These oil companies could be the next takeover targets in Permian Basin after Diamondback deal

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2024 energy outlook: What investors can expect from crude prices, and how to play it

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The top 10 things to watch in the stock market Wednesday

The 10 things to watch Wednesday, Dec. 6

1. U.S. stocks are higher in premarket trading Wednesday, with S&P 500 futures up 0.45% after back-to-back days of losses. The move comes amid increasing signs the labor market is loosening, suggesting the Federal Reserve’s interest-rate hikes are succeeding in cooling the economy. U.S. private payrolls rose by 103,000 last month, according to the ADP National Employment Report, well below forecasts for a 130,000 increase.

2. Home builder Toll Brothers (TOL) delivers better-than-expected quarterly results, with revenue of $3.02 billion and earnings-per-share of $4.11 on stronger margins. The company also provides upbeat commentary around 2024, with mortgage rates expected to come down.

3. Bank of America downgrades PayPal (PYPL) to neutral from buy, while lowering its price target to $66 a share, down from $77. The firm doesn’t think PayPal is “broken” but needs time to fix things, calling 2024 a transition year.

4. JPMorgan shuffles around its oil ratings, upgrading Devon Energy (DVN) to overweight from neutral, while downgrading EOG Resources (EOG) to neutral from overweight. The firm also lowers its price target slightly on Club name Coterra Energy (CTRA) to $29 a share, from $30, while reiterating an overweight rating and keeping the stock as a “top pick.”

5. Morgan Stanley downgrades Plug Power (PLUG) to underweight from equal weight, while lowering its price target to $3 a share, down from $3.50. If you want a hydrogen play with less of the risk, stick with Club holding Linde (LIN). It’s the largest supplier of liquid hydrogen in the U.S. and doing a lot for clean hydrogen, too.

6. Morgan Stanley resumes coverage on JM Smucker (SJM) with an equal-weight rating and $122-per-share price target. The firm liked Smucker’s quarterly results but cites “several concerns,” including the company’s acquisition of Hostess Brands and the risk posed by GLP-1 drugs.

7. Bank of America calls semiconductor company Qualcomm (QCOM) a “top pick” amid the end of the global smartphone downturn. The firm expects global smartphone shipments to rise by 5% in 2024.

8. Citi upgrades Signet Jewelers to buy from neutral, while raising its price target to $119 a share, up from $93. You can hear the full story from CEO Gina Drosos on Tuesday’s “Mad Money“. 

 9. Can Club holding Starbucks (SBUX) break a 12-day losing streak now that the bad news is out? CEO Laxman Narasimhan said Tuesday at a Morgan Stanley conference that the recovery in China is “perhaps half the rate of what you would expect it to be given what you saw in the fourth quarter last year.” Shares of the coffeemaker were up 0.5% in early trading, at $96 apiece.

10. Exxon Mobil (XOM) says it plans to repurchase $20 billion worth of stock annually through 2025 after its acquisition of Pioneer Natural Resources (PXD) closes. The oil major is buying back $17.5 billion of stock this year.

(See here for a full list of the stocks at Jim Cramer’s Charitable Trust.)

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Why Exxon and Chevron are doubling down on fossil fuel energy with big acquisitions

Prices at a Chevron Corp. gas station in Fontana, California, on Thursday, July 8, 2021.

Kyle Grillot | Bloomberg | Getty Images

On Monday, Chevron announced plans to acquire oil and gas company Hess for $53 billion in stock.

Less than two weeks prior, Exxon Mobil announced it is acquiring oil company Pioneer Natural Resources for $59.5 billion in stock.

On Tuesday, the International Energy Agency released its annual world energy outlook report that projects global demand for coal, oil and natural gas will hit an all-time high by 2030, a prediction the IEA’s executive director Fatih Birol had telegraphed in September.

“The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of ‘if,’ it’s just a matter of ‘how soon’ — and the sooner the better for all of us,” Birol said in a written statement published alongside his agency’s world outlook. “Taking into account the ongoing strains and volatility in traditional energy markets today, claims that oil and gas represent safe or secure choices for the world’s energy and climate future look weaker than ever.”

But based on their acquisitions, Chevron and Exxon are seemingly preparing for a different world than the IEA is portending.

“The large companies — nongovernment companies — do not see an end to oil demand any time in the near future. That’s one of the messages you have to take from this. They are committed to the industry, to production, to reserves and to spending,” Larry J. Goldstein, a former president of the Petroleum Industry Research Foundation and a trustee with the not-for-profit Energy Policy Research Foundation, told CNBC in a phone conversation Monday.

“They’re in this in the long haul. They don’t see oil demand declining anytime in the near term. And they see oil demand in fairly large volumes existing for at least the next 20, 25 years,” Goldstein told CNBC. “There’s a major difference between what the big oil companies believe the future of oil is and the governments around the world.”

So, too, says Ben Cahill, a senior fellow in the energy security and climate change program at the bipartisan, nonprofit policy research organization, Center for Strategic and International Studies.

“There are endless debates about when ‘peak demand’ will occur, but at the moment, global oil consumption is near an all-time high. The largest oil and gas producers in the United States see a long pathway for oil demand,” Cahill told CNBC.

Pioneer Natural Resources crude oil storage tanks near Midland, Texas, on Oct. 11, 2023.

Bloomberg | Bloomberg | Getty Images

Africa, Asia driving demand

Globally, momentum behind and investment in clean energy is increasing. In 2023, there will be $2.8 trillion invested in the global energy markets, according to a prediction from the IEA in May, and $1.7 trillion of that is expected to be in clean technologies, the IEA said.

The remainder, a bit more than $1 trillion, will go into fossil fuels, such as coal, gas and oil, the IEA said.

