Goldman Sachs, which advised investors to sell oil in April and reversed its stance before prices rebounded a month later, is now the most bullish on four stocks in the industry.
The global investment bank is highest on Noble Energy , whose shares may rise 50 percent in the next six months, according to its forecast. Goldman Sachs says Brent crude oil should rise to about $130 a barrel within a year from $114 today, driven by demand in emerging economies.
A slowdown in economic growth has had analysts scrambling to alter their forecasts. Even the Federal Reserve has said the U.S. economy is growing more slowly than it had expected earlier in the year. The International Energy Agency last week reduced its oil demand estimate by 0.2 million barrels a day for 2011 and 0.4 million barrels a day for 2012. However, the agency still forecasts oil demand to be marginally higher than the current supply next year.
Analysts are bullish on select stocks as industry consolidation is ongoing, and because high growth rates in emerging markets provide a floor for share prices and oil stocks can serve as an inflation hedge. Some companies are paying outsized dividends, which are attractive as Treasury yields have fallen to less than 2 percent.
For example, Exxon Mobil carries a hefty 2.6 percent projected dividend yield, in addition to an estimated 35 percent stock-appreciation forecast over the next six months.
Oil and gas exploration and production companies' shares are down an average of 13 percent this year, according to Morningstar. That's three times as much as that of the benchmark S&P 500 Index. So anyone moving into oil stocks now must reconcile the fact that the industry has been a laggard.
Here are Goldman Sachs' current "conviction list" energy-stock picks:
1. Noble Energy is a Houston-based oil and gas producer in the U.S., with diverse developable resources including in Equatorial Guinea, the North Sea, Israel and China. It has extensive offshore operations in the Gulf of Mexico. About 30 percent of its natural gas production is in the U.S., including oil shale projects.
Goldman analysts said in a recent research note that Noble "has a strong balance sheet, with a 16 percent net debt to tangible capital ratio even before substantial expected free cash flow in the next three years, as long lead time projects come online."
Noble gets a six-month $121 price target from Goldman, which is a 50 percent premium to its current price. Its shares have a projected 1 percent dividend yield.
The company's shares are down 5 percent this year, but up 6 percent over the past 12 months, giving it a market valuation of $14 billion.
2. Exxon Mobil, one of the world's largest companies, is an integrated oil and gas producer and distributor and also the world's biggest refiner. It is also one of the world's top manufacturers of commodity and specialty chemicals.
Due to its operational efficiencies, it consistently delivers higher returns on capital relative to peers and its sheer size gives it leverage in the competition for developable oil projects worldwide. Its current production mix is evenly split between liquids and natural gas.
In its latest blockbuster deal, the company announced Sept. 2 that it had entered an agreement with the Russian-government owned oil company Rosneft, to jointly explore and develop oil and gas resources in Russia, the U.S., and other countries.
Its strong, steady cash flow assures increasing dividend payments and stock buy backs, even while funding huge capital-intensive projects.
Goldman has a six-month $97 price target on its shares, a 33 percent premium to its current price. Its shares are up 1 percent this year and 22 percent over the past 12 months, giving it a $356 billion market valuation.
3. CVR Energy is a nitrogen-fertilizer and petroleum-refining company. It also runs a crude-oil gathering system and storage facility in Kansas and a proprietary pipeline system that transports crude oil to its refinery.
Goldman has a six-month $32 price target on its shares, a 23 percent premium to the current price.
Its shares are up 65 percent this year and 207 percent over the past 12 months, giving it a $2.2 billion market value.
4. Hornbeck Offshore: The only repeat on the conviction list of three months ago is Hornbeck Offshore, a provider of offshore supply vessel fleets, which it uses to transport goods and supplies to and from offshore rigs and platforms, primarily in the Gulf of Mexico. It also has a large fleet of tug and tank barges, which mostly transport petroleum.
Goldman analysts say the company remains on their list based on the belief "that the recovery in the Gulf of Mexico is under way."
They write that "earnings should accelerate sharply over the next few quarters as additional (offshore vessels) go to work. We expect Hornbeck to return to profitability as soon as the fourth quarter." It posted a loss of 26 cents per share in the second quarter.
The firm has a $31 price target on its shares over the next six months, a 12 percent premium to its current price.
Its shares have a market value of $751 million. They've been rocketing, gaining 14 percent in the past month, 36 percent this year and 79 percent over the past 12 months.
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