With the major indexes up over 20% in 2019, which is looking to come in as the best year for investors since 2013, it has been a banner year for stockholders in almost all sectors. One group that isn’t so happy is energy shareholders, who have suffered not only this year, but for the past few years.
One Wall Street firm predicts that the next few years could bring a turnaround for the top companies in the beleaguered sector, because the turnaround in oil pricing could be dramatic.
A new Raymond James research report sees solid price movement for both benchmarks starting in the second half of 2020. For 2020, West Texas Intermediate crude is expected to average $65 a barrel and Brent $70. For 2021, the analysts see WTI averaging $75 a barrel and Brent $80. Those are huge moves from the current $59.02 for WTI and $64.45 for Brent.
The analysts cite not only the recent OPEC production cuts, but the continuing drop in the domestic oil rig count. The report noted this:
We are updating our oil model and forecast following OPEC’s meeting last week. First, the “good news”: the OPEC+Russia coalition up-sized its production cuts by an additional 500,000 barrels per day. Furthermore, it has become even more evident that U.S. oil producers will take a cautious stance on 2020 capital spending, which translates into an even lower rig count and even slower production growth than we had been modeling.
We screened the Raymond James energy universe looking for companies rated Strong Buy and found six outstanding stocks for investors to consider now.
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 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.
The company has reported strong earnings as well, but it still has a lot of upside to the posted price targets.
Concho Resources pays a small 0.65% dividend. The Raymond James price target is for the shares is $90, and the Wall Street consensus target is $101.09. Shares closed trading on Monday at $76.59.
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.
Shareholders receive a 0.61% dividend. Raymond James has a $40 price objective, while the consensus target is $42.24 level. Shares were last seen at $33.18.
This top Permian Basin play for more aggressive accounts could be a takeover target. 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.
Diamondback’s activities are focused primarily on the horizontal exploitation of multiple intervals within the Wolfcamp, Spraberry, Clearfork and Cline formations.
Wall Street analysts have noted in the past Diamondback Energy’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. It 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.
The $120 Raymond James price target is lower than the $124.50 consensus target. Shares closed Monday at $83.78.