This company has very large exposure to crude oil. Continental Resources Inc. (NYSE: CLR) is primarily a producer of onshore U.S. oil and has positioned itself in two growing hydrocarbon discoveries in the country: 1) the Bakken oil play in Montana and North Dakota, and 2) the SCOOP/STACK in Oklahoma, giving the company good growth opportunities for years to come.
Many on Wall Street feel that the company’s investment thesis is virtually unmatched. Investors get core Permian-like acreage at a non-Permian valuation. Of greatest importance, Continental is one of few diversified large-cap stocks that offers investors exposure to low-cost oil outside of the Permian. With current capacity and distribution issues in the Permian, this is another solid reason to own shares.
Driven by significantly better results when utilizing the high-intensity completions, and having an unhedged 2018 and 2019 oil production profile, Continental Resources is estimated to generate a 5.4% to 5.6% free cash flow yield at the strip. Toss in an expansive low-cost oily resource inventory that could provide decades of drilling locations with a reasonable valuation, and the shares are compelling.
Continental reported record third-quarter production levels as earnings topped analysts’ expectations. The $77 Stifel price target compares with the $76.68 consensus target. Shares closed Wednesday at $52.68.
This is a top Permian Basin play for more aggressive accounts. 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.
Stifel has set its price target at $199. The consensus target is $171.36, and shares closed Wednesday at $112.36. The company is due to report results on November 6.
Pioneer Natural Resources
Many Wall Street analysts love this stock for a pure crude oil play. Pioneer Natural Resources Co. (NYSE: PXD) operates a modern fleet of more than 24 top performing drilling rigs throughout onshore oil and gas producing regions of the United States and Colombia. Pioneer production services are supported by 100 well-servicing rigs, more than 100 cased-hole, open-hole and offshore wireline units, and a range of advanced coiled tubing units.
Pioneer is a huge player in the Permian Basin and the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second-largest oil reservoir in the Midland Basin. With a stellar balance sheet, the company is poised to remain a top player in the Permian as it expects to deliver solid production growth in 2018 and beyond.
The company’s unmatched depth of low-cost inventory and balance sheet allow it to compete favorably in both mild and moderate recovery case scenarios. In addition to asset and financial strength, many analysts feel that Pioneer offers the second highest multiple contraction among the large-cap Permian pure-play peers, as well as the highest free-cash-flow yield.
Investors receive a 0.05% dividend. The Stifel price target is a stunning $346, while the consensus figure is just $246.37. Pioneer closed on Wednesday at $147.27 a share. It also expected to report results on November 6.
These five top companies are all trading well below 52-week highs and offer outstanding entry points for investors looking to add or increase their energy holdings. In addition, these companies are industry leaders, which offers a degree of safety for investors as compared with smaller cap players.