Energy

5 Oil Stocks Analysts Want You to Buy Now

The recent drop in oil prices has created a situation that is very complex for investors. Oil has become cheap again and the stocks tracking the oil and gas sector have tanked to the point that at least some investors think they might be attractive or would at least be considered value stocks.

Many investors have started asking analysts, their brokers and advisors, friends in the oil patch, and anyone else with an opinion, which energy stocks they should be buying.

24/7 Wall St. tracks many analyst calls each day of the week. Some analyst calls cover stocks to buy and some cover stocks to sell. We have found several key analyst calls related to the oil patch where analysts are starting to recommend energy stocks with Buy and Outperform ratings again.

There are of course some calls out there in the more speculative stocks we have seen, but the oil stocks featured here are generally larger in market capitalization and tend to be considered less risky versus peers that are second- or third-tier outfits.

Included with a ratings synopsis is color on trading history and what other analysts might have recently had to say about these companies as well. Many of these shares are now handily off their highs.

ALSO READ: With Oil Cut in Half, Will Any of the Majors Cut Dividends?

24/7 Wall St. does have at least one word of warning or caution for investors who are looking to catch the bottom in oil prices. These calls may be upgrades or very positive after shares have pulled back in the oil and gas sector, but there is still an overwhelming majority of analyst calls in the oil patch that are continuing to downgrade or lower earnings estimates and price targets versus those saying to buy the stocks.

Here are five energy stocks in the oil patch in which analysts have made fresh calls with big upside targets.

Kinder Morgan

Kinder Morgan Inc. (NYSE: KMI) was started as Overweight with a $50 price target, versus a prior $42.01 closing price, at Barclays on Friday. The stock closed down marginally at $41.87 on Friday, and the Barclays target implies over 23% upside if you include the 4.3% dividend yield.

Now that the Kinder Morgan outfit has closed its master limited partnership (MLP) mergers and is simplified under a corporation structure, the dividend outlook is one that can likely keep rising, if oil prices recover back to above $60. The stock also has held up much better than peers, as the $41.87 price compares to a 52-week range of $30.81 to $43.18. Kinder Morgan’s consensus price target is closer to $47.

While this is no longer an MLP by definition, most of the closed-end mutual funds targeting the MLP sector have decided to hold the Kinder Morgan common shares rather than to sell them. Being on the infrastructure and transportation side of the business, with a toll road model, is supposed to come with some protection against the whims of pricing in the oil and gas markets.

ALSO READ: Companies Cutting the Most Jobs

Pioneer Natural Resources

Pioneer Natural Resources Co. (NYSE: PXD) was recently featured in a Jefferies report among five exploration and production companies that will survive lower oil prices. Jefferies had a $193 price target, implying upside of 21% from the $158.76 closing price on Friday.

This shale growth story has seen its shares lose one-third of the value from 2014 highs, but it owns over 20,000 locations in the world’s second largest oil reservoir in the Midland Basin and it owns its own fracking fleets that will allow Pioneer to be a low-cost and high-margin producer. With a big secondary last November and more asset sales on tap, the company could have balance sheet debt close to zero this year. Pioneer’s consensus price target is closer to $170.

Schlumberger

Schlumberger Ltd. (NYSE: SLB) was started as Outperform and with a $105 price target at BMO Capital Markets on Wednesday in a mixed sector call. This was versus an $88.89 prior close, and the closing price of $85.88 on Friday, along with a 2.3% dividend yield, leaves an implied upside of about 25%. The consensus price target was closer to $93 in the call.

Schlumberger is effectively the largest of the oil field services giants around the globe, and BMO believes this resilient stock is positioned to come back much more easily than many of its peers when the fundamentals work for the industry rather than against it.

Valero Energy

Valero Energy Corp. (NYSE: VLO) was listed this past week as one of four top refiners where the price targets were raised by Deutsche Bank. The firm also raised its rating to Buy from Hold and raised its price target to $70 from $60 in Thursday’s call. As a reminder, lower and stable oil prices are supposed to be the best climate for refiners. The call was partly based on having 56% of its refining capacity located in the U.S. Gulf Coast, which should help Valero to benefit from the ongoing infrastructure debottlenecking of inland crude oil supply in 2015 and beyond.

Valero investors are also paid a 2.7% dividend yield, and its forward price-to-earnings (P/E) ratio is close to 10. Its consensus price target is closer to $66 now. Earlier in the week we also saw that Credit Suisse raised its rating on Valero to Outperform from Neutral, with a $70 price target. This $70 target implies upside of about 18%, if you include the 2.7% dividend yield. Valero was also added to the prized Conviction Buy List at Goldman Sachs a week earlier, with a $69 price target.

ALSO READ: 5 Stocks Winning From Low Oil Prices

Weatherford International

Weatherford International PLC (NYSE: WFT) was also started as Outperform and with a $16 price target at BMO Capital Markets on Wednesday in that mixed sector call. This was versus a $12.56 prior close, while the $12.35 closing price on Friday leaves an implied upside of just under 30%.

Weatherford has a 52-week range of $9.40 to $24.88 and a consensus price target of just under $14. Be advised that this outfit is a more leveraged company than many other oil and gas stocks, and its 2015 earnings estimates have fallen to $0.16 per share from $1.50 per share in the past 90 days or so. It still has a market cap of nearly $10 billion.

Again, investors need to keep in mind that the trends in the oil and gas sector still appear to be for lower prices to prevail. These oil and gas giants do not lower capital spending plans and fire thousands of their workers if they expect oil prices to recover rapidly. Things were even getting bad enough that Warren Buffett has decided to unload his biggest oil bet of close to $4 billion in Exxon Mobil shares and in ConocoPhillips, as seen in his 2015 stock holdings.

Catching falling knives can be very a dangerous game for investors, and trying to pick an exact or hard bottom after a free fall can be reckless. That being said, investors who have no positions in oil stocks do not have to pile in all at once. Many investors start to build positions of battered stocks by slowly accumulating shares of stock over a period of months or quarters rather than piling in all at once, hoping to catch the exact bottom.

ALSO READ: Will $50 Oil Cost a Million Jobs?

Smart Investors Are Quietly Loading Up on These “Dividend Legends”

If you want your portfolio to pay you cash like clockwork, it’s time to stop blindly following conventional wisdom like relying on Dividend Aristocrats. There’s a better option, and we want to show you. We’re offering a brand-new report on 2 stocks we believe offer the rare combination of a high dividend yield and significant stock appreciation upside. If you’re tired of feeling one step behind in this market, this free report is a must-read for you.

Click here to download your FREE copy of “2 Dividend Legends to Hold Forever” and start improving your portfolio today.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.