Even though West Texas Intermediate crude has remained over the $60 a barrel level, the energy sector was absolutely blasted last month. While hardly the only loser, as the overall markets reported the worst month in almost two years, the nearly 11% loss in the Energy Select Sector SPDR ETF (NYSEARCA: XLE) was a surprise to many.
The poor showing for the sector has put many of its top companies on sale, and with spring right around the corner, and the busy summer driving season not far-off, you can bet that oil prices should hold and investors start to look at the bargains in the sector.
We screened the Merrill Lynch energy research universe and found five large cap leaders that are all on sale, and which all pay outstanding and consistent dividends. These companies are also rated Buy at Merrill Lynch.
This integrated giant is a safe way for investors looking to stay or get long the energy sector, and it has a big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas. Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.
While the company reported fourth-quarter earnings that missed consensus estimates, cash flow covered capital expenditures and the dividend. Production from the Permian Basin continues to exceed trajectory, and Chevron should provide investors with an update at the March 6 investors day.
Chevron shareholders receive a 4.04% dividend. The Merrill Lynch price target for the shares is $138, and the Wall Street consensus target is $135.60. Shares closed Friday at $110.92.
This company may offer investors solid upside potential and could start growing the dividend again. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids (NGLs) worldwide.
Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects. Many Wall Street analysts feel the company can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, and with visibility on future growth from a sizable position in the Permian.
Merrill Lynch has grown progressively more positive on the shares and noted this in a recent report:
Based on updated cash flow sensitivities we suggest operating operating cash flow could top $11 billion at $64 Brent, drawing more buybacks. With advantaged leverage to Brent and little production sharing contracts entitlement effects, we view Conoco as a strong free cash ‘yield’ name.
Investors receive a 2.13% dividend. Merrill Lynch has a $72 price target, and the consensus target is $66.55. Conoco closed Friday at $53.43 a share.