Energy Business

Goldman Sachs Has 5 Top Oil Picks for Gains Into 2021


This top pick is still down a stunning 35% this year and actually could be a takeover target. 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.

Goldman Sachs feels this is one of the best energy plays globally:

At the core of Brian Singer’s positive view on Hess is the growth driven from Guyana. While we recognize Exxon is the operator and has executed well in finding/developing resources in the region, we believe investors can get greater leverage to Guyana as a percentage of the enterprise value through Hess, without the declines in the base assets that Exxon is likely to experience.

Shareholders receive a 2.17% dividend. The whopping $66 Goldman Sachs price target compares with the $57.91 consensus target. Hess stock closed Monday’s trading at $46.04.

Marathon Petroleum

This is a very solid way for more conservative accounts to play the energy sector, and it is another U.S. Conviction list stock. Marathon Petroleum Corp. (NYSE: MPC) is one of the largest independent petroleum refining and marketing companies in the United States.

Until just recently, the company operated approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, it operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.

In August, the company announced it would sell Speedway to 7-11 in an all-cash deal valued at $21 billion, or $16.5 billion after-tax. The sale transforms the company’s balance sheet and creates options to revisit the corporate structure of MPLX. Many across Wall Street feel that with Speedway removed, the dislocation in refining value becomes even more transparent as the company trades much cheaper than its industry peers do.

The analysts said this about the Speedway sale:

The company has indicated that it will significantly strengthen its balance sheet with the cash and return excess capital to shareholders in the form of buybacks. While Exxon trades at a valuation premium to its sum-of-the-parts, we continue to highlight that Marathon Petroleum trades at a discount to its sum-of-the-parts valuation.

Holders of Marathon Petroleum stock receive a 6.54% dividend. Goldman Sachs has set a $44 price target. The consensus target is higher at $48.57, but shares closed most recently at $35.46.

Pioneer Natural Resources

Many Wall Street analysts love this stock for a pure crude oil play, and it is also a U.S. Conviction list member. Pioneer Natural Resources Co. (NYSE: PXD) operates a modern fleet of more than 24 top performing drilling rigs throughout onshore oil and gas producing regions of the United States and Colombia. Pioneer production services are supported by 100 well-servicing rigs, more than 100 cased-hole, open-hole and offshore wireline units, and a range of advanced coiled tubing units.

Pioneer is a huge player in the Permian Basin and in the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second-largest oil reservoir in the Midland Basin. With updated 2020 and 2021 hedging adding $1.2 billion to cash flow estimates over next two years, a new $900 million credit facility further enhances liquidity. In addition, the Gulf coast marketing makes Pioneer less exposed to widening Midland differentials.

The Goldman Sachs report noted this:

By owning Pioneer, investors have access to a Permian growth and corporate free-cash-flow story, but with better asset level and corporate level operating/financial metrics. While Exxon has a higher fixed dividend yield, we note Pioneer could have an improved dividend if the cycle improves given the introduction of its variable dividend framework.

Investors receive a 2.12% dividend. The Goldman Sachs price target is $127. The consensus target is $129.48. Pioneer Natural Resources stock closed Monday at $103.93.

While oil has had a sparkling run off the lows back in the spring, West Texas Intermediate is just barely over the $40 a barrel level, and any sustained reopening of the economy and a return to normal could easily spike the price as much as 20% or more. These five stocks are solid ways for investors to play an upswing in oil and an improving 2021 economy.

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