Oil stocks have been pretty slick in 2021, rising sharply in anticipation of a massive recovery in global economic activity as the COVID-19 pandemic fades.
Indeed, oil stocks have been one of the strongest recovery plays to be found – and analysts say the sector has plenty of room left to run.
The Dow Jones U.S. Oil & Gas Index, which measures the performance of nearly three dozen stocks across the industry, was up 27% for the year-to-date through April 19. That compares to a gain of just 10.8% for the broad-market S&P 500 (.SPX), and a rise of 11.3% for the blue-chip Dow Jones Industrial Average (.DJI).
Of course, not all oil stocks are created equal, and the sector still faces plenty of headwinds. The economic recovery could stumble, for one thing. And even if it doesn't, recovery-chasing increases in production are forecast to limit upside in crude oil prices from current levels.
Despite those challenges, Wall Street is decidedly bullish on oil stocks in general, and really has the hots for a short list of names in particular.
To find analysts' favorite oil stocks to buy now, we screened the Russell 3000 (.RUA) for oil stocks with the highest analyst recommendations, per data from S&P Global Market Intelligence.
Here's how the recommendation system works. S&P Global Market Intelligence surveys analysts' stock recommendations and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score between 2.5 and 1.5 equals a Buy recommendation. Scores below 1.5 equate to recommendations of Strong Buy.
After limiting ourselves to oil stocks with only the highest conviction Buy or Strong Buy consensus recommendations, we dug into research, fundamental factors and analysts' estimates to suss out the best oil stocks to buy.
With that, have a look at analysts' absolute favorite oil stocks to buy now.
Analysts' consensus recommendations and other data are courtesy of S&P Global Market Intelligence. Stocks are listed by strength of analysts' consensus recommendation, from lowest to highest.
- Market value: $34.1 billion
- Dividend yield: 4.6%
- Analysts' average rating: 1.72 (Buy)
Analysts are increasingly bullish on oil stocks in the refinery sector as we approach summer, and one of the players they like best is Phillips 66 (PSX).
The independent oil refiner gets a solid consensus Buy recommendation on Wall Street. Sweetening the deal, this oil stock sports a generous dividend yield to boot.
"Overall, we still see PSX as a best in class, diversified business model with a secure balance sheet that has weathered the storm," writes Raymond James analyst Justin Jenkins, who rates the stock at Outperform (the equivalent of Buy). "We still view PSX as a long-term core holding in energy. PSX's business should justify a premium valuation relative to the group."
PSX is widely considered among the pros to be one of the best oil stocks to buy now. Of the 19 analysts covering Phillips 66 tracked by S&P Global Market Intelligence, eight rate it at Strong Buy, seven say Buy and three have it at Hold. One has no opinion on shares in the oil stock.
The Street expects the company to generate average annual earnings per share (EPS) growth of 7.8% over the next three to five years. Given that outlook, PSX's valuation – trading at 11.7 times estimated earnings for 2022 – appears eminently reasonable.
With an average target price of $91.71, analysts give the oil stock implied upside of about 18% over the next year or so.
- Market value: $14.8 billion
- Dividend yield: 2.9%
- Analysts' average rating: 1.63 (Buy)
One way Devon Energy (DVN) differentiates itself from other oil stocks in the exploration and production (E&P) sector is by way of management's restraint and discipline.
"We have no intentions of adding any growth projects until demand fundamentals recover, inventory overhangs clear up, and OPEC plus curtailed volumes are effectively absorbed by the world markets," said Devon CEO Rick Muncrief on a conference call with analysts in February.
Indeed, DVN has hunkered down through sales and divestitures to concentrate on just a handful of oil-rich U.S. basins. Devon's $12 billion all-stock merger with WPX Energy, which closed in January, furthered its goal of strategic focus and cost control.
Those moves and others have made Devon one of the most popular names in the industry with analysts.
"Devon has a highly productive portfolio of top-tier assets, mostly located in shale-rich basins with relatively low extraction costs," writes Argus Research analyst William Selesky, who rates DVN at Buy. "This provides the company with a competitive advantage, especially with oil prices above $50 per barrel."
