Written by Norman Isaac Mwambazi

20 of Wall Street’s favourite energy stocks

In our previous article, we explored the dramatic rise in crude oil prices- the highest level in six years- after …

In our previous article, we explored the dramatic rise in crude oil prices- the highest level in six years- after oil-producing countries under their umbrella body OPEC+ failed to reach a deal over the weekend that was intended to increase oil output to match the increased demand as the world recovers from the pandemic.

During the meeting, major oil-producing countries Saudi Arabia and the United Arab Emirates (UAE), had a stalemate over production cuts. The UAE sought better terms that would change how its quota is calculated, which would allow it to produce more. Talks have since been postponed to a future communicated date that has not yet been communicated.

As a result, crude oil prices increased, and it is way above break-even prices for U.S. shale producers. As the world economy recovers from the effects of the COVID-19 pandemic, and with oil-producing companies posting better finances resulting in their stock getting favourable “Buy” reviews; investment analyst Philip van Doorn has used data from FactSet and his contacts on Wall Street to provide a list of 20 energy stocks Wall Street analysts have given buy reviews.

Oil stocks running behind oil prices

Recently, there has been an argument among Wall Street analysts that moves along the line of oil stocks running way behind the recent price action. Yesterday, July 6, 2021, each Crude Oil barrel at West Texas Intermediate (WTI) for August delivery was trading above $76 on the New York Mercantile Exchange.

There is a critical relationship between the spot price and production break-even prices for U.S. shale oil producers for their new wells. According to a survey conducted in March 2021 by the Federal Reserve Bank of Dallas, this spot price ranged between $46 to $58 a barrel. In order to put this into context, it is essential to note that many investors evaded oil stocks over six months ago when West Texas Crude was trading for about $48.50 at the end of 2020. Now that it has gained close to $30 in these past six months, investors could be enticed into picking up oil stocks given their continued upward movement.

Criteria used

Before we get to the list, we would like to let you know the Doorn criteria used to sieve out 20 of the best oil producers and related companies’ stocks to arrive at these 20 stocks. Doorn used the broader S&P 1500 because the benchmark S&P 500 only includes 22 oil stocks. The S&P 500 had more oil stocks, but some stocks dropped because their market capitalisation significantly decreased due to the COVID-19 pandemic. Before the pandemic, the oil stocks that dropped out had been declining in market value since 2014 when oil prices peaked.

In the broader S&P 1500, 64 oil companies were shortlisted for this analysis. However, Doorn also looked at 17 pipeline Master Limited Partnerships (MLP) performances that are not listed on both the S&P 500 and S&P 1500 indexes but are held by the Alerian MLP ETF, bringing the total energy companies analysed to 81. Although the pipelines are generally considered income plays, you are advised to do research about their complicated tax structures before considering them for investment.

According to data provided by FactSet, 36 of these 81 energy stocks have been given “buy” or equivalent ratings by the majority of at least five Wall Street investment and financial analysts working for brokerage firms. Of the 36, the 20 oil stocks that analysts set the highest price targets expected in the next 12 months are included on this list.

The list

Company TickerShare “buy” ratingsClosing price – July 2Consensus price targetImplied 12-month upside potentialDividend Yield
Renewable Energy Group Inc.REGI77%$61.80$85.9239%0.00%
Energy Transfer L.P.ET83%$10.71$13.5627%5.70%
PDC Energy Inc.PDCE89%$46.67$58.9426%1.03%
CNX Resources Corp.CNX54%$13.51$17.0026%0.00%
Pioneer Natural Resources Co.PXD81%$166.74$207.3824%1.34%
Dorian LPG Ltd.LPG86%$13.75$17.0024%0.00%
Bonanza Creek Energy Inc.BCEI100%$49.57$61.1723%2.82%
Devon Energy Corp.DVN85%$29.23$36.0623%1.51%
EQT Corp.EQT77%$21.61$26.0220%0.00%
Penn Virginia Corp.PVAC80%$25.52$30.4019%0.00%
Green Plains Inc.GPRE100%$33.51$39.7519%0.00%
 ConocoPhillipsCOP94%$62.75$74.0018%2.74%
 Marathon Petroleum Corp.MPC78%$61.07$71.8818%3.80%
Valero Energy Corp.VLO84%$78.07$91.8118%5.02%
Talos Energy Inc.TALO88%$16.09$18.7116%0.00%
Baker Hughes Co. Class ABKR88%$23.55$27.3216%3.06%
Chevron Corp.CVX56%$106.07$122.5216%5.05%
Enterprise Products Partners L.P.EPDI96%$24.59$28.3315%7.32%
EOG Resources Inc.EOG69%$85.77$97.1113%1.92%
Phillips 66PSX78%$87.90$98.9413%4.10%

Source: FactSet

Key takeaways

All these stocks have an implied 12-month growth potential of more than 10%, with the highest being Renewable Energy Group Inc. standing at 39%. Consensus analysts gave this stock a 77% buy rating. The company, which is headquartered in Ames, Iowa, United States, has a market capitalisation of $2.93 billion. Renewable Energy Group Inc. has been a Fortune 1000 company since 2018.

Phillips 66 wraps up the list in the 20th position, as its implied 12-month growth potential is 13%. Wall Street analysts gave this company’s stock a 78% buy rating. Headquartered in Houston, Texas, United States, Phillips has a market capitalisation of $36.68 billion.

Most oil companies were forced to cut their dividends and reinvest during the pandemic, so, understandably, six companies on this list have 0.00% dividend yields. However, 14 companies have kept up with dividends, and four have dividend yields above 5%.

Two companies scored 100% buy rating: Bonanza Creek Energy Inc. (market cap: $1.46 billion), headquartered in Denver, Colorado, United States, and Green Plains Inc. (market cap: $1.47 billion), headquartered in Omaha, Nebraska, United States.

PS: This list is provided for guidance and education purposes. You are advised to make research before committing yourself to invest in these companies. The prices quoted in this article are subject to change at any time.