Energy

Big Catalysts Drive Analysts' 5 Top Energy Stocks With Massive Upside Potential

Lee Jackson

Published: May 3, 2017 10:00 am

Last Updated: January 12, 2020 12:23 pm

With all the talk about the new highs in the stock market, especially in technology, one area that has struggled this year is the energy sector. With oil again falling under the psychological $50 level, some investors are getting nervous. The fact of the matter is nobody wants oil under the $50 level, especially the OPEC nations. For many, oil is the leading and in some cases the only export. So a continuation of the production cuts is a distinct possibility.

One good path for energy investors to follow is sticking with companies reporting good earnings and backing that up with either positive guidance or positive metrics and performance data. In a series of new research reports, Stifel analysts focus on five top stocks to buy that have one or more of those qualities.

Cabot Oil and Gas

With many expecting a very hot summer, this top natural gas play could be a timely pick. Cabot Oil & Gas Corp. (NYSE: COG) produces mostly natural gas in the United States, with operations primarily in Appalachia and an ancillary position Eagle Ford. The company has lined up very high-quality growth assets in the Marcellus Shales and is aggressively moving to develop these fields. Production and reserves are 96% natural gas.

U.S. energy firms are scrambling to finish a slew of pipelines that will unleash rich reserves of shale gas in Pennsylvania, West Virginia and Ohio as the nation prepares to become one of the world’s top natural gas exporters. Cabot figures to be a big player in this evolution and offers solid value and current trading levels.

The analysts note that despite some exploratory concerns, the company boasts one of the best-in-class free-cash-flow generation stories in the sector, and the recent pullback in the shares is offering a very solid entry point.

Cabot shareholders are paid a small 0.33% dividend. The Stifel price target for the stock is $30, and the Wall Street consensus target is $29.23. The stock closed Tuesday at $23.13 a share.

EQT

This company also expects to have a large portion of its production come in as natural gas. EQT Corp.’s (NYSE: EQT) superior cost structure and above-average growth may help it exploit stable and rising natural gas prices. With an increasing reserve structure and a projected higher number of Marcellus wells to be drilled in the coming five years, the company exhibits industry-leading organic growth momentum.

With more than 125 years of experience, EQT continues to be a leader in the use of advanced horizontal drilling technology. This technology is designed to minimize the potential impact of drilling-related activities and reduce the overall environmental footprint. That is very shareholder friendly. Plus, the company is a low-cost producer with a very strategic midstream presence.

The company’s midstream holdings are considered among the best in the industry, and with a $1.75 billion stake in Equity Midstream Partner, the company has a combined $10 billion in midstream holdings. The Stifel team cites the ownership of the general partner, pricing and stronger type curves as all positives for owning the shares.

EQT investors are paid a small 0.21% dividend. Stifel has raised its price target is $81, while posted consensus price target is $80.19. The stock closed most recently at $59.06 per share.

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 Denver-Julesburg 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 posted a solid first-quarter earnings beat, and the Stifel team cites strong performance in the Delaware and the Denver-Julesburg Basins.

Investors in Noble Energy are paid a 1.21% dividend. The $52 Stifel price target compares with the consensus target of $46.50. The shares closed most recently at $31.42 apiece.

Southwestern Energy

This company has been battered this year and is down a whopping 50% from highs printed last fall. Southwestern Energy Co. (NYSE: SWN) explores, develops and produces natural gas and oil in the United States. The company has been investing heavily in the Marcellus play in Pennsylvania, where it holds leases in approximately 337,300 net acres. Reports indicate that the company has increased its acreage there by acquiring interest from other stakeholders.

The Stifel analysts point out the company beat expectations on cash flow, and the improved pricing strength has been overlooked by investors.

Stifel has set its price target for the shares at $10, while the consensus target is a bit higher at $11.08. The stock closed most recently at $7.48.

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Whiting Petroleum

This company also has been hit hard and is offering shareholders a tremendous entry point. Whiting Petroleum Corp. (NYSE: WLL) is an independent oil and gas company that explores for, develops, acquires and produces crude oil, natural gas and natural gas liquids primarily in the Rocky Mountain and Permian Basin regions of the United States.

The company’s largest projects are in the Bakken and Three Forks plays in North Dakota, the Niobrara play in northeast Colorado and its Enhanced Oil Recovery field in Texas.

Whiting posted very strong first-quarter results that beat estimates handily. The company also raised its 2017 production guidance, which the Stifel team feels is very bullish. Continued execution and deleveraging the balance sheet remain keys for the company as they return to growth.

The Stifel price objective is $14. The consensus target price is $13.11, and the shares close most recently at $8.72.

These five top stocks to buy have outstanding upside potential. It should be noted that these plays are better suited for more aggressive accounts and could be volatile going forward, especially if pricing dramatically declines.