Since the bull market is now six years old, 24/7 Wall St. is looking for what may be some of the overlooked or oversold opportunities out there for investors with a long-term horizon, beyond the next few trading sessions. The oil and gas sector has been pounded, so we took a look at some of the key analyst calls made in that sector.
Some key Wall Street analysts have recently issued fresh Buy ratings in the oil and gas sector, despite the recent woes tied to lower energy prices. So, did a market sell-off of 300 points just bring another opportunity?
If one broader market trend has turned out to be true over and over during this bull market, it is that investors buy their favorite stocks on every major pullback. 24/7 Wall St. reviews dozens of analyst upgrades and downgrades each morning of the week to find hidden value or overlooked ideas. Are there still opportunities and value in the battered energy corridor?
A few things worked against oil and gas companies late in the week. A strong payrolls report had investors spooked that rates will rise sooner than expected. Also, crude was down more than $1.00 and under the $50 per barrel magical marker line late on Friday. Oil was as high as over $52 at one point on Thursday. The market sell-off on Friday was also far from kind to the energy sector.
Also more than 16,000 job cuts in February have been tied to the energy sector alone. If you looked at the non-seasonally adjusted Bureau of Labor Statistics data from Friday, the number of employees tied to oil and gas extraction, under the mining category, fell from 199,200 in January to 197,100 in February — and that was versus 201,900 in December of 2014.
On average, most of the upside calls here were around 20% or so to the specific price targets. Here are six stocks that were featured with fresh Buy or Outperform ratings by Wall Street analysts in the past week.
Canaccord Genuity upgraded shares of Abraxas Petroleum Corp. (NASDAQ: AXAS) to Buy from Hold on Friday. The firm raised its price target to $3.75 from $3.25 in the call. If you consider the prior closing price of $3.11, this implied upside of just over 20%. The stock closed up 3% to $3.21 on Friday, but it was hard to not notice that the consensus price target was just above $4.00.
Canaccord Genuity’s report said that Abraxas has positions in two of the leading resource plays in the United States via the Williston Basin and the Eagle Ford. It also talked up its “under the radar assets with strong upside” in the Powder River and Permian Basins. The firm’s upgrade was based on a strong operational ability and an increase in net asset value with a solid balance sheet, which it can use to accretively add to its asset base.
Thursday, BP PLC (NYSE: BP) was reiterated as Outperform at Oppenheimer, but the firm’s price target was raised to $50 from $45. With shares down almost 2% at $40.40 late on Friday, this implies upside of close to 24% — before considering the more than 5% dividend yield. Oppenheimer signaled that BP cut its 2015 capital expenditures (capex) to $20 billion, or 20% below prior guidance and about 13% lower than the $22.9 billion from 2014.
Another BP observation was $1 billion in planned cost cuts, on top of the expected cost deflation from its suppliers and contractors. Now Oppenheimer sees operating cash flow of $22.5 billion in 2015 and $27.3 billion in 2016, but after funding the $20 billion in capex and $5.9 billion in dividends each year, it sees a free cash flow deficit of $3.6 billion this year, and it is expected to be $1.3 billion free cash flow positive in 2016, prior to any asset sales or stock buybacks. That values BP at 11 times expected 2016 earnings per share.
Halliburton Co. (NYSE: HAL) was part of a mid-week review by UBS. It was listed as one of four oil services stocks the firm had as a Buy. Its shares were down almost 45% since July, and Halliburton is closer to completing the merger with Baker Hughes than previously. Our paraphrasing of the UBS report said:
The oil field services giant announced last year a $1 billion investment to develop huge potential oil fields in Ecuador, and it has entered into a long-term deal with Petroamazonas, an Ecuador-based company involved in the exploration and development of the country’s oil reserves. With oil prices being absolutely demolished recently, this top oil service company is a great stock to buy on sale.
Halliburton’s UBS price target was $50 and the consensus target is almost $48. Shareholders are also paid a 1.7% yield. Halliburton shares were trading at $42.50 late on Friday, implying nearly 20% in total returns expected to the UBS target.