Energy
Despite Doha Disappointment, 3 Oil Stocks to Buy Now
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If there was a no-brainer call this past week it was that the OPEC poohbahs would get nothing done at Doha during their recent get together to discuss oil prices. With an unrepentant Iran returning to the market at all costs, and also being a no-show, and the Saudis unwilling to bend, there was little chance of a true deal to freeze production. The bottom line though is market forces and economics are starting to come into play. That means when you stop drilling the available supply starts to drop.
In a new research piece, Jefferies notes that while the near-term oil price euphoria over a potential Doha agreement certainly will take a shot near term, there are more than enough fundamentals pointing to higher prices in the second half of the year, not the least of which is geopolitical. With Nigeria, the United Arab Emirates, Saudi Arabia and Iraq production all dropping in March, and workers currently on strike in Kuwait, demand is increasing, and long term the Jefferies team thinks prices are going higher.
We highlight three top stocks rated Buy now at Jefferies, two of which are on the firms Franchise Picks stock list.
Chevron
This stock is very solid story for investors looking to stay long the energy sector, and it is a preferred U.S. company to own now. Chevron Corp. (NYSE: CVX) is an integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. It sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years, and the stock trades at a modest valuation discount to some of its mega-cap peers.
The company’s Permian Basin assets are a goldmine, and that the Australian LNG business will transition from a yearly $8 billion capital consumption drag to a $2 billion to $3 billion contributor. Combined with the much lower overall capital spending for the 2016 to 2018 period, the company is poised to not only hang around, but end the sector slump in a much better position. The analysts note the Permian acreage is profitable at $40 a barrel.
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