On Friday, January 1, 2021, West Texas Intermediate crude was trading at $48.52 a barrel and Brent crude at $51.82. Both are now hovering just below the $85 mark, and the analysts at Goldman Sachs think that $90 a barrel is all but a given, despite some of the factors that resulted in some selling last week. With oil currently at the highest levels in seven years, many investors and traders may be thinking it’s time to sell, but the reality is that many of the stocks in the industry, while certainly higher than in January, have room to run.
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Numerous items highlight the recent pullback, not the least of which is more production coming online. The speed that the economy has come back and the reluctance of OPEC to ramp up output means higher prices are almost a given. The Goldman Sachs report said this:
After reaching their highest level in seven years, oil prices sold off last week, raising questions on whether the recent rally had overshot fundamentals. We believe instead that this move lower is only a short-term and transient pull-back in an otherwise intact bull market. The sell-off was triggered by news that Iran was working on a potential return to negotiations and exacerbated by the sell-off in Chinese coal and European gas prices on comments that Russia could start filling its European storage. Importantly, neither of these headlines represent shifts in fundamentals. Even if negotiations with Iran restart, the path to a deal could take time and our assumption that exports resume in April may still prove too optimistic.
We screened the Goldman Sachs energy research universe looking for companies with solid upside potential and that paid solid and dependable dividends. These four make sense for investors looking to have an energy position but wary of the big move the sector has made.
Enterprise Products Partners
This is the largest publicly traded energy partnership and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) provides a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, natural gas liquids fractionation, import and export terminaling, and offshore production platform services.
One reason many analysts like the stock might be its distribution coverage ratio. This ratio is well above 1 times, making it relatively less risky among the master limited partnerships.
Enterprise Products Partners stock investors receive a 7.89% distribution. The Goldman Sachs price target of $26 is less than the $28.28 consensus target. Shares closed on Monday at $22.80.
Exxon Mobil
Shares of this mega-cap energy leader backed up nicely as oil sold off in August, and they still offer investors an incredible entry point. 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.
Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.
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