It's Not Too Late to Buy Oil Stocks, Analysts Say
New York, Aug. 6 (Bloomberg) -- Surging oil prices have
boosted the industry's stocks this year, and analysts say
investors worried about inflation can still find companies with
room to rise.
Some gains have resembled those usually associated with
Internet companies. Chesapeake Energy Corp., a North American oil
explorer, has almost quadrupled. Apache Corp., which buys fields
from rivals and operates them more cheaply, has risen 73 percent.
With crude oil prices up 71 percent this year to almost $21
a barrel and companies taking steps to increase sales, analysts
are raising earnings estimates. For investors, the challenge is
to find stocks that don't fully reflect the rise in oil prices.
''In February or March you didn't have to be smart, only
lucky,'' said Fadel Gheit, an analyst at Fahnestock & Co. ''Now
you have to understand this game well and really know the
companies you are buying.''
Eni SpA, Occidental Petroleum Corp. and Murphy Oil Corp. are
among those Gheit favors. Kerr-McGee Corp. and Atlantic Richfield
Co. are other possibilities, said Eugene Nowak, an analyst at ABN
Amro Inc.
''Oils on balance are viewed as a safe haven when there is
uncertainty in the market place,'' Nowak said.
All except Eni have outpaced this year's 7 percent increase
in the Standard & Poor's 500 index. Occidental has risen
17 percent, Murphy 21 percent, Kerr-McGee 47 percent, and Arco
42 percent. Eni, Europe's third-biggest oil company, is down
12 percent.
Recommendations
Eni takes oil it finds in Italy, Africa, China and elsewhere
and turns it into gasoline, chemicals, and power. The Rome-based
company has a market value of $47.8 billion and had sales of
about $34 billion last year, 11 percent more than Chevron Corp.,
the third-largest U.S. oil company.
''Eni is what other oil companies want to be,'' Gheit said.
Eni's American depositary receipts rose 3/16 to 59 15/16 in
late morning trading. They could rise to $85 within a year, Gheit
said.
Gheit likes Occidental because it's relatively inexpensive.
The Los Angeles-based company, with a market value of
$6.91 billion, has 1.42 billion barrels of proven reserves and
pumped 438,200 barrels of oil and gas a day last year.
Occidental explores in the U.S., Latin America and the
Middle East, and makes chemicals. Sales last year fell 17 percent
to $6.6 billion because of low oil and chemical prices.
The shares rose 1/8 to 19 15/16 in late morning trading.
They could climb in a year to almost $30, the level they were at
two years ago, Gheit said.
''On pure fundamental value, it's the cheapest oil company
anyone can buy,'' he said.
Murphy
Murphy, based in El Dorado, Arkansas, has been overlooked,
and its shares haven't fully benefited from oil's rebound, Gheit
said. The company, with a market value of $2.24 billion, explores
in the U.S., U.K. and Asia. It also sells gasoline, some of it at
stations in Wal-Mart parking lots, and had revenue of
$1.7 billion last year.
Murphy's shares could reach $60 within a year, Gheit said.
They were unchanged at 49 7/8 in late morning trading.
Nowak likes Kerr-McGee, which had $1.4 billion in revenue
last year, because of its growing stable of oil and gas fields.
The Oklahoma City-based company, with a market value of
$4.85 billion, explores in the Gulf of Mexico and the North Sea.
It bought rival Oryx Energy Co. for $2.42 billion this year,
taking on debt to gain stakes in valuable oil fields.
''It's a solid company and it's well managed,'' Nowak said.
''It's a good place to put your money.''
Kerr-McGee rose 1 to 57 3/16 in late morning trading. The
shares could go to $65 in six to 12 months, he said.
Nowak also recommends Arco, which is being bought by the
U.K.'s BP Amoco Plc for about $36 billion. The Los Angeles-based
company has a market value of $29.9 billion, and explores for oil
and gas in the U.S., Asia, Latin America and elsewhere.
Arco had sales of $10.8 billion last year. Last quarter, its
oil and gas sales rose 84 percent while its fuel sales more than
doubled.
BP Amoco's buyout is expected to be completed later this
year. Nowak's six-to-12 month target price for Arco's stock is
$110. The shares fell 1/16 to 92 11/16 in late morning trading.
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