If any group of investors feels like they are tardy to the party, it’s those in the energy sector, and with good reason. While the price of West Texas Intermediate crude is up a stunning 46% from the lows posted in late December, stocks in the energy sector are lagging that huge move by a large margin. In fact, the Energy Select Sector SPDR (NYSEARCA: XLE) fund, which tracks the sector, is only up 16.5% since the lows, not even matching half the crude price move.
Given the huge disparity in the price levels, we screened the Merrill Lynch energy research database looking for stocks that had big upside potential to the firm’s posted target prices. We found five that look like outstanding plays going forward, and with the busy summer driving season right around the corner, now may be a great time to add shares.
Anadarko Petroleum
This top stock is still down a stunning 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 2.70% dividend. The Merrill Lynch price target for the stock is a stunning $80. The Wall Street consensus price objective is much lower at $66.89, and the shares closed trading on Wednesday at $44.47 apiece.
Concho Resources
Last year, this company bought RSP Permian for $9.5 billion, and most on Wall Street loved the deal. Concho Resources Inc. (NYSE: CXO) is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties.
It offers investors a unique combination of investment themes, including valuation, rate-of-change and resource expansion themes. The company is the largest acreage holder of the publicly traded Permian large-caps and provides investors peer-leading exposure to three of the most impactful catalysts across the Delaware Basin, including the Wolfcamp XY, Wolfcamp D and Bone Spring Shale.
Concho Resources has reported strong earnings but still has a lot of upside to the posted price targets.
The company pays a small 0.45% dividend. Merrill Lynch has a price target of $155, and the posted consensus target is $157.18. The stock closed most recently at $108.87 per share.
Exxon Mobil
This remains a top Wall Street energy pick, and it 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.
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