Despite Rally, UBS Only Likes 4 Large Cap Exploration and Production Energy Stocks

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Many on Wall street are slowly but surely getting on the energy bandwagon, and with good reason. Oil has rallied sharply off the lows posted earlier in the year, and production has dropped dramatically as many drilling rigs have been idled. While things are finally looking up, new supply from Iran is coming online, and OPEC is notorious for pumping more than they say they will.

In a new research report from UBS, the analysts are cautious to recommend stocks that are trading in line with their historical multiples, and tend to avoid, and even have Sell ratings on, some that are trading above. The firm has only four stocks in its U.S. large cap global exploration and production research universe that are rated Buy.

Anadarko Petroleum

This top stock is still down a stunning 52% 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 NGLs 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; oil and NGLs internationally; and anticipated liquefied natural gas production from Mozambique.

The company’s asset portfolio includes U.S. onshore resource plays in the Rocky Mountains, the southern United States, the Appalachian basin and Alaska; the deepwater Gulf of Mexico; and in Mozambique, Algeria, Ghana, Brazil, Colombia, Côte d’Ivoire, Kenya, Liberia, New Zealand and other countries. As of December 31, 2014, it had approximately 2.9 billion barrels of oil equivalent of proved reserves.

Anadarko investors are paid a miniscule 0.38% dividend. The UBS price target for the stock is $60, and the Thomson/First Call consensus price objective is $58.43. Shares closed last Friday at $52.22, up over 5% on the day.


Hess

This top mid/large cap stock pick is down a stunning 38% since highs printed in 2014. Hess Corp. (NYSE: HES) is an exploration and production company that develops, produces, purchases, transports and sells crude oil, NGLs and natural gas. The company primarily operates in the United States, Denmark, Equatorial Guinea, the Joint Development Area of Malaysia/Thailand, Malaysia and Norway.

Hess is continuing 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 released a much lower capital expenditure budget for 2016, which highlights the company’s efforts for cost containment. The company said it will cut capital spending on exploration and production this year by 40% from 2015 to $2.4 billion on low oil prices.

Hess investors are paid a 1.58% dividend. UBS has a $60 price objective, and the consensus target is $60.48. The stock closed Friday above both levels at $63.38, also up over 5% on the day.