Just when it seemed that oil was ready to head to $80 a barrel, the combination of increased OPEC and Russian production, along with the Saudis putting the production pedal down, has helped to push prices on West Texas Intermediate below $70, and Brent back down near $74. Toss in some jawboning from the U.S. president and some big storage numbers, and that also helped with the slide in pricing.
The bottom line for investors is that even after the declines, prices are still much higher than last year. Like many on Wall Street, the analysts at Stifel are positive on the sector, not only into the second-quarter results but also going forward. They said this in a recent research report:
Over the last two months, we have held meetings and conference calls with ~100 investors across the U.S. The investor base was composed of dedicated mutual funds (~40%), generalist (~35%) and dedicated hedge funds (~25%). Investor sentiment was decidedly positive on crude prices and broadly constructive on energy stocks, with timing being the only distinguishing factor between the two. In general, most investors prefer stocks with Brent exposure through 2019 and the Permian stocks for long-term energy exposure. Our top picks are biased towards the Anadarko, Permian, and Williston, and more specifically, stocks with improving yields (large-caps) and DAPPS (smid-caps) profiles.
The analysts feel that the price could have some firm footing in the $60 to $70 range, a level where most companies are solidly profitable. The firm has numerous top picks, but we stuck with some of the larger capitalization players that are preferred stocks on the basis of the analysts seven variable quantitative analysis. All are rated Buy at Stifel.
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 0.3% dividend. The Stifel price target for the stock is $178, and the Wall Street consensus target is $125.87. The shares closed Friday at $96.75.
This company recently bought RSP Permian for $9.5 billion, and most on Wall Street like the deal. Concho Resources Inc. (NYSE: CXO) is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties.
It offers investors a unique combination of investment themes, including valuation, rate-of-change and resource expansion themes. The company is the largest acreage holder of the publicly traded Permian large-caps and provides investors peer-leading exposure to three of the most impactful catalysts across the Delaware Basin, including the Wolfcamp XY, Wolfcamp D and Bone Spring Shale.
The Stifel price target was boosted from $190 to $210. The consensus target is $181.29. The shares closed Friday at $144.29.