Crude oil may have recovered from lows earlier in the week, but at $46.50 or so a barrel the oil market remains very challenged. Old timers in this sector probably would confirm that it is now back to the time when you have to be smart and patient to make a good living. So, what is the outlook for the oil and gas stocks?
Wall Street analysts issue research reports routinely for the oil and gas sector, and just about every other sector out there. 24/7 Wall St. reviews dozens of these analyst reports each morning of the week to find new investment and trading ideas for its readers. With oil and gas stocks having been so battered, the focus right now is on which of those stocks analysts are telling their customers to buy now.
Keep in mind that not all analyst calls work out. In fact, some analyst calls turn out to be absolutely wrong. That being said, investors have to get ideas from somewhere, rather than randomly picking stocks out of a top hat.
Analysts and investors have been very timid in drawing a line in the sand here. After all, the drop in oil has felt like trying to catch falling daggers for those who made too large of bets.
This past week was a very mixed week for the markets, but Fed Chair Janet Yellen’s telegraph that interest rates would not be hiked sharply nor immediately gave a firm ground for investors to stand on. Some analysts even made some rather bold calls in the oil patch, from oil majors to master limited partnerships (MLPs), to exploration and production outfits, and so on.
24/7 Wall St. would point out that some of these upside analyst target prices might seem too good to be true. After all, low oil is expected to stay for a while. Yet, here are five oil and gas stocks with very positive analyst research reports made in the last week.
Abraxas Petroleum Corp. (NASDAQ: AXAS) saw two analyst calls made in recent days, one of which was very positive and one that was more muted. An SEC filing showed that a Rights Agreement has expired, and those rights are no longer outstanding and are not exercisable. The company operates oil and gas assets in the Rocky Mountains, Permian Basin and the Gulf Coast.
GMP Securities initiated coverage of Abraxas with a Buy rating and a $4.50 price target on Friday. The more muted call was from Imperial Capital. The firm maintained its Hold rating and its $3 price target. A week earlier, SunTrust raised its target on this $300 million outfit to $5.
Abraxas closed down over 6% at $2.91 on Friday. The consensus analyst price target is $4.19, and shares have traded in a range of $2.33 to $6.45 in the past 52 weeks.
Anadarko Petroleum Corp. (NYSE: APC) was maintained as Buy at the independent research firm Argus last week. It may sound bad that the price target was cut to $100 from $120. Still, the stock closed out the week at $81.95, versus $78.42 the prior week. This $41 billion outfit has a consensus price target of $96.59 and a 52-week range of $71.00 to $113.51.
The question here is what Argus is looking at in a positive light. The firm’s Buy rating was said to reflect Anadarko’s industry-leading exploration program, and the firm expects 5% to 7% annual production growth through 2020. It further said that Anadarko’s solid balance sheet and access to liquidity will be a positive differentiating factor during the current industry downturn. Lastly, Argus pointed out the company’s substantial base of reserve assets that the management team should be able to develop or monetize.
Argus further said:
Our financial strength rating on Anadarko is Medium, the midpoint on our five-point scale. Despite current challenging market conditions, Anadarko has a very strong balance sheet. As of December 31, the company had $7.4 billion in cash and cash equivalents, up from $3.7 billion a year earlier. When Anadarko announced its 2015 capital program and 2015 guidance on March 3, it said that it had ‘pro forma’ cash of approximately $3 billion after the Tronox settlement of $5.2 billion and the $700 million in announced asset divestitures. In addition, the company has $7 billion in borrowing capacity from its credit facilities.