RBC Top Idea Energy Stocks to Buy Have Massive Upside Potential

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With the markets rushing once again toward all-time highs, many investors are perplexed on where to apply capital now, and with good reason. Many of the top stocks appear very overbought, and bond yields are lower now than they were just a month ago. One of the best sectors that almost all the firms we cover on Wall Street agree is a good place to be now is energy, and for more conservative accounts, is a place to park capital with better upside odds.

A new RBC research report takes a look at the first-quarter earnings and notes that while there was some concern over spending as oil prices dipped below $50, most of the fears have dissipated as the price has moved back over that psychological level. RBC, like most, remains very positive of the Permian Basin, especially the Delaware Basin region, and feels that the well-hedged companies have positive upside.

The RBC analysts highlight four Top Idea picks, and all have solid upside potential.

Anadarko Petroleum

This top stock is still down a stunning 15% since January and is an outstanding Buy at current levels. 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 is slated to report first-quarter earnings next week. Shareholders are paid a small 0.35% dividend. The RBC price target for the stock is $81, and the Wall Street consensus target is $81.26. The shares closed Tuesday at $60.08.

Noble Energy

Noble Energy Inc. (NYSE: NBL) is an independent energy company engaged in the acquisition, exploration and production of crude oil, natural gas and natural gas liquids worldwide. Its principal projects are located in DJ Basin, Marcellus Shale, Eagle Ford Shale and Permian Basin of the United States, as well as in deepwater Gulf of Mexico, offshore Eastern Mediterranean and offshore West Africa. As of December 31, 2015, the company had approximately 1,421 million barrels oil equivalent of total proved reserves.

Noble sanctioned in February the phase 1 development of its giant natural gas discovery in Israel for a gross development cost of $3.75 billion with first sales expected in late 2019. The project will include the development of 9.4 trillion cubic feet gross from four producing wells, each capable of producing in excess of 300 million cubic feet per day.

The company is expected to report earnings on May 1. Shareholders receive a 1.17% dividend. RBC has a $48 price target, and the consensus target is $47.47. The stock closed Tuesday at $34.43.

SRC Energy

RBC likes this small cap company with massive upside potential. SRC Energy Inc. (NYSE: SRCI) is an independent oil and natural gas company engaged in the acquisition, development and production of crude oil and natural gas in and around the Denver-Julesburg Basin of Colorado. That basin generally extends from the Denver metropolitan area throughout northeast Colorado into Wyoming, Nebraska and Kansas.

The company continues to benefit from improving field level efficiencies, including the pace of drilling and completions, combined with a small increase to inflation assumptions, as well as higher working interest in future wells due to trades and small acquisition. The company now expects to drill 116 gross wells in 2017, versus the original guidance of 102 gross. SRC expects to complete 104 gross wells this year, versus the original expectation of 95 gross completions.

The whopping $12 RBC price target compares with the consensus target of $10.79 and the most recent close at $8.11.

Extraction Oil and Gas

This is another smaller cap company on which RBC is very positive. Extraction Oil and Gas LLC (NYSE: XOG) is also focused on the acquisition, development and production of oil, natural gas and NGL reserves in the Rocky Mountains, primarily in the Wattenberg Field of the Denver-Julesburg Basin of Colorado.

The company offers its exploration and production processes in various steps, such as seismic, site preparation, drilling the well, completing the well, monitoring the well and reclaiming the site. It utilizes sound walls to mute or redirect noise caused by its operations, and it uses an electric rig to manage its drilling operations. The company uses vapor recovery units to capture emissions from storage facilities. Lastly, it uses lease automatic custody transfer units to collect oil from tanks in a closed-loop system that manages air emissions associated with the oil gathering and transportation process.

The RBC price target is posted at $25. The consensus target is $24.60, and shares closed Tuesday at $16.92.

Two large cap companies for more conservative accounts to consider and two small cap plays with massive upside potential for more aggressive investors. All these companies make more sense than chasing overbought high-flyers that could get mauled if the market does the usual “Sell in May, and go away” routine.