Needless to say, one group that has underperformed as the stock market racks up new highs is the energy sector. For investors looking to stay long the stock market, one of the best places to look may be this sector. A new report from the analysts at J.P. Morgan says that exploration and production stocks, which have been absolutely hammered, may have bottomed, even if the price of oil hasn’t yet.
The J.P. Morgan analysts say that at this juncture, investors looking to buy energy stocks should buy the exploration and production ones with operational momentum and strong balance sheets, two traits the firm views as often related. While the analysts like eight top stocks to buy, we have focused on the large and mid-cap stock picks.
Anadarko Petroleum Corp. (NYSE: APC) is not only a top stock to buy at J.P. Morgan, but some think the company is a very possibly an acquisition target. Anadarko is one of the biggest independent oil and gas producers in the country, with exploration or production work in all major domestic drilling areas, as well as in South America, Africa, Asia and New Zealand. While the company is a leading player in areas known as “tight plays,” which some think would precipitate reduced drilling activity in U.S. tight oil plays as companies seek high-grade drilling inventories and manage their balance sheets, the future is still very bright.
Anadarko investors are paid a 1.1% dividend. The J.P. Morgan price target for the stock is $110. The Thomson/First Call consensus target is higher at $119.04. Shares closed Monday at $92.34.
EOG Resources Inc. (NYSE: EOG) is another top stock that looks like a potential takeover candidate. It is the top producer in the Eagle Ford Shale and it has solid positions in both the Bakken and Permian Basin, making it a perfect fit for an integrated looking to expand in those areas. The company recently reported that the cost of completing a well in the Leonard shale of the Permian’s Delaware Basin fell to $5 million this year, compared with $6.9 million in 2011. The huge drop in costs helps to mitigate the sharp drop in crude.
EOG investors are paid a tiny 0.7% dividend. J.P. Morgan has a $99 price target. The consensus target is much higher at $114.44. EOG closed Monday at $98.50.
Noble Energy Inc. (NYSE: NBL) should have almost 54% of its total 2014 production in the form of natural gas, and that certainly helps to hedge against falling oil prices, especially if we have another brutal winter. Noble is also one of the many American firms expected to benefit when Mexico opens the door for exploration and production from outside companies for the first time in 70 years.
Noble investors are paid a small 1.3% dividend. The J.P. Morgan price target is $76, and the consensus figure is at $78.30. Nobel closed trading Monday at $56.23.
Pioneer Natural Resources Co. (NYSE: PXD) had a large secondary offering last week, and the stock is still trying to rebound from it. Pioneer is a huge player in the Permian Basin and the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second largest oil reservoir in the Midland Basin. In addition, the company owns its own frac fleets, allowing Pioneer to be a low-cost, high-margin producer, which could prove to be huge with oil prices at $80 for a protracted time. Pioneer was also one of the firms named by the U.S. Commerce Department to produce and export condensate.
The J.P. Morgan price target is $201, and the consensus is set at $228.80. Pioneer closed trading on Monday at $171.86.
Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States. The company is focused on increasing shareholder value through strategies linked to generating attractive economic returns on capital employed and profitable growth in per-share reserves, production and cash flow. It intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions. Cimarex has a diversified base of high-quality production and attractive drilling opportunities, and it should be closing on a huge oil and gas asset sale by the end of this month.
Cimarex investors are paid a small 0.6% dividend. The J.P. Morgan price objective is set at $156, and the consensus price target is $158.93. Shares closed Monday at $115.88.
All the J.P. Morgan price targets are below consensus, which shows that the firm is cautious. That said, all five stocks have very good prospects, and if the price of oil holds steady or moves higher they should show solid results going forward.