Seventeen analysts covering DVN tracked by S&P Global Market Intelligence call it one of the best oil stocks to buy now, at Strong Buy. Another 10 say Buy, and five call Devon a Hold. They expect the firm to deliver average annual EPS growth of 6% over the next three to five years. Meanwhile, shares trade at just 8.9 times their 2022 earnings estimate.
With an average price target of $30.35, the Street gives this oil stock implied upside of about 38% in the next 12 months or so.
Pioneer Natural Resources
- Market value: $32.2 billion
- Dividend yield: 1.5%
- Analysts' average rating: 1.62 (Buy)
Pioneer Natural Resources (PXD) is another one of analysts' favorite oil stocks in the independent E&P sector.
The most recent boost to the bull case came in early April when Pioneer announced the acquisition of privately held Doublepoint Energy for $5.5 billion in cash and stock, along with the assumption of $900 million in debt.
Analysts note that the deal enhances PXD's position in the Midland Basin, which has some of the strongest well economics in the greater Permian Basin.
"PXD is building a powerhouse of a Permian Basin play, with no federal land exposure," writes CFRA Research analyst Stewart Glickman, who rates shares at Buy. "We are somewhat surprised by the timing of this deal, coming so soon after closing the Parsley acquisition [in January], but we think PXD is being opportunistic."
CFRA's Glickman is very much in the majority when it comes to his stance on the oil stock. Of the 34 analysts covering PXD tracked by S&P Global Market Intelligence, 19 rate it at Strong Buy, nine say Buy and six have it at Hold. Their average target price of $192.81 gives shares implied upside of about 30% over the next 12 months or so.
Like a number of oil stocks on this list, cautious sentiment appears to have kept PXD's valuation in check. The Street projects the firm to generate average annual EPS growth of 8% over the next three to five years, and yet shares change hands at less than 11 times estimated earnings for 2022.
- Market value: $14.0 billion
- Dividend yield: 2.0%
- Analysts' average rating: 1.58 (Buy)
Some recent dealmaking, a diversified business and comparatively low cost of supply has the Street stampeding into the bull camp for Diamondback Energy (FANG).
As investors in oil stocks know all too well, the industry underwent an intense period of consolidation amid the pandemic-driven rout in energy prices. And FANG has been among the more active acquirers.
In the past few months, Diamondback closed a $2.2 billion deal for QEP Resources and acquired assets of privately held Guidon Energy for nearly $1 billion.
The moves were met with approval by analysts who cover oil stocks.
"Diamondback Energy is well-positioned to outperform in a volatile commodity environment based on its strong cash margins, defensive attributes and synergies associated with the recent acquisitions of QEP and Guidon," writes Stifel equity research analyst Derrick Whitfield, who rates shares at Buy.
"The company's relatively low cost of supply, balance sheet, minerals and midstream ownership are a few of the reasons it is well-positioned to outperform as activity returns," Whitfield adds.
On the whole, the pros see Diamondback as one of the best oil stocks you can buy now. Of the 33 analysts covering FANG tracked by S&P Global Market Intelligence, 20 rate it at Strong Buy, seven say Buy and six have it at Hold. Their average target price of $94.19 gives this oil stock implied upside of about 21% over the next year or so.
As for valuation, FANG changes hands at 7.9 times analysts' 2022 earnings estimate. They expect the company to deliver average annual EPS growth of 3% over the next three to five years, per S&P Global Market Intelligence.
- Market value: $68.8 billion
- Dividend yield: 3.4%
- Analysts' average rating: 1.50 (Strong Buy)
If it isn't clear by now, the Street believes many of the best oil stocks to buy now are in the E&P industry, and few are more popular than ConocoPhillips (COP). Indeed, COP, with a rating of 1.50, is the first of our oil stocks to get a consensus recommendation of Strong Buy.
The January completion of ConocoPhillips' purchase of rival Concho Resources for $9.7 billion added to Wall Street's ardor.
"We also have a favorable view of Conoco's recent acquisition of Concho Resources, which will provide an attractive portfolio of low-cost assets and expand the company's resource base by more than 50%," writes Argus Research's Selesky, who rates the stock at Buy.
