When you combine a sell-off in oil with a big market sell-off, you have the makings of either a disaster or an opportunity. With earnings reporting season being kicked to the curb by issues in Greece and China, some huge opportunity for investors may be there in defensive exploration and production (E&P) stocks.
A new report from Cowen notes that during the recent sell-off in oil, and concurrently in the sector, the analysts see some stocks that are trading in line with the long-term crude strip pricing. They think that unless there is some gigantic macro issue that moves the sector much lower, current entry points to these four defensive companies are very opportunistic, and all four are currently rated Outperform.
The Cowen team like this stock on the steep pullback in price over the past month. Anadarko Petroleum Corp. (NYSE: APC) is one of the world’s largest independent exploration and production companies, with operations in all major domestic drilling areas, as well as in South America, Africa, Asia and New Zealand. As of year-end 2014, the company had approximately 2.86 billion barrels-equivalent of proved reserves.
Top Wall Street analysts see the company growing at or above 15% total production from the higher margin portions of their portfolio, which in turn could end up boosting the firm’s West Texas Intermediate (WTI) price realizations. In other words, more oil equals more money.
Recent chatter has emerged that the company may be a good fit for Exxon. Anadarko has outstanding assets in the Gulf of Mexico, U.S. shales and Africa, including a large presence in gas discoveries off the coast of Mozambique.
Anadarko investors are paid a 1.3% dividend. The Cowen price target on the stock is a very impressive $119. The Thomson/First Call consensus stands much lower at $101.58. The stock closed Wednesday at $75.47 per share.
This company is expected to have 48% or more of its total 2015 production in natural gas. Devon Energy Corp. (NYSE: DVN) 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’s 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. The company is also the second-largest oil producer among North American onshore independents, so this is a very balanced play for investors.
Devon’s extensive and very diversified portfolio, is primarily composed of unconventional resources and reflects significant long-term growth potential. Consistent investments made by the company over time are helping it to sustain its strong performance despite, like many energy giants, having to lower E&P budgets for 2015.
Devon investors are paid a 1.7% dividend. The Cowen price target is $80. The consensus target is lower at $75.72. Devon closed Wednesday at $55.55.
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