Every day is seems like we have seen it. Oil down to 12-year lows, this week dipping under $30 briefly. You may be asking yourself, could it really decline that fast? The answer most likely is no. In fact, worldwide demand and current falling production are not that far apart, and despite the hand-wringing of some on Wall Street, the addition to the markets by Iran is not a game changer, at least initially. The big question on everybody’s mind is where is the bottom?
One thing is for sure, the big integrated oil and giant exploration and production (E&P) companies have been through this before, so they have a game plan for survival. Plus, some on Wall Street are now of the opinion that some of the top smaller E&P companies that have seen gigantic drops in their stock price could become targets. Exxon for instance, bought Mobil in 1999 and XTO in 2009.
We screened the Merrill Lynch research database for companies rated Buy that could also be prime takeover targets. We found three that Big Oil may just find attractive, especially at current prices. Even if they don’t get bought, they would be very good long-term investments at current levels.
This top pick is down a stunning 50% since last spring. Hess Corp. (NYSE: HES) is an E&P company that develops, produces, purchases, transports and sells crude oil, natural gas and natural gas liquids. The company primarily operates in the United States, Denmark, Equatorial Guinea, the Joint Development Area of Malaysia/Thailand, Malaysia and Norway.
The company has again emerged as the subject of buyout speculation. With a market capitalization falling to just over $11.5 billion, the company could fall prey to larger integrated as a quick bolt-on acquisition to boost growth. Hess is undergoing somewhat of a transition from an integrated oil and gas company to a predominantly E&P entity. The company is shifting its growth approach from high-impact exploration to a smaller, more focused exploration portfolio.
Hess investors receive a 2.53% dividend. The Merrill Lynch price objective is a massive $85, and the Thomson/First Call consensus price target is much lower at $66. The stock closed most recently at $39.60.