Can anything look bleaker for the oil sector, despite Wednesday’s big FOMC-inspired rally? Oil supplies are at generational highs, the price of oil is at eight-year lows and threatening to go lower, natural gas prices are weak and oil and gas companies are cutting capital spending and jobs where they can. In short, everything looks totally negative in the oil and gas sector. That does not mean that all oil stocks will continue linger just on bad news. According to Stifel, now is the time for investors to strongly consider buying some quality energy stocks. Stifel has also said that the potential reward for those willing to make the tough call to buy stock now is significant.
A Stifel research note points out some solid reasons for taking the oil plunge now, even if it is just partial positions. They think investors need to look past current weak fundamentals and for an oil price rebound combined with lower industry costs. They also cite the recent narrowing of Saudi crude price discounts to Asian buyers, slowing U.S. crude production growth and declining consensus production estimates.
We scanned the Stifel list of stocks to buy with strong assets and/or balance sheets that will help them survive protracted lower prices and found five that look very attractive: Anadarko Petroleum Corp. (NYSE: APC), Concho Resources Inc. (NYSE: CXO), EOG Resources Inc. (NYSE: EOG), Noble Energy Inc. (NYSE: NBL) and Whiting Petroleum Corp. (NYSE: WLL).
Anadarko Petroleum is one of the biggest independent oil and gas producers in the country, with exploration or production work in all major domestic drilling areas, as well as in South America, Africa, Asia and New Zealand. The company has also consistently ranked high with many firms that we cover on Wall Street. Anadarko announced last year discoveries off the western and eastern coasts of Africa, including natural gas discoveries in Mozambique and oil discoveries in Ghana. The company is also among the 14 firms teaming up to lobby an end to the ban on U.S. energy exports.
The company recently announced a partnership with industry peers to build the Saddlehorn Pipeline in Colorado. Many have long thought Anadarko to be an attractive takeover target.
Anadarko investors are paid a 1.31% dividend. Stifel has a $105 price target for the stock. The Thomson/First Call consensus price target is at $96.48. Shares closed Wednesday at $82.59.
Concho Resources is one of the top energy plays in the Permian Basin in West Texas. The company is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. It also may be a possible takeover candidate. Concho completed a successful secondary stock offering earlier this month, which raised close to $650 million. Proceeds from the offering are expected to be used to repay all outstanding borrowings under the company’s credit facility and for general corporate purposes, which may include funding the company’s drilling and development program and future acquisitions.
Concho posted strong fourth-quarter results that beat estimates, and it remains one of the best run independent exploration and production companies for investors to consider.
The Stifel price target is $134, and the consensus target is $126.75. Shares closed Wednesday at $107.40 apiece.