7 Oil Stocks With at Least 25 Percent Upside

Oil prices may be nearing a peak.

With both Brent and West Texas Intermediate oil prices bouncing higher in recent months, additional upside to oil prices may be limited in the near term. According to Bank of America analyst Doug Leggate, oil investors should now shift gears from identifying recovery story oil stocks and focus on oil stocks that offer a compelling value and/or high dividend yield. Leggate says there are plenty of value opportunities for investors who believe $70 oil is here to stay. Here are seven oil stocks Leggate says are undervalued by at least 25 percent.

Noble Energy (ticker: NBL)

Leggate says Noble Energy could potentially add about $3 per share in value if partner Delek Israel is able to negotiate a partial acquisition of the Eastern Med Gas pipeline, which would allow gas to be imported from Israel to Egypt. However, even without an Egypt deal, Leggate says NBL stock is significantly undervalued based on its debt-adjusted cash flow. He says Noble’s 2019 uptick in cash flow is the clearest catalyst in the oil sector. Bank of America has a “buy” rating for NBL stock, and its $64 price target implies more than 100 percent upside.

California Resources Corp. (CRC)

California Resources owns oil and gas assets throughout California that produce 140,000 barrel of oil equivalents (BOE) per day. Leggate says oil prices of at least $65/bbl should enable the company to grow annual production between 3 and 5 percent. He is cautious about California Resources’ leverage, but says there is minimal risk of a liquidity squeeze given the company’s next major credit event won’t take place until 2021. Bank of America has a “buy” rating for CRC stock, and its $70 price target implies more than 40 percent upside.

Newfield Exploration Co. (NFX)

After Newfield Exploration disposed of most of its offshore and international assets, roughly 508 million BOE of its remaining 513 million BOE in proved reserves are now in the U.S. market. Leggate says Newfield stock has lagged thanks to conservative company guidance, which assumes oil prices of between $50 and $60/bbl. He says Newfield has an attractive combination of a compelling valuation and a conservative balance sheet. Bank of America has a “buy” rating for NFX stock, and its $45 price target implies more than 50 percent upside.

Pioneer Natural Resources (PXD)

Pioneer is an oil and natural gas producer with a heavy weighting of oil production in the North American Permian Basin and Eagle Ford Shale. Pioneer management has been executing its long-term strategy to become a Permian “pure-play” by divesting many of its non-core properties in Eagle Ford and South Texas. Leggate says its high-quality Midland Basin assets and its solid balance sheet make Pioneer one of the lowest-risk growth stocks in the sector. Bank of America has a “buy” rating for PXD stock, and its $265 price target implies more than 40 percent upside.

Anadarko Petroleum Corp. (APC)

Anadarko is an oil major with more than 90 percent of its 1.7 billion BOE of proved assets concentrated in the U.S. Although Anadarko’s core assets are in the Rocky Mountains and Texas, Leggate says the market doesn’t seem to fully appreciate its $3.5 billion operation in Mozambique and its $8.5 billion ownership stake in master limited partnership Western Gas Equity Partners (WGP). Bank of America has a “buy” rating for APC stock, and its $100 price target implies more than 40 percent upside.

Exxon Mobil Corp. (XOM)

Exxon may not have as much growth potential as some its smaller competitors, but its 3.8 percent dividend yield is among the highest in the sector, and Leggate says there is significant value in the stock at its current price. Exxon management says the second quarter was a low point for its oil and gas production, and Leggate says the stock doesn’t reflect the company’s underlying earnings, cash flow and capital return potential. Bank of America has a “buy” rating for XOM stock, and its $110 price target implies more than 25 percent upside.

Occidental Petroleum Corp. (OXY)

Occidental has core oil and natural gas assets in the U.S. Permian Basin, Latin America, the Middle East and North Africa. Like Exxon, OXY pays a generous 3.8 percent dividend. Leggate says Occidental has plenty of cash flow to cover its dividend commitments, continue its share buybacks and accelerate its revenue growth. He says Occidental’s dividend yield and Permian growth opportunities make it a unique investment among its peers. Bank of America has a “buy” rating for OXY stock, and its $105 price target implies more than 25 percent upside.

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7 Oil Stocks With at Least 25 Percent Upside originally appeared on usnews.com



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