Energy stocks have been battered by rising costs, falling production and bad weather, causing several of them to miss third-quarter earnings targets.
An ailing global economy’s impact on energy demand has compounded concerns facing the sector.
A few energy stocks still shine, though. Here are a few of analysts’ top choices in the group:
• BIG OIL, NOT SO BIG PRICE: Asked to pick a favorite among Big Oil stocks, analysts give a slight edge to Chevron Corp. over such rivals as Exxon Mobil Corp. and ConocoPhillips.
Chevron shares have shed more than 11 percent of their value after hitting a 52-week high in September. A disappointing third-quarter report didn’t help, turning Chevron into an underperformer among peers in the past three months.
That opens opportunities.
Chevron enjoys better long-term growth prospects over its rivals, said Allen Good, an analyst with Morningstar in Chicago.
Chevron derived about 13 percent of its third-quarter profit from its downstream refining-and-marketing operations, compared with 33 percent for Exxon.
Among smaller oil and gas companies, Marathon Oil Corp. makes the cut for analyst Eliot Javanmardi at Capital One Southcoast in New Orleans.
“Marathon still trades at a discount and is executing well,” he said.
Marathon’s development of holdings in the Eagle Ford shale formation in Texas is running ahead of expectations, with production nearly doubling in the third quarter to the equivalent of 40 million barrels of oil a day, said Pavel Molchanov with Raymond James.
• THE REFINERS: Refining margins are now so thin that many oil companies have spun off these so-called downstream operations.
ConocoPhillips did it earlier this year, creating Phillips 66.
Analysts at Tudor Pickering Holt liked the move, calling Phillips 66 the equivalent of a “muscle car” for financial types.
Tudor recently initiated coverage of Phillips 66 with a buy rating and a lofty $79 price target. The shares hit a high of $51 on Nov. 6, backing down since then to about $45.
HollyFrontier Corp. also surfaced as a top pick among refiners. Holly has locked in discount agreements to secure cheaper crude and, in turn, better margins, Morningstar’s Good said.
The company trades at a discount to other refiners, has a strong balance sheet, is well managed and is looking to expand, he added. HollyFrontier last week reported third-quarter profits rose 15 percent from a year ago.
• DIAMONDS IN THE ROUGH: Raymond James’s Molchanov offered two relative unknowns worth tracking. InterOil Corp. and Kosmos Energy Ltd. are often overlooked and thinly covered by Wall Street, but are well worth a closer look, he said.
InterOil, with a market capitalization around $3 billion, is nearly fully invested in natural gas in Kosmos Energy is often overlooked, working mostly overseas, he said. Kosmos, with a $4.4 billion market cap, produces oil in Ghana.