The oil markets continue seesaw, and on Wall Street the mood is decidedly mixed. While some see a great second-half story, with the potential for oil to trade as high as $50 by the end of the year, others are getting negative. It’s easy to see why too. There is a mixed bag of pro and con issues, and there is no clear direction on which way things will go, especially short term.
In a new research report, Stifel has become much more cautious on the sector and especially the more aggressive stocks that the firm covers. The analysts note that the spot price can’t break the downtrend on sustained volume, and any sort of coordinated OPEC action at the upcoming meeting looks very unlikely, as Iran has said flat out that it will not comply.
The Stifel team has cut five of the firm’s aggressive Buy-rated stocks to Hold, targeting the ones they believe are either underhedged on their production or outspending current 2016 cash flow. Investors may want to review their portfolios to see if they are holding any of those stocks that are among the Stifel analysts are downgrading.
This stock is still down a stunning 58% since the highs printed in 2014. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate and natural gas liquids (NGLs).
The Midstream segment provides gathering, processing, treating and transportation services to Anadarko and third-party oil, natural gas, and NGL producers, as well as owns and operates gathering, processing, treating and transportation systems in the United States. The Marketing segment markets oil, natural gas and NGLs in the United States. It also markets oil and NGLs internationally, as well as has anticipated LNG production from Mozambique.
The Stifel team cut Anadarko Petroleum from Buy to Hold, though it currently does not list a target price for the shares. The stock’s 52-week trading range is $28.16 to $95.94. The Thomson/First Call consensus price target is set at $58.45. The stock was trading on Wednesday at $44.84.
This company has a very large exposure to crude oil. Continental Resources Inc. (NYSE: CLR) is a top 10 independent oil producer in the United States is the largest leaseholder and one of the largest producers in the nation’s premier oil field, the Bakken play of North Dakota and Montana. The company also has significant positions in Oklahoma, including its SCOOP Woodford and SCOOP Springer discoveries and the Northwest Cana play.
This one was also cut to Hold with no price target listed. The 52-week trading range for this stock is $13.94 to $53.65, and the consensus price target is set at $32.98. Shares were last seen trading at $30.43.
This is a leading energy company that shows up on many Wall Street screens. EOG Resources Inc. (NYSE: EOG) together with its subsidiaries, explores for, develops, produces and markets crude oil and natural gas. The company’s principal producing areas are located in New Mexico, North Dakota, Texas, Utah and Wyoming in the United States, as well as in Canada, the Republic of Trinidad and Tobago, the United Kingdom and the People’s Republic of China.
As of December 31, 2015, EOG Resources had total estimated net proved reserves of 2,118 million barrels of oil equivalent, including 1,098 million barrels (MMBbl) crude oil and condensate reserves; 383 MMBbl of NGL reserves; and 3,825 billion cubic feet of natural gas reserves.
The shares are cut to Hold at Stifel, which has no price target. The consensus price objective is $77.75. The stock was trading on Wednesday at $70.77, in a 52-week range of $57.17 to $101.36.
This company is expected to add at least one rig this year and is a top Permian Basin play. Matador Resources Co. (NYSE: MTDR) is an independent energy outfit engaged in the exploration, development, production and acquisition of oil and natural gas resources in the United States, with an emphasis on oil and natural gas shale and other unconventional plays.
Its current operations are focused primarily on the oil and liquids-rich portion of the Eagle Ford shale play in south Texas and the Wolfcamp and Bone Spring plays in the Permian Basin in southeast New Mexico and west Texas. Matador also operates in the Haynesville shale and Cotton Valley plays in northwest Louisiana and east Texas.
Again, the stock was cut to Hold and it has no price target. The consensus target price is posted at $21.53. Shares traded Wednesday morning at $19.41.
This is a smaller company that could really feel the effect of a drop in oil pricing. SM Energy Corp. (NYSE: SM) is an independent energy company that engages in the acquisition, exploration, development and production of crude oil and condensate, natural gas, and NGLs in onshore North America.
SM Energy has operations primarily in the south Texas and Gulf Coast regions, with a focus on the Eagle Ford shale program; the Rocky Mountain region, comprising the Bakken and Three Forks formations in the North Dakota; and Permian region, covering western Texas and southeastern New Mexico. As of December 31, 2015, the company had 471.3 million barrels of oil equivalent of estimated proved reserves; as well as working interests in 872 net productive oil wells and 653 net productive gas wells.
This is the last off the five that were cut to Hold, without a current price target. The 52-week trading range is a stunning $6.99 to $60.28. The consensus price target is $19.14. The shares were recently trading at $18.12.
The Stifel actions make sense especially when you consider their specific main caveats: underhedged or outspending cash flow. Those are two red flags investors do want to avoid.