After significantly lagging the market for the past couple of years, it is becoming pretty obvious to many across Wall Street that energy may be one of the hottest sectors going forward. The oil glut in storage that hung over the market for years has largely been cleared, and most feel that production in the United States will peak this year.
When you add up that production outside of the United States has plummeted, there is geopolitical instability in the Middle East and South America, and use has not dropped, the price could be going higher, much higher. In a new report, SunTrust raises its price targets for oil for this year and 2019. The report noted this:
We forecast oil prices to remain strong ($55+ per barrel) provided the Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) continues its ~1.8 million barrels of oil per day voluntary production cut, US production growth is less than 750,000 barrels per day for the remainder of the year, and potential new tariffs on China remain at least reasonable. As such, our new price deck increases 2018 oil price by ~14% to $66.46 a barrel (little change to natural gas price) and increases 2019 oil price by ~4% to $63.40 a barrel (little change to natural gas price).
We screened the SunTrust energy sector coverage universe for stocks rated Buy and found five that look like great plays heading into the busy summer driving season.
This is a top play for investors looking to the Permian Basin. Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States.
The company is focused on increasing shareholder value through strategies linked to generating attractive economic returns on capital employed and profitable growth in per-share reserves, production and cash flow. It intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions.
Cimarex has a diversified base of high-quality production and attractive drilling opportunities. It should be noted that hedge funds have initiated sizable new positions in the company over the past year, and like its brethren in the Permian, many consider the company a very solid takeover target.
Investors receive just a 0.67% dividend. The SunTrust price target for the stock is $130, and the Wall Street consensus target is $135.94. The shares closed Monday at $96.72.
This is a top Permian Basin play for more aggressive accounts and is a top pick across Wall Street. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company headquartered in Midland, Texas, and focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.
Diamondback’s activities are primarily focused on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.
Wall Street analysts have noted in the past the company’s top-tier asset base, solid accretive additions and financial discipline, which they think allows for not only continued solid cash flow, but could put the company in play as a takeover target. Diamondback continues to drill some of the most economical wells in the United States as efficiencies improve, costs decrease and activity remains in the better regions.
SunTrust has a $165 price target, and the consensus target is $155.82. Shares closed Monday at $119.04.