With earnings season winding down, many of the top firms we cover on Wall Street are making some changes to their list of high conviction stocks that they present to their institutional and high net worth clients. With 2016 returns still in the single-digit range, and some sectors that are very defensive starting to get very overbought, many of the top firms are shifting their sector balances away from what worked over the past year.
Despite the fact that energy has tumbled 20% from the highs posted in June, Jefferies remains bullish on the natural gas arena, and with good reason. Rising exports combined with unseasonably hot weather across the entire nation have kept demand solid, and many think it continues to stay that way. Range Resources Corp. (NYSE: RRC) is the new addition to the portfolio, while Gulfport Energy Corp. (NASDAQ: GPOR) has been cut.
Range Resources is a defensive natural gas stock that many on Wall Street like now and is added to the Franchise Picks portfolio. It operates as an independent natural gas, natural gas liquids (NGLs) and oil company. It engages in the exploration, development and acquisition of natural gas and oil properties.
The company holds interests in developed and undeveloped natural gas and oil leases in the Appalachian region of the United States. It owns and operates 4,462 net producing wells and approximately 905,000 net acres under lease in the Appalachian region, and 444 net producing wells and approximately 308,000 net acres under lease in the Texas Panhandle, as well as in the Anadarko Basin of western Oklahoma, the Nemaha Uplift of Northern Oklahoma and Kansas and the Permian Basin of West Texas and Mississippi.
Range Resources markets and sells natural gas to utilities, marketing and midstream companies and industrial users; NGLs to natural gas processors or users of NGLs; and oil and condensate to crude oil processors, transporters and refining and marketing companies. As of December 31, 2015, it had proved reserves of 9.9 trillion cubic feet of natural gas equivalents and will continue to pursue an organic growth strategy targeting high return, low-cost projects within its large inventory of low risk, development drilling opportunities.
Gulfport Energy is one of the favorites around Wall Street among the smaller more nimble companies, but it was removed from the Jefferies Franchise Picks portfolio. It is an independent oil and natural gas exploration and production company with its principal producing properties located in the Utica Shale of eastern Ohio and along the Louisiana Gulf Coast. In addition, Gulfport holds a sizable acreage position in the Alberta Oil Sands in Canada through its 24.9% interest in Grizzly Oil Sands.
Gulfport is a favorite of hedge fund managers. In fact, according to Insider Monkey, 36 hedge funds owned positions in the stock late last year. The shares hit some weakness on gas prices and a lower growth outlook, a move lower many believe is overdone and recent stock movement seems to have confirmed. With a multiple in line with peers and an expected ramp-up in production this year, the stock may be a great value at current levels, despite the recent big rally.
The Jefferies price target for Range Resources is $50. The Wall Street consensus price target is posted at $49.09. Shares closed Thursday at $40.77.
Gulfport Energy remains rated Buy, and Jefferies has a $36 price target, the same as the consensus target. The stock closed Thursday at $28.70.