The new American energy boom is underway as U.S. oil and gas production has taken off. The equity and quant analysts at Merrill Lynch see a particular advantage for firms most geared to an uplift in domestic production. In a new report, they focus on stocks from various sectors to buy that they see benefiting directly from the coming new energy independence. Over the past six years, U.S. domestic energy production has more than tripled.
While the United States is likely to remain a net importer of oil for the next decade, increasing production from nonconventional energy reserves is rapidly reducing our reliance on expensive foreign crude oil. The result is a lower aggregate energy bill and greater security of energy supply. U.S. businesses stand to benefit from the competitive advantage in energy, both directly via the energy sector and indirectly from lower energy costs for business and consumers.
The key direct beneficiaries of lower energy costs are U.S. domestic oil production, refining, oil services and petrochemicals firms. Away from direct beneficiaries in the domestic oil production and services sectors, they see significant cost advantages accruing to both consumers and businesses.
Valero Energy Corp. (NYSE: VLO) is the top pick in the refining area. Valero operates 16 refineries around the world and has multiple brands including Beacon, Diamond Shamrock, Texaco and Ultramar. The Merrill Lynch price target for this top name is $54. The Thomson/First Call estimate is much lower at $45. Investors are paid a 2.0% dividend.
LyondellBasell Industries N.V. (NYSE: LYB) is the top chemical name to buy. During the first quarter of 2013, the company posted a profit of $901 million, or $1.55 a share, against a profit of $600 million, or $1.04 a share, in the corresponding quarter of the prior year, beating analyst estimates. The Merrill Lynch price target is $75, but the consensus is at $72. Investors are paid a 3% dividend.
Halliburton Co. (NYSE: HAL) is the top pick in oil field services. The company provides a range of services and products for the exploration, development and production of oil and natural gas. Merrill Lynch has $55 price objective. The consensus target is $51. Investors are paid a small 1.2% dividend.
Hess Corp. (NYSE: HES) is a top domestic oil production stock to buy. Hess has been on an asset sale campaign, which amounted to $3.4 billion in 2012, including its interest in the Bittern, Beryl and Schiehallion fields in the United Kingdom. This capital is expected to fund Hess’s exploration and production opportunities. The Merrill Lynch price target is $90, but the consensus is $80. Investors are paid a tiny 0.6% dividend.
Union Pacific Corp. (NYSE: UNP) is a top transport to buy. The railroad offers freight transportation services for agricultural products, including grains and commodities, food, and beverage products, as well as automotive products, such as imported and exported shipments, finished vehicles and automotive parts and materials. Merrill Lynch has a $158 target. The consensus estimate is at $159. Investors are paid a 1.8% dividend.
Bemis Company Inc. (NYSE: BMS) is a top company in the packaging industry to buy. The company manufactures and sells flexible packaging products and pressure sensitive materials in North America, Latin America, Europe and the Asia Pacific. Merrill Lynch has a $42 price target, while the consensus for the stock is at $39. Investors receive a 2.60% dividend.
Trina Solar Ltd. (NYSE: TSL) is an alternative energy company expected to benefit from domestic energy independence. Trina Solar is China’s third-largest solar panel manufacturer. Merrill Lynch has a $10 price target, but the consensus is much lower at $5.
Wal-Mart Stores Inc. (NYSE: WMT) is the top retailing stock to buy in the list. The iconic big-box store has grown its revenue by about 3.5% a year over the past five years. Merrill Lynch has a $90 price objective. The consensus target is $81.50. Shareholders receive a 2.4% dividend.
Jack in the Box Inc. (NASDAQ: JACK) is the restaurant stock to buy on the Merrill Lynch list. The company operates and franchises Jack in the Box quick-service restaurants and Qdoba Mexican Grill fast-casual restaurants in the United States. While this one may seem out of place, the call from Merrill Lynch has a $44 price target for the stock, versus a consensus target price of $42.
The United States always has had huge reserves of oil, gas and thermal coal, but it is the advances in extraction technology for nonconventional energy sources that is now putting the country on a course towards energy self-sustainability. Lower prices, job growth and tax revenue will all be realized as this story plays out even more. Investors looking for solid growth opportunities may do very well betting on growth right here at home.