Looking into the future and beyond the immediate market perception is an important quality for online stock trading. This can be compared to the current situation with oil stocks.
A few oil stocks have now come cheap. Crude oil has actually come off its early year lows and, as a result, many oil stocks have gone up with it, except for Concho Resources (NYSE: CXO), Parsley Energy (NYSE: PE) and Pioneer Natural Resources (NYSE: PXD). Analysts believe that these are cheap enough at $0.75 on the dollar.
Analysts have raised their Concho price target from $83 per share to $173, which is a 46% increase from the company’s recent price. This optimistic view is the result of Morgan Stanley assuming that there are stronger oil prices yet to come, and bringing up the long term price assumption to $80 per barrel. This pricing could be all that’s required for Concho Resources to drive production growth and strong earnings because of its underappreciated crude oil price leverage.
Parsley Energy has been upgraded by Raymond James analysts while raising their price target to $33 per share. This valuation is on the opinion that the company has quite an economical acreage, probably among the most economical in the country. This supports the idea that the stock price can run further before the full potential of Parsley’s underlying asset base is reflected. These analysts believe the company’s new acquisitions are being underappreciated by the market.
Pioneer Natural Resources
Analysts at Stephens have a positive view on Pioneer Natural Resources and recently reconfirmed its $197 price target and overweight rating. This reconfirmation comes following the company’s acquisition of further acreage. It secured 28,000 acres for $435 million which analysts at Stephens consider to be good value. They also believe that the new acquisition will enable Pioneer to increase its drilling activity faster than expected and achieve stronger growth in production next year.
It is significant to note that these analysts have not based their optimism on traditional valuation metrics since they cannot be used always on oil stocks. These bullish views are based on how these companies can increase their production and thereby earnings in the future when oil prices recover. The underlying asset base was an important factor in this growth perception as also the fact that these three oil companies all function in one of those oil plays that are profitable in this low price environment, the Permian Basin.
The underappreciated value of the acreage position of these companies in the Permian Basin makes these stocks cheap, since the market values these companies on the basis of the presently depressed state of the oil market rather than the improvement that could soon be coming. The Permian Basin could create significant value for the aforementioned companies as we continue to see the prices recover.
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