After a nasty pullback in the energy sector, prices on West Texas Intermediate have dropped to the lowest levels since last August. Prices finally rallied last Friday with WTI closing at $46.22, up $1.54. Plus more good news hit the tape over the weekend when the Saudi’s announced that not only did they cut production in April, they cut exports as well. While the bears are warning prices could go lower, the busy summer driving season is right around the corner, and demand should increase.
In a new research report from the energy team at SunTrust Robinson Humphrey, they make the case that assuming the price of WTI rebounds back into the $50’s, they would be buyers of solid leverage/liquidity stock that are able to increase production and have the most exposure to rising oil and gas prices.
Here are the 5 Buy rated stocks the analysts like right now.
This company has a very large exposure to crude oil. Continental Resources, Inc. (NYSE: CLR) is primarily a producer of onshore U.S. oil. Continental has positioned itself in two growing hydrocarbon discoveries: 1) the Bakken oil play in Montana and North Dakota; and 2) the Woodford shale in Oklahoma. These positions give the company good growth opportunities for the next few years.
The company reported solid numbers last month that were mostly in line with estimates. Management noted during the presentation that production is tracking at the top end or better than current projections, and while guidance was unchanged for this year, it looks as though 2018-2020 numbers could be moved higher.
The SunTrust analysts have a $60 price target for the shares, and the Wall Street consensus is posted at $59.26. The shares closed Friday at $41.34.
This company is one of the top energy plays in the Permian Basin in West Texas and is a Wall Street favorite. Concho Resources, Inc. (NYSE: CXO) is an independent oil and natural gas company engaged in the acquisition, development, and exploration of oil and natural gas properties. The company’s principal operating areas are located in the Permian Basin of southeast New Mexico and West Texas where it owns 600,000 net acres. The company has 624 MBoe of proven reserves, of which 57% is classified proved developed and 59% is oil.
The company was targeting to deliver 20% oil production growth this year while investing within its cash flow, a move that many on Wall Street see as very positive. By carefully managing growth and spending the company looks to be in a position to restart double-digit production growth next year, while many peers are struggling to generate enough excess cash flow to boost output.
Top Wall Street analysts feel that the company’s debt load is below average, as is the firm’s commodity price sensitivity, both which are big positives for investors.
The SunTrust price target for the stock is posted at $165, and the Wall Street consensus is lower at $164.82. The shares closed Friday at $129.57.
This stock remains another favorite of Wall Street analysts and is another top Permian Basin play. Diamondback Energy, Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.
Wall Street analysts have noted before the company’s top-tier asset base, solid accretive additions and financial discipline which they think allow for not only continued solid cash flow but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the U.S. as efficiencies improve, costs decrease, and activity remains in the better regions
Earnings estimates for the company continue to go higher, and many on Wall Street feel the company can deliver total 2017 numbers that come in above current analysts estimates.
The SunTrust price target on the stock is $130. The consensus is at $130.36. The shares closed Friday at $99.65 up 4.66%.
This is a smaller independent that could be an outstanding play for more aggressive accounts. Oasis Petroleum (NYSE: OAS) is an independent exploration and production company that focuses on the acquisition and development of unconventional oil and natural gas resources in the North Dakota and Montana regions of the Williston Basin. Its principal projects are located in West Williston and East Nesson. As of December 31, 2015, the company had 484,745 net leasehold acres in the Williston Basin; and approximately 218.2 million barrels of oil equivalent of estimated net proved reserves. The company sells its oil and natural gas to refiners, marketers, and other purchasers that have access to pipeline and rail facilities.
The company is scheduled to report their first quarter results today, so investors may want to buy a small position in advance and see how things play out. The SunTrust team noted this in their report:
We view Oasis’ production growth profile as above average as the company ramps in core areas. As such, we believe the company deserves a premium multiple versus peers trading at ~5.8x 2018 estimated EBITDA.
The SunTrust price objective is $17, and the consensus is posted at $17.73. The shares closed last Friday at $11.93 up over 7%.
This is another smaller capitalization company with solid upside potential. WPX Energy (NYSE: WPX) is an independent oil and natural gas exploration and production company that engages in the exploitation and development of unconventional properties in the United States. Its principal areas of operation include the Permian Basin in Texas and New Mexico, the Williston Basin in North Dakota, and the San Juan Basin in New Mexico and Colorado.
WPX is a premier Permian-levered operator with sector leading debt-adjusted cash flow growth (on par with Parsley Energy) supported by strong execution in the core Delaware, all while trading at a Williston Basin valuations primarily due to its relatively high financial leverage.
The SunTrust price objective is $21, while the consensus is posted at $18.48. The shares closed the day on Friday at $11.71. Up over 6%
All of these companies are trading well below their 52-week highs, and with all of the potential catalysts in front of them, they make solid buys now. Despite the solid rally for shares last Friday, there appears to be a ton of upside potential if oil can climb back over $50 and stay there.