Energy Business

Analyst's 5 Large-Cap Dividend Energy Stocks to Buy With Oil Plunging

With oil down over 50% from the highs posted last summer, and firms around Wall Street cutting estimates for the next three years, energy investors are decidedly at a loss for what to buy now. While the selling seems clearly overdone, and the top stocks look cheap on a historical basis, caution is still advised. A new report from Jefferies has just five stocks to buy trading in U.S. dollars.

The Jefferies analysts point out that spot prices have dropped to a level that fails to cover cash operating expenses at heavy oil and oil sands projects and fields with very high water cuts. They also note that although capital spending cuts will lead to an output decline, it could take months to show up. Here are the five large-cap oil stocks with Buy ratings currently at Jefferies.

BP PLC (NYSE: BP) has had a tumultuous run in the almost five years since the Deepwater Horizon Macondo offshore rig blew up in 2010, killing 11 people and creating a huge oil spill into the Gulf of Mexico. The analysts at Jefferies feel that while some material risks around Macondo and the uncertainty in Russia remain, they believe there is the potential for an ongoing recovery in the underlying earnings potential of the worldwide energy powerhouse. With the BP settlement figure lower than some expected, that headline risk may fade as well. Trading at 10.7 times forward earnings estimates, the stock does have value for patient investors.

BP investors are paid a gigantic 6.7% dividend. The Jefferies price target for the stock is $42. The Thomson/First Call consensus price target is higher at $48.03. Shares close trading on Thursday at $35.73.

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Chevron Corp. (NYSE: CVX) is a perfect story for investors looking to stay long the energy sector, which needless to say is probably the most out-of-favor sector on Wall Street. With a large dividend, and a solid place in the sector when it comes to natural gas, long-term investors willing to look past the current debacle in oil pricing may be able to make a once-in-a-lifetime buy on this industry behemoth. The Jefferies team estimates the company will have a compound annual growth rate of over 5% for the next five years. They also point out the stock trades at a sizable valuation discount to its mega-cap peers

Chevron investors are paid a very solid 4.17% dividend. Jefferies has a $125 price target, which was dropped from $129. The consensus target is $121.83. Shares closed on Thursday at $102.67.

Marathon Oil Corp. (NYSE: MRO) is a leading integrated oil and gas firm with extensive upstream operations. Marathon’s business is organized into three segments: North America Exploration and Production, International Exploration and Production, and Oil Sands Mining. The company has already projected that 2015 capital expenditures will be about 20% below 2014 spending. The Jefferies analysts think the number could be even greater and do not expect any share repurchasing this year.

Marathon investors are paid a 3.3% dividend. The Jefferies target for the stock, which some on Wall Street have called a potential takeover target, is $33. The consensus target is higher at $35.90. The stock closed at $25.47 a share.

ALSO READ: The Bullish and Bearish Outlook for Chevron in 2015

Occidental Petroleum Corp. (NYSE: OXY) announced last year it will continue to grow dividends and expects to begin buying back more shares this year and beyond, a double plus for shareholders. The company finally rewarded activist investors in 2014 when it spun off its California assets to shareholders into a separate company called California Resources Corporation. The Jefferies analysts see the company reducing cash expenditures over the next two years to $6.8 billion, which is 33% below 2014 levels. The also expect the company to use $5 billion in 2015 for share repurchases, a very shareholder friendly move.

Occidental shareholders are paid a solid 3.8% dividend The Jefferies price target for this very defensive top energy play is $95. The consensus price target is $90.66. The stock closed Thursday at $75.99.

Royal Dutch Shell PLC (NYSE: RDS-A) is viewed by the Jefferies team as perhaps the most defensive name globally in the integrated oil sector, with financial flexibility and a very strong balance sheet. Shell operates as an independent oil and gas company worldwide. The company explores for and extracts crude oil, natural gas and natural gas liquids. It also converts natural gas to liquids to provide fuels and other products.

Investors are paid a very solid 4.7% dividend. The Jefferies price target is $78.40, and the consensus target for the European oil giant was not posted. The stock closed Thursday at $62.51.

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The theme is clear. Buy the big-boys that pay the big dividends. The Jefferies analyst believe that investors with a longer time frame of 12 to 18 months may see a turnaround in the sector. In the meantime, these big dividend payers make sitting in the stocks worth the wait.

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