Even though global oil output was at a staggering 100 million barrels per day in August, the fact of the matter is that supplies could become severely disrupted this fall as sanctions on Iran are tightened and the fallout from a huge drop in Venezuelan output is felt. The good news for investors is that some of the biggest and best oil stocks are still incredibly cheap compared to the rest of the market.
A recent report from the International Energy Agency noted a surge in supply from OPEC members but said overall world supply is tightening up and “We are entering a very crucial period for the oil market.”
We screened the Merrill Lynch energy research database looking for stocks rated Buy that pay good dividends and had solid upside to the firm’s price targets. We found four that look like outstanding picks for growth investors looking for total return.
Enterprise Products Partners
This is a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) is the largest publicly traded master limited partnership (MLP), and its midstream energy services include gathering, processing, transportation and storage of natural gas, natural gas liquids fractionation, import and export terminaling, and offshore production platform services.
One reason why many analysts may like the stock might be its distribution coverage ratio. That ratio is well above one-times, making it relatively less risky among its peers. The company’s distributions have grown for several quarters, and last year Enterprise Products announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.43 per common unit, or $1.72 per unit on an annualized basis.
Investors are paid a 5.92% distribution. The Merrill Lynch price target for the stock is $31 and the Wall Street consensus target is $33.50. Shares traded early Friday at $29.09.
This remains a top energy pick and is on the US 1 list at Merrill Lynch. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.
Exxon reported quarterly profits that fell short of analysts’ expectations, marking the fourth time in the past five periods the company has disappointed. The miss was largely due to weaker earnings in Exxon’s refining and marketing segment due to heavier-than-anticipated maintenance and operational problems. Exxon’s business producing oil and gas bolstered earnings, with the company saying it is favoring oil output over gas drilling in its U.S. shale fields.
Investors are paid a solid 3.98% dividend. Merrill Lynch has a price objective of $110, while the posted consensus target is $88.88. The shares traded at $82.58 Friday morning.