Why Hammered Mega-Cap Integrated Oil May Be the Best 2019 Stock Picks

Print Email

Exxon Mobil

This remains a top Wall Street energy pick, and it 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.

When the company posted strong third-quarter results, the analysts noted this:

Solid quarter with earnings and cash flow beat on the downstream segment. Production beat looks like it is on Permian growth which we view as underappreciated aspect to the company’s story. All-in-all, we see the quarter as a welcome start to management plans to double cash flow by 2025 and retain our Buy rating.

Shareholders are paid a very solid 4.19% dividend. The $110 Merrill Lynch price objective is well above the $89.51 consensus target price. The shares were last seen at $78.96.

Royal Dutch Shell

This is a top international play for investors looking to add energy exposure. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and NGLs.

Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.

In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, LNG for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

Merrill Lynch remains bullish on the stock and noted this when earnings were released:

The company delivered $4.2 billion excess free cash flow in the third quarter and announced buyback acceleration in the fourth quarter. This signals managements confidence in free cash flow momentum despite a slight third quarter net income miss. We believe Royal Dutch Shell will deliver sector-leading 2020 free cash flow yield above 16%.

Investors are paid a huge 5.18% dividend. Merrill Lynch has set its price objective at $85. The consensus estimate is $82.63, and the stock ended the week at $62.02 per share.

I'm interested in the Newsletter
 

With oil at 2018 lows, these stocks are outstanding long-term buys for growth portfolios looking for income as well. With the sanctions on Iran fully in place, demand could soar, especially if we see positive trade deal negotiations. Plus, the long-term demand implications are not going away any time soon.