Energy, having been outranked by gold and other commodities, is emerging as a popular investment theme for 2011. Crude oil is vacillating around $91 (U.S.) a barrel. Rebounding developed economies and fast-growing emerging markets are rendering oil and gas stocks attractive. Here is a look at the five highest-rated S&P 500 oil and gas stocks for 2011. Below, they are ordered by percentage of "buy" ratings, from plenty to most.
5. Chevron is the world's second-largest energy company. Its rival is Exxon Mobil .
Fundamentals: Chevron's 12-month sales have risen 20 per cent. Its third-quarter net income declined 1.7 per cent to $3.8 billion. Earnings per share dropped 2.6 per cent to $1.87. Revenue gained 7.7 per cent to $46 billion. The operating margin widened from 11 per cent to 12 per cent. Chevron held nearly $15 billion of cash and $11 billion debt at quarter's end, equaling a net liquidity position of $3.9 billion. Its quick ratio of 1.2 and debt-to-equity ratio of 0.1 reflect fiscal prudence. Its stock is up 12 per cent in 2010.
Analyst Opinions: Of analysts covering Chevron, 19 recommend purchasing its shares and six advise holding. None say to sell. A median target of $95.57 suggests a return of 11 per cent. Barclays is bullish, offering a price target at $110 and implying a looming gain of 28 per cent. On the other hand, Deutsche Bank feels that Chevron is pricey, rating it "hold" and valuing the stock at $80. Chevron's forward P/E of 8.9 represents a 58 per cent discount to the oil and gas industry average.
4. Occidental Petroleum is an integrated oil and gas company based in Los Angeles.
Fundamentals: Occidental's 12-month sales have advanced 27 per cent. Third-quarter profit increased 28 per cent to $1.1 billion, or $1.47 a share, as revenue stretched 19 per cent to $4.9 billion. The operating margin widened from 35 per cent to 40 per cent. At quarter's end, Occidental carried $2.1 billion of cash and $2.5 billion of debt on its balance sheet, converting to a quick ratio of 1 and a debt-to-equity ratio of 0.1. Its stock has appreciated 12 per cent in 2010 and 18 per cent in the past three months.
Analyst Opinions: Of researchers following Occidental, 19, or 83 per cent, rate its stock "buy" and four rate it "hold." None rank it "sell." A median target of $97.87 suggests an impending 12-month return of 7 per cent. Bullish forecaster RBC expects Occidental's stock to appreciate 15 per cent to $105. Deutsche Bank rates Occidental "hold", valuing the stock at $84, nearly 8 per cent below the market price. Occidental's forward P/E of 14 reflects a 35 per cent oil and gas peer discount.
3. EQT is an oil and gas company, with production, midstream and distribution operations.
Fundamentals: EQT's 12-month sales have declined 2.9 per cent. Third-quarter profit multiplied to $37 million, or 24 cents a share, from $2.9 million, or 2 cents, in the year-earlier quarter. Revenue stretched 18 per cent to $257 million. The operating margin extended from 20 per cent to 34 per cent. EQT held $197 million of cash and $1.9 billion of debt at quarter's end, equaling a less-than-ideal quick ratio of 0.6 and a 0.6 debt-to-equity ratio. Its stock has dropped 3 per cent in 2010, but is up 27 per cent in three months.
Analyst Opinions: Of analysts following EQT, 12, or 86 per cent, advocate buying its stock and two counsel holding. None recommend selling. A median target of $49.06 implies an impending one-year gain of 15 per cent. UBS is more optimistic, projecting a price of $55, suggesting a 29 per cent return. Citigroup, on the other hand, expects EQT's stock to decline to $41.50. The stock's 2.1 book value multiple and 7.9 cash flow
2. Schlumberger sells supply technology, project management and information services.
Fundamentals: Schlumberger's 12-month sales have inched up 1.2 per cent. Third-quarter profit more than doubled to $1.7 billion, or $1.38 a share, as revenue gained 26 per cent to $6.8 billion. Adjusted profit gained a more modest 7 per cent sequentially and 11 per cent year-over-year. The operating margin decreased from 18 per cent to 16 per cent. Schlumberger held $2.6 billion of cash and $6.7 billion of debt at quarter's end, translating to a quick ratio of 1.1 and a debt-to-equity ratio of 0.2.
Analyst Opinions: Of analysts covering Schlumberger, 32, or 86 per cent, rate its stock "buy" and five rate it "hold." None rank the shares "sell." A median target of $85.74 suggests a 12-month return of just 5 per cent. Yet, BMO Capital Markets expects the stock to rally 11 per cent to $90. Morgan Stanley, ranking Schlumberger as one of its eight Best Stock Ideas, expects it to surge 60 per cent to $130. Raymond James ranks the stock "outperform", but values it at just $75, implying 7 per cent downside.
1. Halliburton is a provider of products and services to the energy industry.
Fundamentals: Halliburton's 12-month sales have grown 3.8 per cent. Third-quarter net income more than doubled to $544 million. Earnings per share rose 83 per cent to 53 cents, restrained by a higher share count. Revenue increased 30 per cent to $4.7 billion. The operating margin extended from 14 per cent to 18 per cent. At quarter's end, the balance sheet stored $2.8 billion of cash and $4.6 billion of debt, translating to a lofty quick ratio of 1.9 and a conservative debt-to-equity ratio of 0.5.
Analyst Opinions: Of researchers evaluating Halliburton, 32, or 91 per cent, advocate purchasing its shares and three suggest holding. None advise clients to sell. A median target of $48.22 implies 19 per cent of potential upside in the next year. Raymond James offers the highest price target, at $55, suggesting an impending return of 38 per cent. Sanford Bernstein expects Halliburton to "outperform", but values it at $44, 10 per cent below the current market price. It is up 33 per cent in 2010.