With an enormous amount of institutional movement leading the charge, the energy sector has been absolutely hammered. In fact, the Energy Select SPDR Fund (NYSE: XLE) is down just under 12% since the beginning of the year. This despite numerous positives in the sector, not the least of which has been the OPEC and non-OPEC production cuts, led by Saudi Arabia.
In a recent report, Jefferies asks whether investors running for their lives from the sector could possibly be a sign that things are getting ready to change. This important detail was noted in the report:
Fundamentally, the analyst view is that inventory draws work with a lag (takes ships time to reach OECD countries) and that risk reward into the May OPEC meeting is positive, especially since the OPEC goal of drawing down inventories won’t be reached before the agreement expires on June 30.
That could very well lead to an extension of the production cuts. And that, combined with the contrarian short positions, the busy summer driving season and big demand around the world, could turn things around fast. We screened the Jefferies energy research universe for companies in exploration and production and in oil field services rated Buy. These five look great to buy on the dip.
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.
Chevron missed estimates badly, and combined with the dip in crude price, has sold off, giving investors a great entry point. Many analysts feel the company is the best positioned integrated.
Chevron shareholders are paid an outstanding 4.0% dividend. The Jefferies price target is a massive $147, and the Wall Street consensus price objective is $128.14. The shares closed Friday at $107.99.
This company is still down almost 25% from highs printed in the summer of 2014. Halliburton Co. (NYSE: HAL) is one of the world’s largest providers of products and services to the energy industry. It serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.
Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. For investors looking for an oilfield services company to add, this is arguably the best, and analysts feel it will be a huge benefactor as the frac market has tightened significantly and prices are 20% to 30% off the lows.
Halliburton shareholders are paid a 1.46% dividend. Jefferies has a $70 price target. The consensus target is $64.26, and shares closed Friday at $49.41.