7 Energy Stocks That Don't Need Higher Oil Prices

Wayne Duggan

The best oil stock ideas from Bank of America.

The big oil rally that carried West Texas Intermediate crude prices above $75 per barrel in 2018 abruptly ran out of steam in the fourth quarter. Bank of America Corp. (ticker: BAC) is calling for WTI crude to average about $59 in 2019, a far cry from its 2018 highs. However, while oil stock investors may be disappointed that the recent rally fizzled, analyst Doug Leggate says there are still plenty of opportunities in the oil group. Not every oil stock needs higher prices to thrive and generate returns for investors. Here are seven of Bank of America's best oil stocks to buy.

Anadarko Petroleum Corp. (ticker: APC)

Anadarko is an exploration and production company with more than 1.7 billion barrels of oil equivalent (BOE) in reserves, primarily in the Rocky Mountains, Texas and other regions of the U.S. Leggate says Anadarko is focused on disciplined growth and cash returns in 2019. He says volatility in the exploration and production space has created a disconnect between cash flow and stock valuations, and companies like APC will attempt to reassure investors by turning attention to debt reduction, dividend growth and share buybacks. Bank of America has a "buy" rating and $90 price target for APC stock.

Devon Energy Corp. (DVN)

Devon is a U.S. E&P company with more than 2 billion BOE in reserves in the Delaware Basin, Eagle Ford Shale and elsewhere in North America. Leggate says Devon's most recent earnings report was reassuring to investors, and the company is well-positioned to improve its capital efficiency in 2019. Devon is increasing allocation to its best Permian properties and has taken steps to reduce heavy oil price risk exposure in its Canadian properties. Bank of America has a "buy" rating and $65 price target for DVN stock.

Diamondback Energy (FANG)

Diamondback is a pure-play Permian Basin oil E&P company with more than 335 million BOE in reserves. Like many of the other oil companies looking to reassure investors, analyst Asit Sen says Diamondback's strategy heading into 2019 will be focused on disciplined production growth and increasing its dividend. Sen says management has a track record of efficient capital usage. He says the company's operations are particularly flexible in a volatile oil price environment, allowing it to quickly adjust production depending on crude prices and demand. Bank of America has a "buy" rating and $179 price target.

Hess Corp. (HES)

Hess is an E&P company with 1.1 billion BOE in reserves primarily in the U.S., Guyana and the deepwater Gulf of Mexico region. Leggate says the company's recently reported fourth-quarter earnings report demonstrates positive momentum in several key areas, including progress on the Bakken shale property and encouraging news on the Guyana development. Leggate says Hess has an impressive portfolio of both growth properties and cash flow properties, and it also has one of the strongest balance sheets among its peer group. Bank of America has a "buy" rating and $80 price target for HES stock.

Noble Energy (NBL)

Noble Energy is an international oil E&P company with more than 1.4 million BOE in reserves. Noble has been optimizing its U.S. business by shifting production from Eagle Ford gas-shale formation to Delaware. Leggate says Noble has a unique near-term bullish catalyst in its Leviathan project in the Mediterranean Sea, which should be up and running by the end of 2019. He says the Eastern Mediterranean has already been producing record volumes and is the most likely source for production upside in coming quarters. Bank of America has a "buy" rating and $54 price target for NBL stock.

Pioneer Natural Resources Co. (PXD)

Pioneer is an oil and gas producer that primarily operates in the Permian Basin and Eagle Ford Shale. Leggate says Pioneer's exposure to the core of the Midland Spraberry/Wolfcamp oil fields and the company's impressive balance sheet give Pioneer the flexibility to either hunker down and ride out further declines in oil prices or potentially ramp up production if oil prices turn higher. Leggate says the biggest issue for Pioneer looking forward is how management balances revenue growth and capital returns. Bank of America has a "buy" rating and $215 price target for PXD stock.

Valero Energy Corp. (VLO)

Despite a muted market reaction to its earnings report, Leggate says Valero reported a "blowout quarter" on Jan. 31. Valero doubled consensus earnings per share estimates and expanded margins by 33 percent. As an oil refiner, Valero investors care much more about the crack spread than about how high oil prices rise. Leggate says Valero's 4.2 percent dividend yield and $9.65 billion in share repurchases since 2012 make VLO one of the best yield plays in the energy sector. Bank of America has a "buy" rating and $126 price target for VLO stock.

Oil stocks that don't rely on high energy prices

Not every oil stock needs higher prices to thrive and generate returns for investors. Here are seven of Bank of America's best oil stock ideas:

-- Anadarko Petroleum Corp. (APC)

-- Devon Energy Corp. (DVN)

-- Diamondback Energy (FANG)

-- Hess Corp. (HES)

-- Noble Energy (NBL)

-- Pioneer Natural Resources Co. (PXD)

-- Valero Energy Corp. (VLO)