It finally hit the tape Tuesday. There was some chatter that the OPEC oil cartel finally has started to let it be known that it would reduce production if other nations did. And think about it: other than oil, what do most of these Middle East countries have that produce revenue? Exactly, nothing. With prices plunging, their countries respective big budget deficits are skyrocketing.
So who will benefit the most? The same companies that are fighting their way through the downturn: the large and mid-cap leaders who have been there before. We screened the Merrill Lynch research universe for the oil stocks that look well prepared for 2016 and could benefit big if prices start to trend higher.
This is one of Merrill Lynch’s top 10 picks for 2016. Exxon Mobil Corp. (NYSE: XOM) is another energy sector play that the Merrill Lynch analysts are very positive on long-term, as the overall corporate strength of the massive integrated giant plays a significant part in the company’s usually solid earnings reporting pattern.
The company’s global downstream chemical segment plays a huge part for Exxon. It may be a part that many others on Wall Street don’t fully appreciate as the segment contributes an estimated 16% of overall total revenue. Very solid reasons for adding the stock to a long-term growth portfolio include that the company consistently has demonstrated disciplined investing, operational excellence and technological innovation.
Exxon recently appointed the head of its refining business as its new president, which makes him the probable successor to Chief Executive Rex Tillerson, a move that was designed to avoid raising eyebrows on Wall Street. The new president, Darren Woods, is a 23-year company veteran and should keep the goliath on the steady path for growth and progress.
Exxon investors receive a sizable 3.87% dividend. The Merrill Lynch target price is $100. The Thomson/First Call consensus price objective is $82.86. Shares closed Tuesday at $76.70.
This top mid/large cap pick is down a stunning 50% since last spring. Hess Corp. (NYSE: HES) is an exploration and production company that develops, produces, purchases, transports and sells crude oil, natural gas liquids (NGLs) and natural gas. It primarily operates in the United States, Denmark, Equatorial Guinea, the Joint Development Area of Malaysia/Thailand, Malaysia and Norway.
The company has become the subject of takeover speculation. With a market capitalization falling to just over $10 billion, Hess 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 exploration and production entity. The company is shifting its growth approach from high-impact exploration to a smaller, more focused exploration portfolio.
Hess announced a much lower capital expenditure budget for 2016, which highlights the company’s efforts at cost containment. It said it will cut capital spending on exploration and production this year 40% from 2015 to $2.4 billion on low oil prices.
Hess investors receive a 2.82% dividend. Merrill Lynch has a massive $85 price objective, and the consensus target is much lower at $66. The stock closed most recently at $39.60.