A lot of things have taken place in the oil and gas sector of late. Positive things for a change. After briefly dipping below $30 earlier in 2016, the price of oil remained above $46 on Friday, May 13. Many of the most at-risk oil stocks that have not gone into bankruptcy or that are close to it have seen their shares rise handily, some with gains of 50% to 100% or more from the lows.
Investors have been looking for opportunities in the stock market, and they also have searched for long-term opportunities in the oil patch. 24/7 Wall St. reviews dozens of analyst research reports each morning of the week. This becomes hundreds of research reports over the course of each week. There are many analyst calls covering stocks to buy, and some of them are in the oil and gas sector.
Investors need to understand that the oil and gas companies are still not totally back in the clear. Even with oil above $45 a barrel, many companies still will operate in zombie-mode. There also continue to be bankruptcies, and layoffs will continue at many companies. The overhang on oil likely will not last forever, but many of the oversupply issues and demand issues may be with us for some time.
Keep in mind that analysts generally do not possess any more knowledge or information than is available to institutional investors or to the most astute individual investors who know the ins and out of the oil patch. Analyst calls often make the wrong assumptions, and sometimes things change that wreck expectations. Furthermore, even though these are long-term calls rather than swing-trade ideas, these calls will prove way too optimistic if the price oil decides to head back under $40 again.
The week of May 14 brought a few oil and gas analyst upgrades or positive coverage initiations. These upside targets have been listed from each analyst call if available, and the consensus analyst price targets are from Thomson First Call. Here are seven positive analyst upgrades or initiations from the energy sector during the week of May 14, with a bonus call at the end.
Enterprise Products Partners L.P. (NYSE: EPD) was started as Outperform with a $33 price target (versus a $25.69 prior close) at Bernstein on May 11. It is considered one of the best master limited partnerships (MLPs) of them all, and Merrill Lynch also featured it quite favorably as well in the past week. It had a consensus analyst price target of $31.92 and has a 52-week range of $19.00 to $34.56. Its distribution yield-equivalent is just over 6%. Enterprise Products closed at $26.26 on Friday.
Kosmos Energy Ltd. (NYSE: KOS) was raised to Strong Buy from Outperform at Raymond James on May 11, which was after the earnings report and news of an offshore gas discovery in Senegal. Kosmos Energy was given a $7 price target in this upgrade, versus the prior close of $4.83. Friday’s closing price was $5.01. The consensus price target is $8.08, and the 52-week range is $3.17 to $9.32. This company is less known than other U.S. oil and gas outfits, as it is based in Bermuda and exploring for and producing oil and gas in Africa, Europe and South America.
Marathon Oil Corp. (NYSE: MRO) was included in a large list of stocks to Buy from Deutsche Bank in the oil patch this week. The firm thinks that $50 is now the inflection point for oil and it has several winners. Marathon is said to have higher multiple businesses and the upstream cash margins have room to move up, even as the shares have a net asset value discount relative to industry peers. Marathon investors are paid a 1.61% dividend. The $18 Deutsche Bank target was well above the consensus target of $14.75 at the time, as well as the Thursday close at $12.33 per share. Marathon closed at $12.30 on Friday, and its 52-week range is $6.52 to $28.27.