Since touching a low of around $36 a barrel in late October, West Texas Intermediate (WTI) crude oil has added just over $16 to trade up by 46% as of Monday’s closing price. Over the same period, the share prices of six independent oil and gas exploration and production (E&P) companies have increased by a mean average of 93%.
Investors clearly believe that oil prices are set to go even higher this year as the world recovers from the COVID-19 pandemic and national economies emerge from the steep plunges of 2020. Ironically, perhaps, shares of electric vehicle (EV) makers have improved even more. Two of the hottest EV stocks, Tesla and Nio, have both doubled since last October.
EV stocks are a medium-term to long-term play while oil and gas E&P stocks are short-term to medium-term plays. The former represent growth stocks with a fabulous year behind them and a bright outlook for several years to come. Whether they are overpriced based on expected revenues and profits doesn’t really figure into a short year-or-two period.
Oil and gas stocks, however, are all about short-term returns, both in share price appreciation and dividend payments. Those returns depend on the commodity price of crude oil and natural gas combined with lower capital spending and reduced costs.
As a whole, the energy sector has lost about 30% of its valuation over the past 12 months. Here’s a look at six E&P companies that have a mean average loss of around 27.5% for the same period but that have, as a group, added an average of 25% to their share prices since the beginning of 2021. Crude has added about 9.3% during the same few days.
Occidental Petroleum Corp. (NYSE: OXY) has seen its share price rise by more than 29% since the beginning of the year. The stock dropped by 58% last year, but its current spurt has cut that decline in half. Rising crude prices play a role, certainly, but Oxy was the second-worst-performing S&P 500 stock of 2020. Its consensus price target is $16.88, and shares traded at around $21.90 Tuesday morning.
Oxy pays an annual dividend of $0.04 per share (yield of 0.20%) and is tabbed to post a loss of $3.74 a share for 2020 and $1.57 per share in 2021. At a recent price of around $22.10, the potential upside to the 52-week high of $47.58 is 54% and the potential upside to a high price target of $29 a share is nearly 33%. The consensus price target on the stock is $21.90. Mizuho analysts on Tuesday raised their rating on Occidental stock from Neutral to Buy and lifted the price target from $11 to $26.
Last year, Marathon Oil Corp. (NYSE: MRO) saw its share price decline by 50%. Since January 4, shares are up nearly 24%. Floating on hopes that crude prices will continue to improve this year, the consensus price target on Marathon’s stock is $7.84, compared to a current price of around $8.20.
Marathon has suspended its dividend and is expected to post a net loss of $0.06 per share in 2021. At its recent price, shares trade about 39% below the 52-week high of $13.47 and 59% the high price target of $13 a share. Mizuho also raised its rating on Marathon from Neutral to Buy and raised the price target from $6 to $11.
After dropping by nearly 41% in 2020, Apache Corp. (NASDAQ: APA) stock has regained more than half that loss by posting a jump of 25% so far in 2021. The consensus price target is $16.72, and shares recently traded around $17.80.
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