It also helps that COP, the world's largest independent E&P company, is well-suited to grapple with a prolonged period of flattish prices. Although benchmark U.S. crude oil prices are up about 32% for the year-to-date, Kiplinger's Economic Outlook doesn't expect them to move much from current levels.
"In this challenging energy environment, we believe that a company's balance sheet strength and place on the cost curve are critical, and favor those E&P companies that are well positioned to manage a potentially long period of low oil prices," Selesky writes in a note to clients. "COP is one of these companies, as it benefits from its size, scale and combination of major long-cycle and unconventional short-cycle projects."
Of the 29 analysts covering the stock tracked by S&P Global Market Intelligence, 16 say it's a Strong Buy, 10 say Buy and two have it at Hold. One analyst has no opinion. They also see a strong year ahead for COP's shares. Their $65.10 average price target implies 28% upside in the next 12 months.
Shares trades at 14.9 times estimated earnings for 2022. However, that's not exactly a screaming buy in light of analysts' 6% long-term EPS growth forecast.
- Market value: $3.5 billion
- Dividend yield: N/A
- Analysts' average rating: 1.31 (Strong Buy)
PDC Energy (PDCE) is the second of our independent E&P oil stocks to score a Strong Buy consensus recommendation from Wall Street analysts. S&P Global Market Intelligence counts 12 Strong Buy calls, three Buys and one Hold rating on the stock.
Analysts like this small-cap's base of assets and its ability to punch well above its weight in generating free cash flow (FCF).
"In our view, PDCE offers investors a compelling asset mix between the Delaware Basin and Niobrara Shale in the DJ Basin with a resilient asset base and a top-tier balance sheet," writes Stifel analyst Michael Scialla, who rates the stock at Buy.
Goldman Sachs analyst Neil Mehta recommended that clients buy PDCE during the March pullback thanks to his expectation that the firm will produce $1.1 billion in free cash flow over the next two years. Note well that $1.1 billion in FCF would represent almost a third of PDCE's entire market value.
Lastly, the Street applauds the company's debt-reduction efforts and its intention to return $120 million in cash to shareholders through a stock repurchase plan and a new dividend program set to launch later this year.
Analysts' average target price of $47.00 gives PDCE implied upside of about 33% over the next year or so. And even after a hot start to 2021, shares still look compellingly valued.
PDCE trades at just 7.7 times estimated earnings for 2022 – even as analysts project average annual EPS growth of 7% over the next three to five years.
- Market value: $1.4 billion
- Dividend yield: N/A
- Analysts' average rating: 1.29 (Strong Buy)
Whiting Petroleum (WLL) is by far the smallest among the seven best oil stocks to buy now, but it also easily sports the strongest Strong Buy consensus recommendation.
Keep in mind, however, that as a small-cap play, WLL doesn't get nearly as much attention from analysts as the other oil stocks on this list. That can skew the ratings.
Indeed, S&P Global Market Intelligence tracks only eight analysts who cover the independent E&P company. Six of them call WLL stock a Strong Buy, one says Hold and one has no opinion.
It's also worth noting that Whiting was the first major oil-and-gas company to file for bankruptcy during the pandemic. The company entered restructuring on April 1, 2020, and emerged from bankruptcy protection in September.
That said, Whiting's Chapter 11 period was a salubrious experience. The company, under the direction of new CEO Lynn Peterson and a new CFO James Henderson, labors under a manageable long-term debt load of $360 million (down from $2.8 billion pre-bankruptcy) and has access to a $750 million reserve-based revolving credit facility.
The bottom line is that the Street is increasingly optimistic about WLL's bottom line.
"Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising," notes Zacks Equity Research, which rates shares at Strong Buy. "We expect an above-average return from the stock in the next few months."
With an average target price of $41.57, analysts give WLL implied upside of about 13% in the next 12 months or so. Shares trade at 8.2 times analysts' estimated earnings for 2022, according to S&P Global Market Intelligence. The Street's projected long-term EPS growth rate stands at 19% over the next three to five years.
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