Most investors are well aware that while oil has declined almost 60% to the recent lows, demand for oil and the products that are derived from oil, have not declined 60%. Many analysts on Wall Street have estimated that at least 35% of the price decline in oil can be attributed to speculators shorting oil futures on weakness. In a new research report from Jefferies, while the analysts are careful to note that oil pricing could take up to 18 months to rebound, they feel comfortable enough to initiate some top exploration and production stocks to a rating of Buy.
We screened the Jefferies stock picks for the five higher profile companies that are well positioned for the biggest possible gains after a stout sell-off that has lasted well over eight months.
Concho Resources Inc. (NYSE: CXO) is a top energy play in the Permian Basin in West Texas. This independent oil and natural gas company is engaged in the acquisition, development and exploration of oil and natural gas properties, and it also may be a possible takeover candidate. Concho recently completed a successful secondary stock offering that raised close to $1 billion, if the over-allotment shares were sold. It plans to use the net proceeds from this offering to repay the debts under the company’s credit facility, as well as for corporate purposes that include financing its three-year accelerated growth plan, capital expenditure tied to the recently announced midstream joint venture and potential future asset buys.
The Jefferies price target for the stock is $133. The Thomson/First Call consensus price target is $119.14. Shares closed Friday at $114.48.
Devon Energy Corp. (NYSE: DVN) is expected to have 48% or more of its total 2015 production in natural gas. The company is an independent driller primarily active in the United States. More than 70% of Devon’s U.S. reserves are in natural gas, with most of that lying in Texas’ Barnett Shale. The company plans to invest a total of more than $1.1 billion in the Eagle Ford shale and drill more than 200 wells. Daily production is just under 2 billion cubic feet. This is a pure-play natural gas stock that investors can feel very comfortable holding for a long time.
Devon investors are paid a 1.5% dividend. The Jefferies price target is $74. The consensus target is much lower at $69.35. Devon closed Friday at $65.27.
Gulfport Energy Corp.‘s (NASDAQ: GPOR) principal properties are located along the Louisiana Gulf Coast, in the Utica Shale of eastern Ohio, in the Niobrara formation of northwestern Colorado, and in the Bakken formation of western North Dakota and eastern Montana. Deutsche Bank sees Gulfport as one of the best pure plays on the Utica Shale, and it also forecasts further delineation, downspacing pilots and infrastructure additions leading to higher market implied Utica values, a huge positive for the company.
Jefferies has a $50 price target, and the consensus target is $53.96. Shares closed Trading on Friday at $41.94.
Pioneer Natural Resources Co. (NYSE: PXD) was the ultimate shale oil growth story for the past five years, though it has been eviscerated in the sell-off. 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. The company owns its own frac fleets, allowing it to be a low-cost, high-margin producer, which could prove to be huge with prices lower for a protracted period. Pioneer was also named by the Commerce Department to produce and export condensate. With a big secondary last November and more asset sales on tap, the company could have balance sheet debt close to zero this year.
Pioneer investors are paid a tiny 0.05% dividend. The Jefferies price target is $193, and the consensus is set at $173.12. Pioneer closed trading on Friday at $156.65.
Range Resources Corp. (NYSE: RRC) is another top stock to buy for possible gains in natural gas, especially with the possibility of a continued wretched winter in the Northeast and other parts of the country. The company holds interests in developed and undeveloped natural gas and oil leases in the Appalachian and Southwestern regions of the United States. Range Resources owns 4,637 net producing wells and has approximately 1.6 million gross acres under lease in the Appalachian region. It also owns 1,536 net producing wells, as well as approximately 811,000 gross acres under lease in Southwestern region.
Range Resources investors are paid a small 0.3% dividend. The Jefferies price target is $59, and the consensus figure is at $69.97. Shares closed trading Friday at $51.66, after having been walloped to the tune of almost 50% over the past year.
Some of the Jefferies picks lean toward the natural gas side, so investors have the ability to choose which part of the energy table they like the best. After one of the biggest sell-offs in energy stock history, there are solid bargains to be found for more aggressive growth accounts.