Merrill Lynch Makes Huge Energy Changes to Prestigious US 1 List

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With the first-quarter earnings ready to start rolling out fast and furious next week, many of the top companies we follow on Wall Street are making some changes to the lists of their high-conviction stock picks for clients. With the market continuing to trade near all-time highs, it makes sense to examine the lists and make some changes as the rest of the year could have additional volatility as the political and world landscape looks to remain unsettled.

In a recent research note, the analysts at Merrill Lynch make a big move by swapping out one top energy stock, Devon Energy Corp. (NYSE: DVN), and adding another, Hess Corp. (NYSE: HES), to the firm’s well-respected US 1 list of stocks to Buy, which is the firm’s highest conviction ideas.

Hess is a top mid/large cap pick that down a stunning 50% since highs printed in 2014. The exploration and production company develops, produces, purchases, transports and sells crude oil, natural gas liquids (NGLs) and natural gas. It primarily operates in the United States, Denmark, Equatorial Guinea, Norway, Malaysia and the Joint Development Area of Malaysia/Thailand.

Merrill Lynch cites the big short interest in the stock, which Wall Street Journal now pegs at 30.64 million shares or 10.9% of the float. The firm also points to the 60 million barrels of oil equivalent per day growth in the second half of 2017, which should drive free cash flow from 2018.

Though Devon was removed from the US 1 list, it remains Buy rated at Merrill Lynch. This 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, and it 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.

Hess shareholders are paid a solid 1.97% dividend. The Merrill Lynch price target for the stock is $80, and the Wall Street consensus target is $64.09. Its shares closed Tuesday at $50.76.

Devon investors receive a 0.57% dividend. Merrill Lynch has a $61 price target. The posted consensus target is much lower at $53.74. The stock closed Tuesday at $42.28 per share.

In addition, the following are the three highest yielding stocks in the US 1 portfolio.