Energy Business

Merrill Lynch's 5 Top Large Cap Oil and Gas Stocks for 2017

Continental Resources

This company has a very large exposure to crude oil. Continental Resources Inc. (NYSE: CLR) is primarily a producer of onshore oil in the United States. The company has positioned itself in two growing hydrocarbon discoveries: the Bakken oil play in Montana and North Dakota and the Woodford shale in Oklahoma. That gives the company good growth opportunities for the next few years.

The analysts point out that the company was one of the best performing exploration and production stocks in 2016, and they see it as a “beat and raise” story for 2017. They also point out that while the company had among the highest returns in the lower 48 states last year, it can achieve its 300,000 barrels of oil equivalents set at the firm’s analysts’ day two years early and at lower prices and with fewer rigs than in the original plan.

Merrill Lynch has set its price target at $70, and the consensus target is $59.61. The stock closed yesterday at $52.95.

Devon Energy

This company is expected to have a substantial portion of its total 2016 production in natural gas, and it also resides on the Merrill Lynch US 1 list. Devon Energy Corp. (NYSE: DVN) an independent energy company, primarily engages in the exploration, development and production of oil, natural gas and 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 Energy’s third-quarter results set the tone for a very solid November after the company reported core earnings that were nearly double what Wall Street analysts were expecting. Fueling that result was the company’s continued ability to push down operating costs, which are now 37% below peak rates.

Shareholders receive a 0.51% dividend. The $61 Merrill Lynch price target is well above the consensus target of $51.04. Shares closed Wednesday at $47.50.

Hess

This top mid/large cap pick is down a stunning 38% since highs printed in 2014 and is one of the Merrill Lynch top 10 first-quarter stock ideas. Hess Corp. (NYSE: HES) is an exploration and production company that develops, produces, purchases, transports and sells crude oil, NGLs and natural gas. It primarily operates in the United States, Denmark, Equatorial Guinea, the Joint Development Area of Malaysia/Thailand, Malaysia and Norway.

Hess is continuing a transition away from being an integrated oil and gas company. It 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 2017 budget is also expected to be conservative.

Merrill Lynch thinks that at current trading levels, the stock could be as much as 30% undervalued, assuming long-term Brent crude pricing at $70 per barrel. The team cites the Liza discovery in Guyana, which they expect to be acknowledged by project final-investment decision or FID in the second quarter of 2017.

Hess investors receive a 1.61% dividend. The Merrill Lynch price objective is $80. The consensus target is $64.75. The stock closed Wednesday at $61.93.

These top companies to buy all make sense for long-term growth portfolios. Given the market levels, investors may want to consider partial positions here and see if the market doesn’t come in some in the first quarter.