Goldman Sachs Makes a Surprising Energy Addition to Its Conviction List

Energy

Published: August 14, 2020 7:22 am

With 2020 rolling right along and the third quarter already half over, many investors are resetting for what could be a very volatile rest of the year. The ongoing trade issues and political conflicts with China, geopolitical instability in the Middle East and social unrest here at home could continue to stir the pot. Toss in an election in less than 90 days, and an overbought market, and there could be some tough sledding ahead. While the rally off the March lows has been positive, it makes sense for investors to find the best possible stock ideas from the top analysts and firms.

One of Wall Street’s most respected lists of stocks to buy is the Goldman Sachs Conviction List. The list includes the firm’s top picks for high net worth and institutional accounts spread across 10 sectors. We constantly monitor the list for changes. This week, the analysts made a huge energy oilfield services addition to the list, Halliburton Co. (NYSE: HAL), while also removing another energy services company, Baker Hughes Inc. (NYSE: BKR), which remains Buy rated.

We also screened the list for other top energy picks and found four additional stocks to buy that look like good ideas for investors looking to add some energy exposure. While all five are outstanding energy ideas for more contrarian investors, it’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Halliburton

This stock is down almost 75% over the past two years and is the newest member of the Goldman Sachs Conviction List. Halliburton is one of the world’s largest providers of products and services to the energy industry.

The company serves the upstream oil and gas industry throughout the lifecycle of the reservoir – from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.

Halliburton is the second-largest provider of oil services and the number one player in pressure pumping services worldwide. The company’s business always has been dependent on commodity prices. While the benchmark price of oil has recovered nicely from the lows back in the spring, contrarians that see a path to higher oil prices could make some huge money here.

The analysts noted this:

We are adding Halliburton to the Conviction List given: 1) our view of greater earnings upside versus peer group in an oil price recovery, 2) significant structural cost-cutting in 2020 ($1 billion), which will create even greater operating leverage and thus earnings power out of the downturn, 3) strong international exposure (60% of revenues in 2021), which will drive long-term growth, and 4) robust free-cash-flow of $1 billion in both 2020 estimated and 2021 estimated (free-cash-flow yield of 8%).

Shareholders receive a 1.08% dividend. Goldman Sachs has a $20 price target on the shares, while the Wall Street consensus target is just $15.38 Halliburton stock closed Thursday’s trading at $16.65 a share.

ConocoPhillips

Shares of this large-cap company may offer solid upside potential for investors that are more conservative. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids worldwide.

Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects.

Many Wall Street analysts feel Conoco can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, with visibility on future growth from a sizable position in the Permian.

Investors receive a very reliable 4.13% dividend. The Goldman Sachs price target is $51, and the posted consensus target price is $50.85. Conoco stock was last seen trading at $40.63 per share.