13 Strong Energy Stocks With Upside Potential

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 |  Includes: BP, CNX, CVX, CWEI, DVN, HES, MEE, MMR, RIG, SD, SLB, SU, WFT
by: David Alton Clark

Each of the following stocks has outperformed the S&P Index by 150% or greater over the last 52 week period. They are all energy related. With the current tumultuous events in the Middle East bringing attention to the mounting energy requirements of the emerging economies in addition to the burgeoning necessities of the recovering developed economies, the fact that demand is outstripping supply appears to be blatantly obvious. The future of companies in the energy industry seems brighter than ever. We all know that past performance is not a surefire indicator of future success. On the other hand, the finite nature of oil resources and the seeming tipping point of the oil supply/demand equation coming to fruition sooner rather than later, the continued success of these companies appears certain. The U.S. Energy Information Agency puts out an annual report titled the Annual Energy Outlook. Please review below excerpts from the U.S. Energy Information’s Annual Energy Outlook 2011 regarding future energy markets.

US Energy Information Agency Annual Energy Outlook Excerpts

Projections in the Annual Energy Outlook 2011 (AEO2011) Reference case focus on the factors that shape U.S. Energy markets in the long term. Under the assumption that current laws and regulations will remain generally unchanged throughout the projections, the AEO2011 Reference case provides the basis for examination and discussion of energy market trends and the direction they may take in the future. It also serves as a starting point for analysis of potential changes in energy policies, rules, or regulations.

World oil prices declined sharply in the second half of 2008 from their peak in mid-July of that year. Real prices trended upward throughout 2009, and through November 2010 they remained generally in a range between $70 and $85 per barrel. Prices continue to rise gradually in the Reference case (Figure 4), as the world economy recovers and global demand grows more rapidly than liquids supplies from producers outside the Organization of the Petroleum Exporting Countries (OPEC). In 2035, the average real price of crude oil in the Reference case is $125 per barrel in 2009 dollars, or about $200 per barrel in nominal dollars.

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The AEO2011 Reference case assumes that limitations on access to energy resources restrain the growth of non-OPEC conventional liquids production between 2009 and 2035, and that OPEC targets a relatively constant market share of total world liquids production. The degree to which non-OPEC countries and countries outside the Organization for Economic Cooperation and Development restrict access to potentially productive resources contributes to world oil price uncertainty. Other factors causing uncertainty include OPEC investment decisions, which will affect future world oil prices and the economic viability of unconventional liquids. A wide range of price scenarios and discussion of the significant uncertainty surrounding future world oil prices will be included in the complete AEO2011 publication when it is released in the spring of 2011.

The AEO2011 Reference case also includes significant long-term potential for supply from non-OPEC producers. In several resource-rich regions (including Brazil, Russia, and Kazakhstan), high oil prices, expanded infrastructure, and further investment in exploration and drilling contribute to additional non-OPEC oil production (Figure 5). Also, with the economic viability of Canada's oil sands supported by rising world oil prices and advances in production technology, Canadian oil sands production reaches 5.1 million barrels per day in 2035.

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Current Events

The fight for control of the Libyan oil town of Brega buttressed the viewpoint that a standoff will protract the loss of 1.3 million barrels per day of exports from the country. "The geopolitical problems are closer to Europe and Nigeria's election delay and Forties cargoes delays are all hitting sweet crude supply," said Andrew Lebow, broker at MF Global in New York. Brent prices were boosted on by news of delays for several April cargoes of Forties crude due to a short-lived drop in North Sea Buzzard oilfield production. Short term limited Chinese demand could not compensation for the Libyan tumult and conflict in Yemen in addition to ire in Nigeria over delayed elections.

Conclusion

With the long-term outlook for Energy provided by the EIA imparting potentially much higher energy costs and recent events driving up oil prices in the short term, I see the following companies possibly repeating their amazing yearly performances once again. Please review the follow details regarding the companies in question. Use this information as a starting point for your own due diligence.

BP p.l.c. (NYSE:BP) - provides fuel for transportation, energy for heat and light, retail services, and petrochemicals products. Its Exploration and Production segment engages in the oil and natural gas exploration, field development, and production; midstream transportation, and storage and processing; and marketing and trading of natural gas, including liquefied natural gas, and power and natural gas liquids. This segment has exploration and production activities in Angola, Azerbaijan, Canada, Egypt, Norway, Russia, Trinidad and Tobago, the United Kingdom, and the United States, as well as in Asia, Australia, South America, North Africa, and the Middle East. BP has outstripped the S&P’s 52-week return by 157.37%. The company is trading below analyst’s estimates. BP has a median price target of $55 by 8 brokers and a high target of $65. On Dec 14, 2010 Jefferies initiated coverage on the company with a Hold rating. Please review the illustration for BP’s summary and key statistics.

CONSOL Energy Inc. (NYSE:CNX) - Engages in the production of multi-fuel energy and provision of energy services primarily to the electric power generation industry in the United States. CNX has outstripped the S&P’s 52-week return by 157.63%. The company is trading below analyst’s estimates. CNX has a median price target of $59 by 19 brokers and a high target of $72. On Dec 20, 2010 FBR Capital upgraded the company from Mkt Perform to Outperform. Please review the illustration for BP’s summary and key statistics.

Chevron Corporation (NYSE:CVX) - Through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. CVX has outstripped the S&P’s 52-week return by 148.76%. The company is trading below analyst’s estimates. CNX has a median price target of $111 by 16 brokers and a high target of $130. On Oct 6, 2010 Standpoint Research downgraded the company from Buy to Hold. Please review the illustration for CVX’s summary and key statistics.

