We started writing in earnest about the rise of oil prices over a year and a half ago, and one of the most prescient research reports came from J.P. Morgan, when oil was still in the $70 a barrel range in September of 2021, titled “OPEC+ ‘Show me the Barrels’; $150/barrel on the horizon as capacity shocks.” The firm made the case then that not only was oil going higher, but it potentially could go much higher over the next two years. The report said this when discussing the potential for those much higher prices:
We see long-term $80/barrel Brent (real) as the marginal cost to deliver a balanced market in 2024 and beyond. Incorporating our model of OPEC+ true capacity, we expect oil to overshoot to $125/barrel in 2022 and $150/barrel in 2023.
Both West Texas Intermediate and Brent crude are trading above the $121 mark, and there is every indication that unless there is a cessation of the war between Russia and Ukraine and a major change in domestic policy by the Biden administration, the unthinkable price of $150 per barrel oil may not only happen this year but perhaps this summer.
While the pain at the pump for Americans is grim, so is the pain from the stock market this year. It makes sense to stick with the sector that looks poised to stay hot in the coming months. It is also important to note that natural gas is trading close to the $9 level for the first time since August of 2008, as dwindling inventories have pushed prices higher.
We screened our 24/7 Wall St. energy research database looking for energy stocks that pay big dividends, are rated Buy by major Wall Street firms and still have room to run. Seven companies hit our screen and all make sense for investors looking for outstanding total return ideas.
Devon Energy
This may be one of the best value propositions in the sector, as it uses a variable dividend strategy. Devon Energy Corp. (NYSE: DVN) is an independent energy company that primarily engages in the exploration, development and production of oil, natural gas and natural gas liquids (NGLs) in the United States and Canada. It operates approximately 19,000 wells.
The company also offers midstream energy services, including gathering, transmission, processing, fractionation and marketing to producers of natural gas, NGLs, crude oil and condensate through its natural gas pipelines, plants and treatment facilities.
Production is weighted toward crude oil while growth opportunities are liquids focused, anchored by the Delaware Basin, SCOOP/STACK, Eagle Ford Shale, Canadian Oil Sands, and the Barnett. Devon also owns equity in the publicly traded midstream MLP EnLink.
Shareholders receive a 6.52% dividend. Truist Financial has a $100 target price on Devon Energy stock. The analysts’ consensus target is just $78.71, and shares closed on Wednesday at $77.93.
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