One thing has become blatantly obvious as the Organization of the Petroleum Exporting Countries (OPEC) struggled when oil fell back into the $40s in December and January. The organization is committed to propping the price up, even if it means losing market share to U.S. producers, especially the big shale players. With Morgan Stanley out this week saying that there was the potential for Brent crude to hit $75 a barrel in the third quarter, that would probably mean the mid-$60s for West Texas Intermediate, based on the current spread.
With oil hitting the $60 mark on Wednesday, the highest print this year, that means there probably is still upside, and there is a good chance that OPEC rolls over the production cuts this summer, or even moves them higher. Toss in the potential for continued restrictions on Iran and Venezuela, and you have the potential for a supply problem.
We screened the Merrill energy research universe looking for large-cap plays that are rated Buy and pay solid dividends. Four look like very good stocks to buy now, as spring is here, and summer right around the corner.
This top stock is still down a 30% from highs printed in October, and it is also a solid liquefied natural gas (LNG) play. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate and natural gas liquids (NGLs). The other segments are Midstream and Marketing.
Anadarko has the capacity to sustain planned stock buybacks at current levels, providing support to close a value gap that many on Wall Street see at 50%. Strong free cash flow, enabled by advantaged Brent leverage, has competitive free cash compared with traditional large-cap “yield” names, but with competitive growth potential. The company has made a transition toward compelling value with growth and yield.
Anadarko Petroleum shareholders are paid a 2.72% dividend. The Merrill Lynch price target for the stock is a whopping $80. That compares with the Wall Street consensus price objective of $68.17. The shares closed trading Wednesday at $45.40 apiece.
This remains a top Wall Street energy pick and has bounced back nicely from the December lows. 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.
For 75 years in a row, Exxon Mobil has its dividend. Thanks to its vertically integrated model in the oil and gas business, its profitability doesn’t suffer through commodity price swings like a company that’s a pure play in one segment of the value chain.
Shareholders of Exxon are paid a nifty 4.03% dividend. Merrill Lynch has a price objective of $105, while the posted consensus target price is just $83.99. The stock closed Wednesday at $81.32 a share.