If you are looking to diversify your portfolio, RBC Capital may have the answer. Since its inception in February 2013, the RBC Global Energy Best Ideas List is up 22.3% compared to the S&P Global Energy Sector ETF (NYSEARCA:IXC) up 0.6%.
Despite news that the oil sector is on shaky ground right now, there are still stocks worth a closer look.
“In our opinion, if you’re investing in energy stocks, it’s all about being selective and finding that right entry point, and there’s lots of companies today that are being unfairly punished,” Strategic Wealth Partners President and CEO Mark Tepper told CNBC earlier this month.
Here are five great energy stocks on the firm’s current best ideas list. I also take a look at how each stock performs on a Street-wide basis. Two of the stocks score a stellar “Strong Buy” consensus and three stocks are at “Moderate Buy.” Let’s take a closer look at these top picks now:
Energy Stocks to Buy: Oneok (OKE)
Oneok (NYSE:OKE) is one of RBC Capital’s favorite midstream energy stocks. OKE owns of one of the United States’ key natural gas liquids systems. That’s alongside an extensive network of natural gas gathering, processing, storage and transportation assets.
“We forecast strong growth over the next few years and meaningful de- leveraging,” RBC Capital’s Elvira Scotto said Aug. 1. Following another solid earnings report, she ramped up her OKE price target from $72 to $83. A premium valuation is warranted says Scotto given Oneok’s simplified structure, fee-based earnings and no near-term equity needs.
Bear in mind that Scotto falls in the Top 100 analysts for her stellar stock picking track record.
“Importantly, with large scale growth projects coming online through 1Q20, OKE has reiterated its greater than 20% EBITDA growth expectation in 2020 vs 2019 midpoint EBITDA guidance,” Scotto added.
Overall the Street has a cautiously optimistic outlook on OKE stock. We are talking about a “Moderate Buy” consensus, with three recent buy ratings and two hold ratings. The average price target of $77 suggests 11% upside potential. Interested in Oneok stock? Get a free OKE Stock Research Report.
TC Energy (TRP)
TC Energy (NYSE:TRP) is a brand-new addition to RBC Capital’s best ideas list. In its August report, RBC highlighted this utilities and infrastructure name as an intriguing investing opportunity.
“We add TRP to the list this month, as we believe the stock to be the steady, defensive choice in North American midstream given its high-quality cash flows underpinned primarily by regulated assets and long-term take-or-pay contracts,” RBC Capital analyst Robert Kwan said.
This five-star analyst ranks in at an impressive No. 131 out of over 5,200 tracked analysts. He believes that TRP’s extensive North American asset footprint provides numerous avenues for growth via small to medium-sized projects. According to Kwan, this provides visibility to meet the company’s target of an 8%-10% dividend compound annual growth rate through 2021.
“We also believe that TRP is starting to receive credit for its improving funding outlook following significant non-core asset monetizations and the delay of Keystone XL,” Kwan added.
With four out of five analysts calling TRP a “buy,” the stock shows a firm “Strong Buy” consensus. Get the TRP Stock Research Report.
Parsley Energy (PE)
Parsley Energy (NYSE:PE) is a top U.S. exploration and production pick for RBC Capital. The company is focused in the lucrative Permian Basin and trades at an attractive valuation according to the Street. That’s on top of superior production growth (20% in 2019 estimates and 16% in 2020 estimates).
“We believe PE shares should outperform the company’s peer group over the next 12 months” writes RBC Capital’s Scott Hanold. “PE’s production growth profile, balance sheet, and oil hedge book are best-in-class and differentiated from peers.” Indeed, the stock has surged 16% in just the last five days after revealing positive free cash flow for Q2.
In particular, the Permian Basin’s Wolfcamp formation wells generate strong returns at strip prices with strong volumes. “We see valuation upside potential in the Wolfcamp C, Lower Spraberry and Delaware Permian delineation, in addition to improving economics from a transition to pad development and improving operational efficiencies,” Hanold told investors.
Out of seven analysts covering PE stock, five are bullish while two remain on the sidelines. As a result the consensus for this energy stock works out at “Moderate Buy.” The average analyst price target of $24 translates into sizable upside potential of over 45%. Get the PE Stock Research Report.
TechnipFMC (FTI)
Welcome to a top-notch investing opportunity among energy stocks. RBC Capital has just added TechnipFMC (NYSE:FTI) to its best ideas list. Formed through the 2017 merger of FMC Technologies and Technip, FTI is a global leader in subsea, onshore, offshore and surface projects.
“Longer term, FTI is well positioned to differentially benefit from increased Subsea FIDs [final investment decisions] and burgeoning energy infrastructure spend for LNG [liquified natural gas] and petrochemicals,” explains RBC Capital’s Kurt Hallead. He has a $38 price target on the stock (57% upside potential).
Outlook for the subsea industry continues to improve, says Hallead. And higher levels of client engagement and project tendering will boost FTI stock. Meanwhile, Technip continues to ride the LNG wave.
“LNG outlook remains strong,” Hallead said. “[The] company is tracking more than 20 projects in the global LNG market and has identified potential for new projects to be sanctioned over the next 18-24 months.”
Encouragingly FTI also boasts a “Strong Buy” analyst consensus right now. In the last three months, six analysts have recommended snapping up FTI stock. Only one analyst is staying on the sidelines. We can also see that the average analyst price target of $31 indicates 32% upside potential. Get the FTI Stock Research Report.
Encana (ECA)
Last but not least in this list of energy stocks comes Encana (NYSE:ECA) — a relative newcomer to the firm’s best ideas list. In fact, this Canadian integrated, exploration and production, and oil sands company was the only new stock addition from RBC Capital’s July report.
“Our decision to add Encana Corporation is, in part, driven by its attractive relative valuation (vs. our North American Senior E&P peer group), with the stock trading at a discounted 2019 estimated debt-adjusted cash flow multiple — despite an above-average free cash flow yield” explained the firm back in July.
What’s more, Encana offers investors a slice of premium real estate. With its Newfield Exploration merger closing in the first quarter, market focus is now on Encana’s operating momentum in the Permian, STACK and Montney regions. “We believe the company has some of the best real estate on the block, when it comes to North American resource plays, and possesses strong execution capability” says RBC Capital’s Gregory Pardy.
Plus Encana has signaled that it has already achieved its targeted cost savings of $1 million per well in the STACK in connection. Pardy has a $9 price target on the stock, suggesting prices can more than double in the coming months.
Nonetheless analysts are divided on ECA stock’s outlook. Two analysts rate the stock a buy while two rate the stock a hold. Their $7 average price target suggests upside potential of 62%. Get the ECA Stock Research Report.
TipRanks offers investors the latest insight into eight different sectors by tracking the activity of over 5,000 Wall Street analysts. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.
