One of the hardest things to do as an investor is to put money into a sector you know is oversold and has value but worries you when it comes to the actual timing. That is exactly the conundrum facing those looking at energy and wondering when they should put a toe in the water. After a nearly 100% move off the 2016 lows, oil has given back almost half of the move, which is typically a level many professional investors will look at for an entry point.
We decided to screen the RBC Global Energy Best Ideas list for the companies they feel are the best positioned going forward worldwide. Since its inception in February 2013, the RBC Global Energy Best Ideas list is up 16.8%, compared to the S&P Global Energy Sector’s decrease of 12.9%.
Of the 16 companies that made the list, we found five trading in U.S. dollars that look like outstanding picks for the rest of 2017 and beyond. All are rated Outperform at RBC.
This is a recent addition to the RBC list. Devon Energy Corp. (NYSE: DVN) is an independent energy company that primarily engages in the exploration, development and production of oil, natural gas and natural gas liquids (NGLs) in the United States and Canada. It operates approximately 19,000 wells. The company also offers midstream energy services, including gathering, transmission, processing, fractionation and marketing to producers of natural gas, NGLs, crude oil and condensate through its natural gas pipelines, plants and treatment facilities.
The analysts noted this upon the company’s addition to the portfolio:
Devon trades at a 10% discount on EV/EBITDA to large cap peers despite similar Oil growth rates in 2018. Activity in the Delaware, STACK, and Eagleford should help the company return to growth in the second half of 2017 and we think there could be upside to 2017 production expectations. We expect 8% production growth in 2018 led by high margin US oil production up 15-20%. DVN plans to divest assets worth $1 billion that are non-core, including portions of the Barnett Shale, with an anticipated sale occurring in the next 12–18 months. Proceeds will further enhance the balance sheet but also provide capital to continue to accelerate growth in 2018+, in our view.
Devon investors receive a 0.8% dividend. The RBC price target for the stock is $53. The Wall Street consensus price target is $49.21, and shares closed Wednesday at $30.55.
Energy Transfer Partners
This company merged with Sunoco Logistics Partners last year. Energy Transfer Partners L.P. (NYSE: ETP) engages in the natural gas midstream and intrastate transportation and storage businesses in the United States.
The company’s Intrastate Transportation and Storage segment transports natural gas from various natural gas producing areas, and through ET fuel system and HPL system. It owns and operates 7,500 miles of natural gas transportation pipelines and three natural gas storage facilities in Texas. Its Interstate Transportation and Storage segment provides natural gas transportation and storage services; owns and operates approximately 12,300 miles of interstate natural gas pipeline; and has interests in various natural gas pipelines.
The Midstream segment gathers, compresses, treats, blends, processes and markets natural gas. It owns and operates 35,000 miles of in service natural gas, 31 natural gas processing plants, 21 natural gas treating facilities and four natural gas conditioning facilities.
Energy Transfer unitholders receive a 10.7% distribution. The $30 RBC price target compares with the consensus estimate of $30.86. Shares closed Wednesday at $20.02.