The price of West Texas Intermediate crude oil pushed back toward the $60 level on Monday as the Organization of Petroleum Exporting Countries (OPEC) member countries extended the production supply cuts, as many had anticipated. Toss in some stern warnings from the U.S. government to countries thinking of importing oil from Iran, and you have all the ingredients for a nice rally in the energy sector, which has underperformed the S&P 500 by a wide margin this year.
A new Goldman Sachs research report notes that total product inventories in the United States are well below the five-year average, and while demand concerns remain, the analysts remain bullish on some of the top companies.
The research report noted this:
Within the context of continued volatility in the Energy sector, we largely favor lower volatility, high-quality stocks that we believe provide a combination of strong corporate returns and free cash flow (or path to FCF). As we approach the second quarter 2019 results, we believe execution on stated capital/production guidance remains paramount as increased confidence that producers will not raise capital budgets moving into the second half of 2019 is still needed in our view.
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and LNG. Some on Wall Street estimate that the company will have a compound annual growth rate of over 5% for the next five years.
With Permian production and asset disposals targets reset, many analysts feel Chevron can raise the dividend 20% and buyback 15% of shares. The company’s strategy through 2020 is focused on discipline enabled by step change in capital efficiency driven by doubling Permian production.
Chevron shareholders receive an outstanding 3.81% dividend. The stock is on the Goldman Sachs Conviction Buy list with a $144 price target. The Wall Street consensus price target is $138.05, and shares closed Monday at $124.84.
This leading energy company’s stock is on the respected Goldman Sachs Conviction Buy List. EOG Resources Inc. (NYSE: EOG) is one of the largest independent exploration and production companies operating in the United States, Canada, Trinidad, the United Kingdom and China.
The company has a big well in Loving County in the Delaware Basin. Top analysts say the well ranks as one of the best they have ever seen in the basin, and it could easily affect other companies drilling in the region. EOG’s average dollar gross per well on a yearly basis ranks third among all operators.
Shareholders receive a 1.24% dividend. The $116 Goldman Sachs price target compares with the $119.64 consensus target. The stock closed at $93.09 on Monday.
Pioneer Natural Resources
Many Wall Street analysts love this stock for a pure crude oil play. 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 its stellar balance sheet, the company looks poised to remain a top player in the Permian because it expects to deliver solid production growth in 2019 and beyond.
Investors receive only a 0.42% dividend. Goldman Sachs has a $197 price target, while the consensus figure is $199.79. Shares closed most recently at $151.28.
This is a top Canadian energy play for investors to consider. Suncor Energy Inc. (NYSE: SU) operates as an integrated energy company and primarily focuses on developing petroleum resource basins in Canada’s Athabasca oil sands. It explores, acquires, develops, produces and markets crude oil and natural gas in Canada and internationally. Suncor also transports and refines crude oil, markets petroleum and petrochemical products primarily in Canada and markets third-party petroleum products.
With the North American majors pivoting more toward the Permian with potential free-cash-flow implications, the company does not expect its “industrial model” to change. The focus remains on reliable cash flow, steady capital allocation framework and top-tier cash returns. In addition, the company is trading at a discount to its historical multiple.
Shareholders receive a 4.03% dividend. The Goldman Sachs price objective is $39. The consensus target is $42.83, and shares last traded at $31.60.
It is very possible that oil and the energy sector as a whole will stay volatile, and these top stocks are solid plays for investors with a long-term view. With second-quarter earnings right around the corner, it may make sense to buy partial positions and see how the results come in.