Clayton Williams Energy, Inc. (NYSE:CWEI) - An independent oil and gas company, engages in the exploration for and production of oil and natural gas primarily in Texas, Louisiana, and New Mexico, the United States. CWEI has outstripped the S&P’s 52-week return by 284.81%. The company is trading below analyst’s estimates. CWEI has a median price target of $112 by 4 brokers and a high target of $120. On Sep 3, 2009 Wunderlich initiated coverage on the company with a Buy rating. Please review the illustration for CWEI’s summary and key statistics.

Devon Energy Corporation (NYSE:DVN) - Together with its subsidiaries, engages in the exploration, development, and production of natural gas and oil; transportation of oil, gas, and natural gas liquids (NGLs); and processing of natural gas. DVN has outstripped the S&P’s 52-week return by 143.73%. The company is trading below analyst’s estimates. DVN has a median price target of $98 by 24 brokers and a high target of $129. On Mar 18, 2011 RBC Capital Mkts initiated coverage on the company with an Outperform rating. Please review the illustration for DVN’s summary and key statistics.

Hess Corporation (NYSE:HES) - Together with its subsidiaries, operates as an integrated energy company worldwide. It operates in two segments, Exploration and Production and Marketing and Refining. HES has outstripped the S&P’s 52-week return by 164.79%. The company is trading below analyst’s estimates. HES has a median price target of $95 by 13 brokers and a high target of $107. ON Sep 22, 2010 Howard Weil upgraded the company from Market Perform to Market Outperform. Please review the illustration for HES’s summary and key statistics.

McMoRan Exploration Co. (NYSE:MMR) - Through its subsidiary, McMoRan Oil & Gas LLC, engages in the exploration, development, and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast area of the United States. MMR has outstripped the S&P’s 52-week return by 199.31%. The company is trading below analyst’s estimates. MMR has a median price target of $21 by 7 brokers and a high target of $23. On Oct 11, 2010 CapitalOne southcoast upgraded the company from Neutral to Add. Please review the illustration for MMR’s summary and key statistics.

Massey Energy Company (NYSE:MEE) - Through its wholly owned subsidiary, A.T. Massey Coal Company, Inc., produces, processes, and sells bituminous coal primarily in the United States. MEE has outstripped the S&P’s 52-week return by 212.63%. The company is trading below analyst’s estimates. MMR has a median price target of $63 by 13 brokers and a high target of $70. On Jan 31, 2011 Brean Murray downgraded the company from Buy to Hold. Please review the illustration for MEE’s summary and key statistics.

Transocean Ltd. (NYSE:RIG) - Provides offshore contract drilling services for oil and gas wells worldwide. It offers deepwater and harsh environment drilling, oil and gas drilling management, and drilling engineering and project management services. RIG has outstripped the S&P’s 52-week return by 174.88%. The company is trading below analyst’s estimates. RIG has a median price target of $89 by 34 brokers and a high target of $105. On Mar 9, 2011 Morgan Keegan initiated coverage on the company with a Mkt Perform rating. Please review the illustration for RIG’s summary and key statistics.

SandRidge Energy, Inc. (NYSE:SD) - Together with its subsidiaries, operates as an independent natural gas and oil company in the United States. The company engages in the exploration, development, and production of oil and gas properties. SD has outstripped the S&P’s 52-week return by 321.56%. The company is trading on par with analyst’s estimates. SD has a median price target of $12 by 19 brokers and a high target of $16. On Feb 28, 2011 KeyBanc Capital Mkts upgraded the company from Hold to Buy. Please review the illustration for SD’s summary and key statistics.

Schlumberger Limited (NYSE:SLB) - And its subsidiaries supply technology, integrated project management, and information solutions to the oil and gas industry worldwide. SLB has outstripped the S&P’s 52-week return by 168.02%. The company is trading below analyst’s estimates. SLB has a median price target of $103 by 31 brokers and a high target of $160. On Mar 8, 2011 Dahlman Rose initiated coverage on the company with a Buy rating. Please review the illustration for SLB’s summary and key statistics.

Suncor Energy Inc. (NYSE:SU) - Together with its subsidiaries, operates as an integrated energy company. The company involves in the development of petroleum resource basins in Canada's Athabasca oil sands; acquisition, exploration, development, production, and marketing of crude oil and natural gas in Canada and internationally; transportation and refining of crude oil; and marketing of petroleum and petrochemical products primarily in Canada. SU has outstripped the S&P’s 52-week return by 150.44%. The company is trading on par with analyst’s estimates. SLB has a median price target of $45.50 by 6 brokers and a high target of $49. On May 28, 2010 Barclays Capital downgraded the company from Overweight to Equal Weight. Please review the illustration for SU’s summary and key statistics.

Weatherford International Ltd. (NYSE:WFT) - Provides equipment and services used in the drilling, evaluation, completion, production, and intervention of oil and natural gas wells to independent oil and natural gas producing companies worldwide. WFT has outstripped the S&P’s 52-week return by 173.47%. The company is trading below analyst’s estimates. WFT has a median price target of $26 by 23 brokers and a high target of $45. On Mar 8, 2011 Dahlman Rose initiated coverage on the company with a Buy rating. Please review the illustration for WFT’s summary and key statistics.

I will continue monitoring these stocks further to determine the precise timing to create a position. Scaling in to the position over a period of time will reduce risk.

Information was gathered from CNBC, Yahoo Finance, EIA.com and respective company websites.

Disclosure: I am long WFT.