It never seems to fail. The harder a sector gets hit, the more the negative voices come out when most or all of the damage has been done. That is the kind of advice most investors look to avoid. And when oil got to $26 a barrel earlier this year, plenty were saying it was going lower, and just the opposite has happened. While most of the solid companies have cut costs and improved operational leverage, some look poised to benefit more than others as crude prices continue higher.
In a new research report, Deutsche Bank notes that the $50 level has emerged as a key inflection point for many companies going forward. With West Texas Intermediate crude clawing its way through the mid $40s, we are getting closer and closer to that number. The analysts think it’s clear that at $50 a barrel, hedging and activity starts to increase, and they highlight four companies that they favor for a continued moderate recovery in the sector. All are rated Buy at Deutsche Bank.
This stock may offer investors solid upside potential despite the big dividend cut earlier this year. ConocoPhillips (NYSE: COP) is the world’s largest independent exploration and production company, based on production and proved reserves. Headquartered in Houston, ConocoPhillips had operations and activities in 21 countries, $30 billion in annual revenue, $97.5 billion of total assets and approximately 15,900 employees as of the end of 2015. Production averaged 1,589 thousand barrels of oil equivalents in 2015, and proved reserves were 8.2 billion barrels of oil equivalents as of last December 31.
Many Wall Street analysts feel Conoco can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, with visibility on future growth from a sizable position in the Permian. The company remains the one of the best values as short sellers circled after the dividend cut as many growth and income managers sold shares.
Investors in Conoco receive a 2.3 % dividend. The Deutsche Bank price target for the stock is $62. The Thomson/First Call consensus price target is $49.38, while Conoco shares closed Thursday at $43.73 apiece.
This company is expected to have a substantial portion of its total 2016 production in natural gas. Devon Energy Corp. (NYSE: DVN) an independent energy company, primarily engages in the exploration, development and production of oil, natural gas and natural gas liquids (NGLs) in the United States and Canada. It operates approximately 19,000 wells. It also offers midstream energy services, including gathering, transmission, processing, fractionation and marketing to producers of natural gas, NGLs, crude oil and condensates through its natural gas pipelines, plants and treatment facilities.
Devon’s extensive and very diversified portfolio is primarily composed of unconventional resources and reflects significant long-term growth potential. Consistent investments made by the company over time are helping it to sustain its strong performance despite like many energy giants, having to lower exploration and production budgets for 2016.
Devon investors are paid a 0.75% dividend. Deutsche Bank has a $41 price target. Note that the consensus price target for the stock is much lower at $36.51. The stock closed most recently at $32.72.