The S&P 500 has churned in a fairly tight band of being down 6% to up 2% during 2014 as investors continue to digest the ongoing tapering by the Federal Reserve, as well the many non-domestic issues that have surfaced during the first quarter. Despite very solid pricing for oil and natural gas, the energy sector is Neutral rated at most of the firms we cover at 24/7 Wall St., and there are not many bullish takes on 2014.
In a new research report from Baird, they are right in line with the Wall Street consensus on energy. Their work has lacked the strength from the favorite indicators they follow to shift to a more bullish position, but at the same time, other factors have kept them from abandoning the sector. One thing is for sure, they are cautioning against having large sector bets relative to the benchmark S&P 500. They have circled top names in the large cap arena that are solid portfolio additions.
Here are the six top energy names that are ranked Overweight at Baird now.
ConocoPhillips (NYSE: COP) is a name that draws a solid rating at Baird. The company has spent the past five years divesting assets, and although it is cash rich, but the company has dampened earnings and growth expectations. Continued strong pricing could bode well for the company. Investors are paid a very nice 4.1% dividend. The Thomson/First Call price target for the stock is $75.83. Conoco closed Thursday at $67.90.
EOG Resources Inc. (NYSE: EOG) is another top name at Baird. The company is fueling record oil and natural gas production that is revolutionizing the U.S. energy position. Its position in the three biggest tight oil plays makes it a huge player in the exploration and production field. EOG is the top producer in the Eagle Ford Shale, and it has solid positions in both the Bakken and Permian Basin. Investors are paid a tiny 0.5% dividend. The consensus price target for the stock is $202.91. EOG closed Thursday at $190.33.
Ensco PLC (NYSE: ESV) last year took delivery of ENSCO 121, the second of four ultra-premium harsh environment jackup rigs in its ENSCO 120 Series. ENSCO 121 is an enhanced version of Keppel’s proprietary KFELS Super A Class design. The rig has been contracted in the North Sea at a day rate of approximately $230,000. Shareholders are paid an outstanding 6.2% dividend. The consensus target is $55.53. Ensco closed Thursday at $50.32. Trading close to a 52-week low, with poor sentiment toward drillers, this may be an outstanding stock to buy now with such an outstanding dividend cushion.
Halliburton Co. (NYSE: HAL) is one of the top names across all the firms we cover on Wall Street. The company stands to benefit from continued robust levels of domestic drilling activity and a pick-up in international markets. Management believes the company can deliver earnings per share of $6 by 2016, double the level from 2012. Investors receive a 1.1% dividend. The consensus price estimate is posted at $65.17. Halliburton closed Thursday at $55.16.
Schlumberger Ltd. (NYSE: SLB) is a top mega cap oil field services stock rated as an Overweight at Baird. Strong offshore drilling activity combined with a seasonal rebound in western Canadian activity have driven Schlumberger’s recent growth. The company said it expects double-digit earnings growth for the rest of the year when it reported earnings recently. For 2014 and beyond, Schlumberger sees five markets providing strong growth: Russia, Sub-Saharan Africa, the Middle East, China and Australia. Shareholders are paid a 1.8% dividend. The consensus price target is $110.83. Schlumberger closed Thursday at $91.11.
Occidental Petroleum Corp. (NYSE: OXY) had a huge day when the company announced that it was spinning off its California assets into a separate company. Occidental has faced calls from Wall Street and activist investors to split its U.S. business from its international operations, with analysts valuing the assets between $19 billion and $22 billion. The fact that the company is not an integrated is seen as a huge positive. Without refining or midstream operations, independent exploration and production majors like Occidental will see the full benefit of rising oil prices in their future results. In an unlikely but not out of the question scenario, the company could also be a takeover target, but it would come with a very steep price tag. Investors receive a very solid 3.0% dividend. The consensus price objective is $107.20. Shares closed Thursday at $92.93.
Best Income Stocks To Invest In 2014
The Baird plan of action is pretty easy for investors to follow. Keep a smaller allocation of the sector, as they rate it Neutral, and only buy the top stocks that have the ability and the agility to continue to drive earnings. The ongoing argument on oil pricing draws shrill voices from both sides. The geopolitical issues in Russia and the Ukraine probably will keep volatility and pricing high, at least in the near term.
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