
This top company is still down a stunning 38% since the highs printed in 2014. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate and natural gas liquids (NGLs).
The Midstream segment provides gathering, processing, treating and transportation services to Anadarko and third-party oil, natural gas and NGLs producers, as well as owns and operates gathering, processing, treating and transportation systems in the United States. The Marketing segment markets oil, natural gas and NGLs in the United States; oil and NGLs internationally; and anticipated liquefied natural gas production from Mozambique.
The company’s asset portfolio includes U.S. onshore resource plays in the Rocky Mountains, the southern United States, the Appalachian basin and Alaska; the deepwater Gulf of Mexico; and in Mozambique, Algeria, Ghana, Brazil, Colombia, Côte d’Ivoire, Kenya, Liberia, New Zealand and other countries. As of December 31, 2015, it had approximately 2.1 billion barrels of oil equivalent of proved reserves.
Anadarko investors receive just a 0.3% dividend. The Merrill Lynch price target is a whopping $110. The Wall Street consensus price objective is $77.01, and shares closed yesterday at $70.81.
This company may offer investors solid upside potential despite the big dividend cut last year. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and 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.
Merrill Lynch noted in a recent report:
Conoco has redefined its investment case with the highest free cash leverage to a recovery in oil prices among the big oils. Management has addressed key questions around portfolio resilience: maintenance capex drops to $4.5bn. Share buy backs prioritized over growth – 10% prospective free cash yield at $65 oil.
Investors receive a 1.96% dividend. Merrill Lynch has a $70 price target on the stock, while the consensus target is much lower at $55.68. Shares closed most recently at $51.08.