Philip van Doorn

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July 21, 2019, 7:30 a.m. EDT

Oil stocks have lagged the S&P 500 in 2019 but Wall Street loves them

Seven of the 10 stocks with the highest upside potential over the next 12 months, based on analysts’ price targets, are in the oil business

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By Philip van Doorn, MarketWatch


Marathon Petroleum Corp.
A Marathon Petroleum refinery.

A screen of the S&P stocks shows something remarkable: the stocks that Wall Street analysts have the most confidence in are concentrated in the oil and gas industry.

There are 80 stocks in the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.78% with “buy” or equivalent ratings from at least 75% of sell-side analysts polled by FactSet. Among those 80, here are the 10 with the highest 12-month upside potential, based on the analysts’ mean price targets:

Company Ticker Industry Share 'buy' ratings Share neutral ratings Closing price - July 16 Consensus price target Implied 12-month upside potential
Halliburton Co. /zigman2/quotes/210488727/lastsale HAL Oilfield Services/ Equipment 85% 15% $22.88 $34.93 53%
Concho Resources Inc. /zigman2/quotes/208942254/lastsale CXO Oil & Gas Production 89% 11% $98.80 $145.38 47%
Noble Energy Inc. /zigman2/quotes/210375673/lastsale NBL Oil & Gas Production 76% 24% $21.10 $30.92 47%
Diamondback Energy Inc. /zigman2/quotes/201200230/lastsale FANG Oil & Gas Production 100% 0% $104.11 $150.14 44%
Marathon Petroleum Corp. /zigman2/quotes/207091523/lastsale MPV Oil Refining/Marketing 95% 5% $55.68 $79.11 42%
Pioneer Natural Resources Co. /zigman2/quotes/206736173/lastsale PXD Oil & Gas Production 88% 12% $140.06 $193.79 38%
Tapestry Inc. /zigman2/quotes/207417762/lastsale TPR Apparel/Footwear Retail 82% 18% $31.20 $43.15 38%
LKQ Corp. /zigman2/quotes/210317139/lastsale LKQ Automotive Aftermarket 93% 7% $26.99 $37.00 37%
Centene Corp. /zigman2/quotes/208900023/lastsale CNC Managed Health Care 88% 12% $53.74 $73.53 37%
EOG Resources Inc. /zigman2/quotes/204634330/lastsale EOG Oil & Gas Production 84% 16% $87.00 $114.57 32%

So seven of the 10 “favorites” are energy names.

One problem with sell-side analysts’ price targets is that they look out only 12 months. That is actually a short period for many long-term investors, especially when you consider that the price of West Texas Intermediate crude oil /zigman2/quotes/209723049/delayed CL00 -6.04%  (WTI) is about half its peak of $114.08 hit on April 29, 2011.

Recovery, reversals and a lack of faith

The price of WTI has risen 28% since the end of 2018, but the S&P 500 energy sector has lagged way behind:


FactSet

Even when reinvested dividends are included, the energy sector’s return has been less than half of the oil-price increase this year.

Looking at a one-year chart comparing WTI and the S&P 500 energy sector, the two have moved roughly in tandem:


FactSet

But the two-year chart has the energy sector trailing very far behind oil prices:


FactSet

It seems investors didn’t buy the steady increase in WTI through early October last year, and they have been similarly unimpressed with the 2019 price recovery that has followed a brutal reversal.

Record production but lower shale spending

When discussing oil services and equipment stocks with MarketWatch in late May, Phil Flynn, a senior market analyst at Price Futures Group who writes a daily energy report , said that part of the energy sector was hit particularly hard when oil prices slumped. U.S. shale oil producers significantly reduced their capital spending after that.

So even through U.S. oil production hit a record level in 2018 and a monthly record in April , according to the U.S. Energy Information Administration, domestic production growth over the next few years may be curtailed as demand for oil and gas is increases. Indeed, the number of active U.S. oil rigs declined to a 17-month low last week .

So there is a case to be made for a better supply/demand setup for oil bulls over the next several years, even though the International Energy Agency expects this year’s oversupply to continue in 2020 .

/zigman2/quotes/210599714/realtime
US : S&P US
2,561.28
+19.81 +0.78%
Volume: 201.37M
March 30, 2020 9:38a
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/zigman2/quotes/210488727/lastsale
US : U.S.: NYSE
$ 6.09
-0.30 -4.69%
Volume: 357,847
March 30, 2020 9:38a
P/E Ratio
N/A
Dividend Yield
11.27%
Market Cap
$5.62 billion
Rev. per Employee
$399,917
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/zigman2/quotes/208942254/lastsale
US : U.S.: NYSE
$ 40.50
-1.61 -3.82%
Volume: 17,844
March 30, 2020 9:38a
P/E Ratio
N/A
Dividend Yield
1.90%
Market Cap
$8.28 billion
Rev. per Employee
$2.76M
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/zigman2/quotes/210375673/lastsale
US : U.S.: Nasdaq
$ 4.96
-0.41 -7.56%
Volume: 322,506
March 30, 2020 9:38a
P/E Ratio
N/A
Dividend Yield
8.96%
Market Cap
$2.60 billion
Rev. per Employee
$1.91M
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/zigman2/quotes/201200230/lastsale
US : U.S.: Nasdaq
$ 22.74
-1.13 -4.73%
Volume: 135,097
March 30, 2020 9:38a
P/E Ratio
17.14
Dividend Yield
6.28%
Market Cap
$3.78 billion
Rev. per Employee
$3.06M
loading...
/zigman2/quotes/207091523/lastsale
US : U.S.: NYSE
$ 10.98
-0.52 -4.52%
Volume: 30,073
March 27, 2020 6:30p
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/zigman2/quotes/206736173/lastsale
US : U.S.: NYSE
$ 64.81
-3.29 -4.82%
Volume: 25,213
March 30, 2020 9:38a
P/E Ratio
15.16
Dividend Yield
3.23%
Market Cap
$11.38 billion
Rev. per Employee
$2.95M
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/zigman2/quotes/207417762/lastsale
US : U.S.: NYSE
$ 13.68
-0.23 -1.65%
Volume: 42,029
March 30, 2020 9:38a
P/E Ratio
6.73
Dividend Yield
9.71%
Market Cap
$3.84 billion
Rev. per Employee
$287,889
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/zigman2/quotes/210317139/lastsale
US : U.S.: Nasdaq
$ 20.62
-0.74 -3.46%
Volume: 64,082
March 30, 2020 9:38a
P/E Ratio
12.26
Dividend Yield
N/A
Market Cap
$6.57 billion
Rev. per Employee
$232,876
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/zigman2/quotes/208900023/lastsale
US : U.S.: NYSE
$ 56.53
+1.43 +2.60%
Volume: 34,555
March 30, 2020 9:38a
P/E Ratio
17.52
Dividend Yield
N/A
Market Cap
$32.33 billion
Rev. per Employee
$1.27M
loading...
/zigman2/quotes/204634330/lastsale
US : U.S.: NYSE
$ 34.22
-1.78 -4.94%
Volume: 81,389
March 30, 2020 9:38a
P/E Ratio
7.64
Dividend Yield
4.17%
Market Cap
$20.95 billion
Rev. per Employee
$6.17M
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/zigman2/quotes/209723049/delayed
US : U.S.: Nymex
$ 20.21
-1.30 -6.04%
Volume: 285,154
March 30, 2020 9:28a
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