7 Oil Stocks With 25 Percent Upside

With both Brent and West Texas Intermediate oil prices bouncing higher in recent months, additional upside to oil prices may be limited in the near term. According to Bank of America analyst Doug Leggate, oil investors should now shift gears from identifying recovery story oil stocks and focus on oil stocks that offer a compelling value and/or high dividend yield. Leggate says there are plenty of value opportunities for investors who believe $70 oil is here to stay. Here are seven oil stocks Leggate says are undervalued by at least 25 percent.

Noble Energy (ticker: NBL)

Leggate says Noble Energy could potentially add about $3 per share in value if partner Delek Israel is able to negotiate a partial acquisition of the Eastern Med Gas pipeline, which would allow gas to be imported from Israel to Egypt. However, even without an Egypt deal, Leggate says NBL stock is significantly undervalued based on its debt-adjusted cash flow. He says Noble’s 2019 uptick in cash flow is the clearest catalyst in the oil sector. Bank of America has a “buy” rating for NBL stock, and its $64 price target implies more than 100 percent upside.

California Resources Corp. (CRC)

California Resources owns oil and gas assets throughout California that produce 140,000 barrel of oil equivalents (BOE) per day. Leggate says oil prices of at least $65/bbl should enable the company to grow annual production between 3 and 5 percent. He is cautious about California Resources’ leverage, but says there is minimal risk of a liquidity squeeze given the company’s next major credit event won’t take place until 2021. Bank of America has a “buy” rating for CRC stock, and its $70 price target implies more than 40 percent upside.

Newfield Exploration Co. (NFX)

After Newfield Exploration disposed of most of its offshore and international assets, roughly 508 million BOE of its remaining 513 million BOE in proved reserves are now in the U.S. market. Leggate says Newfield stock has lagged thanks to conservative company guidance, which assumes oil prices of between $50 and $60/bbl. He says Newfield has an attractive combination of a compelling valuation and a conservative balance sheet. Bank of America has a “buy” rating for NFX stock, and its $45 price target implies more than 50 percent upside.

Pioneer Natural Resources (PXD)

Pioneer is…

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