The recent drop in oil prices has created a situation that is very complex for investors. Oil has become cheap again and the stocks tracking the oil and gas sector have tanked to the point that at least some investors think they might be attractive or would at least be considered value stocks.
Many investors have started asking analysts, their brokers and advisors, friends in the oil patch, and anyone else with an opinion, which energy stocks they should be buying.
24/7 Wall St. tracks many analyst calls each day of the week. Some analyst calls cover stocks to buy and some cover stocks to sell. We have found several key analyst calls related to the oil patch where analysts are starting to recommend energy stocks with Buy and Outperform ratings again.
There are of course some calls out there in the more speculative stocks we have seen, but the oil stocks featured here are generally larger in market capitalization and tend to be considered less risky versus peers that are second- or third-tier outfits.
Included with a ratings synopsis is color on trading history and what other analysts might have recently had to say about these companies as well. Many of these shares are now handily off their highs.
24/7 Wall St. does have at least one word of warning or caution for investors who are looking to catch the bottom in oil prices. These calls may be upgrades or very positive after shares have pulled back in the oil and gas sector, but there is still an overwhelming majority of analyst calls in the oil patch that are continuing to downgrade or lower earnings estimates and price targets versus those saying to buy the stocks.
Here are five energy stocks in the oil patch in which analysts have made fresh calls with big upside targets.
Kinder Morgan Inc. (NYSE: KMI) was started as Overweight with a $50 price target, versus a prior $42.01 closing price, at Barclays on Friday. The stock closed down marginally at $41.87 on Friday, and the Barclays target implies over 23% upside if you include the 4.3% dividend yield.
Now that the Kinder Morgan outfit has closed its master limited partnership (MLP) mergers and is simplified under a corporation structure, the dividend outlook is one that can likely keep rising, if oil prices recover back to above $60. The stock also has held up much better than peers, as the $41.87 price compares to a 52-week range of $30.81 to $43.18. Kinder Morgan’s consensus price target is closer to $47.
While this is no longer an MLP by definition, most of the closed-end mutual funds targeting the MLP sector have decided to hold the Kinder Morgan common shares rather than to sell them. Being on the infrastructure and transportation side of the business, with a toll road model, is supposed to come with some protection against the whims of pricing in the oil and gas markets.
Pioneer Natural Resources
Pioneer Natural Resources Co. (NYSE: PXD) was recently featured in a Jefferies report among five exploration and production companies that will survive lower oil prices. Jefferies had a $193 price target, implying upside of 21% from the $158.76 closing price on Friday.
This shale growth story has seen its shares lose one-third of the value from 2014 highs, but it owns over 20,000 locations in the world’s second largest oil reservoir in the Midland Basin and it owns its own fracking fleets that will allow Pioneer to be a low-cost and high-margin producer. 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’s consensus price target is closer to $170.