All you need to do is look at the scoreboard. West Texas Intermediate (WTI) is down 26% from its mid-year highs and natural gas is down 6% for the year. Many Wall Street pundits are joining the growing chorus of “lower for longer” and energy investors have been shellacked. A new comprehensive research report from Merrill Lynch takes a hard look at who can benefit as investors wait for an increase in spot prices.
Production is slowly dropping, and the Merrill Lynch team actually think that at some point WTI can trade at a premium to Brent crude, breaking a long trend of Brent trading higher. Recently the Senate Energy and Natural Resources committee voted to approve a bill sponsored by Senator Murkowski of Arkansas that would lift the 40-year old ban on exports of crude oil. That could be a game changer in a world that may see production from Iran come back on the market.
We screened the Merrill Lynch research for stocks to buy that make sense now and could really move when the pricing picture improves.
The Merrill Lynch team likes this company on the steep pullback in price since May. 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, making it one of the top nonintegrated companies.
The company reported very solid earnings numbers on stronger production and lower exploration costs. The oil company posted revenue of $2.64 billion in the period, surpassing Wall Street forecasts of $2.57 billion. Anadarko reported second-quarter profit of $61 million, and $0.12 per share. Earnings, adjusted for non-recurring gains, came to $0.01 per share. With liquids growing as a greater percentage of the overall business, and savings being redeployed to add more wells, the analysts feel the stock remains a very compelling buy.
Anadarko investors are paid a 1.45% dividend. The Merrill Lynch price target on the stock is very impressive $116. The Thomson/First Call consensus stands much lower at $99.42. The stock closed Friday at $74.35.
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