Now that the OPEC ministers have decided not to cut output, and there is going to be somewhat of a war of wills on who will blink first, one thing is for sure, the top stocks in the oil industry continue to be very much at risk. A new report from Deutsche Bank basically takes the top oil stocks to buy and marks them to the market to account for lower oil prices next year. With the outlook for the oil probably darker than any time in the past five years, Deutsche Bank stays with the top large-cap leaders.
While the near-term outlook is murky, the Deutsche Bank team keeps the firm’s long-term positive outlook in place. They continue to prefer companies with improving capital allocation trends, high-quality assets, strong balance sheets and the ability to accretively grow through what could remain an uncertain oil price backdrop.
Here are the four stocks to buy at Deutsche Bank, three with the new price targets.
Chevron Corp. (NYSE: CVX) is a perfect story for investors looking to stay long the energy sector. The Deutsche Bank team loves the large dividend, reasonable valuation and industry leading unit profitability. The analysts point out the third-quarter numbers were extremely solid, and the company is holding profitability well despite the falling oil prices. They also point to the major capital projects that remain on track, while the Permian growth story is continuing to be very impressive.
Chevron investors are paid an outstanding 3.93% dividend. Deutsche Bank lowers the price target from $140 to $132. The Thomson/First Call consensus target is right in line at $132.40. The stock closed on Friday at $108.87, down 5.4%.
ConocoPhillips (NYSE: COP) is a large integrated name that draws a solid look at Deutsche Bank. The company has spent the past five years divesting assets, and although it is cash rich, it has somewhat dampened earnings and growth expectations all year long. At this juncture, with oil in a free-fall, analysts may feel more comfortable with the stock for just that reason. The big production ability in the Eagle Ford could bode well for the future.
Conoco investors are paid a very strong 4.42% dividend. Deutsche Bank lowered the price target from $88 to $82, while the consensus target is posted at $87.46. Conoco was crushed Friday, down 6.7% to $66.07.
Hess Corp. (NYSE: HES) has been has been the subject of takeover speculation in the past, and some of that chatter has reemerged recently. With a market capitalization falling to $22 billion, Hess could fall prey to larger integrated as a quick bolt-on acquisition to boost growth. At its recent analysts day, executives said Hess is increasing its Bakken shale net peak production guidance to approximately 175,000 barrels of oil equivalent (BBOE) per day by 2020, adding an additional 1,000 well locations to a total of more than 4,000 and increasing its net estimated ultimate recovery to more than 1.4 BBOE. Strong numbers for a suitor looking to expand.
Hess shareholders are paid a 1.37% dividend. Deutsche Bank keeps the price target at $105, and the consensus target is $100.17. Shares closed down a huge 7.9% on Friday at $72.93.
Marathon Oil Corp. (NYSE: MRO) is a top pick at Deutsche Bank. The company informed investors in the spring that it planned to divest assets in Angola and the North Sea and use the proceeds to accelerate the development of onshore liquids-rich resources in the United States. Marathon is a leading integrated oil and gas firm with extensive upstream operations. Its business is organized into three segments: North America Exploration and Production, International Exploration and Production, and Oil Sands Mining. By trimming assets earlier in the year, and the stock being mauled recently, Marathon would catch the eye of a bigger company looking to expand.
Marathon investors are paid a 2.9% dividend. The Deutsche Bank price objective dropped to $41 from $46, and the consensus target is $42.40. Marathon closed Friday at $28.92, down a gigantic 11%.
There is proverbial blood in the streets, and sooner or later production will get cut to boost pricing. That, added to the demand scenarios for the next five years, and investors may be getting a once in a decade chance to buy some of the sector’s best stocks cheap.