This top mid/large cap pick is down 20% from highs printed last October and is on the Merrill Lynch US 1 list. Hess Corp. (NYSE: HES) is an exploration and production company that develops, produces, purchases, transports and sells crude oil, NGLs and natural gas. It primarily operates in the United States, Denmark, Equatorial Guinea, the Joint Development Area of Malaysia/Thailand, Malaysia and Norway.
The Merrill analysts are extremely bullish on the shares as they see multiple catalysts for the company this year. A recent research piece noted this:
With an inflection in free cash flow in the Bakken from 2020 and first oil from Guyana, we expect a dividend raise next year, the first since 2013. Management suggests a long term dividend target of ~$450 million may be appropriate, leaving headroom for significant share buy backs. While the share price has led many sector peers in 2019, we believe investor patience is starting to pay off with substantial exploration option value remaining, perhaps best characterized by Hess CEO John Hess: “we know we’re sitting on a pot of gold”
Hess shareholders are paid a 1.66% dividend. The $82 Merrill Lynch price target compares with a much lower consensus target of $65.50. The stock was last changing hands on Wednesday at $59.95, up well over 3% on the day.
Royal Dutch Shell
This is a top international play for investors looking to add energy exposure, and it posted solid fourth-quarter results. 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 shares and noted this when the company released earnings:
Fourth quarter 2018 saw solid earnings (8% beat vs. consensus) and $12.2 billion organic operating cash flow ahead of our already above-consensus estimate. $27 billion organic free cash flow in fiscal year 2018 significantly de-risks the company’s outlook for $25-30 billion in 2020 – funding $25 billion buybacks. Ongoing buybacks also underline continued capex discipline.
Investors here are paid a huge 4.96% dividend. Merrill Lynch has set a $70 price objective. The posted consensus figure was last seen at $78.13, and the stock closed most recently at $64.48 per share.
These four top stocks to Buy now all still have good upside to the Merrill Lynch price targets. Plus, they are all good investments for more conservative accounts looking to add energy exposure but wanting lower volatility.