Continued demand for oil and gas despite growing momentum in clean energy is due to population growth around the globe and in particular, growth of populations “ascending the socioeconomic ladder” in Africa, Asia and to some extent Latin America, according to Shon Hiatt, director of the Business of Energy Transition Initiative at the USC Marshall School of Business.

Oil and gas are relatively cheap and easy to move around, particularly in comparison with building new clean energy infrastructure.

“These companies believe in the long-term viability of the oil and gas industry because hydrocarbons remain the most cost-effective and easily transportable and storable energy source,” Hiatt told CNBC. “Their strategy suggests that in emerging economies marked by population and economic expansion, the adoption of low-carbon energy sources may be prohibitively expensive, while hydrocarbon demand in European and North American markets, although potentially reduced, will remain a significant factor.”

Also, while electric vehicles are growing in popularity, they are just one section of the transportation pie, and many of the other sections of the transportation sector will continue to use fossil fuels, said Marianne Kah, senior research scholar and board member at Columbia University’s Center on Global Energy Policy. Kah was previously the chief economist of ConocoPhillips for 25 years.

“While there is a lot of media attention given to the increasing penetration of electric passenger vehicles, global oil demand is still expected to grow in the petrochemical, aviation and heavy-duty trucking sectors,” Kah told CNBC.

Geopolitical pressures also play a role.

Exxon and Chevron are expanding their holdings as European oil and gas majors are more likely to be subject to strict emissions regulations. The U.S. is unlikely to have the political will to force the same kind of stringent regulations on oil and gas companies here.

“One might speculate that Exxon and Chevron are anticipating the European oil majors divesting their global reserves over the next decade due to European policy changes,” Hiatt told CNBC.

“They are also betting domestic politics will not allow the U.S. to take significant new climate policies directed specifically to restrain or limit or ban the level of U.S. oil and gas domestic production,” Amy Myers Jaffe, a research professor at New York University and director of the Energy, Climate Justice and Sustainability Lab at NYU’s School of Professional Studies, told CNBC. 

Goldstein expects the ever-expanding U.S. national debt will eventually put all kinds of government subsidies on the chopping block, which he says will also benefit companies such as Exxon and Chevron.

“All subsidies will be under enormous pressure,” Goldstein said, the intensity of that pressure dependent on which party is in the White House at any given time. “By the way, that means the large financial oil companies will be able to weather that environment better than the smaller companies.”

Also, sanctions of state-controlled oil and gas companies in countries like those in Russia, Venezuela and Iran are providing Exxon and Chevron a geopolitical opening, Jaffe said.

“They likely hope that any geopolitically driven market shortfalls to come can be filled by their own production, even if demand for oil overall is reduced through decarbonization policies around the world,” Jaffe told CNBC. “If you imagine oil like the game of musical chairs, Exxon Mobil and Chevron are betting that other countries will fall out of the game regardless of the number of chairs and that there will be enough chairs left for the American firms to sit down, each time the music stops.”

An oil pumpjack pulls oil from the Permian Basin oil field in Odessa, Texas, on March 14, 2022.

Joe Raedle | Getty Images News | Getty Images

Oil that can be tapped quickly is a priority

Known oil reserves are increasingly valuable as European and American governments look to limit the exploration for new oil and gas reserves, according to Hiatt.

“Notably, both Pioneer and Hess possess attractive, well-established oil and gas reserves that offer the potential for significant expansion and diversification for Exxon and Chevron,” Hiatt told CNBC.

Oil and gas reserves that can be brought to market relatively quickly “are the ideal candidates for production when there is uncertainty about the pace of the energy transition,” Kah told CNBC, which explains Exxon’s acquisition of Pioneer, which gave Exxon more access to “tight oil,” or oil found in shale rock, in the Permian basin.

Shale is a kind of porous rock that can hold natural gas and oil. It’s accessed with hydraulic fracking, which involves shooting water mixed with sand into the ground to release the fossil fuel reserves held therein. Hydrocarbon reserves found in shale can be brought to market between six months and a year, where exploring for new reserves in offshore deep water can take five to seven years to tap, Jaffe told CNBC.

“Chevron and Exxon Mobil are looking to reduce their costs and lower execution risk through increasing the share of short cycle U.S. shale reserves in their portfolio,” Jaffe said. Having reserves that are easier to bring to market gives oil and gas companies increased ability to be responsive to swings in the price of oil and gas. “That flexibility is attractive in today’s volatile price climate,” Jaffe told CNBC.

Chevron’s purchase of Hess also gives Chevron access in Guyana, a country in South America, which Jaffe also says is desirable because it is “a low cost, close to home prolific production region.”

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What tie-ups in the U.S. oil patch could mean for players like Coterra Energy

Permian Basin rigs in 2020, when U.S. crude oil production dropped by 3 million a day as Wall Street pressure forced cuts.

Paul Ratje | Afp | Getty Images

Exxon Mobil‘s (XOM) planned deal to buy Pioneer Natural Resources (PXD) has sparked talk of more consolidation in the oil-and-gas industry. While we don’t own companies as mergers-and-acquisition plays, the potential for more tie-ups could have significant implications for our remaining oil name: Coterra Energy (CTRA).

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Oil and natural gas prices are on different paths. Here’s what has been driving the moves

Oil prices eased in Asian as concerns over slow demand from top crude importer China grew after bearish trade and inflation data, outweighing fears over tighter supply arising from output cuts by Saudi Arabia and Russia.

David Mcnew | Getty Images News | Getty Images

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Jim Cramer’s top 10 things to watch in the stock market Thursday

My top 10 things to watch Thursday, Sept. 14

1. U.S. equities edge up in premarket trading, with investors largely betting the Federal Reserve won’t raise interest rates further when the central bank convenes next week. The S&P 500 is up 0.33%, while the Nasdaq Composite is 0.24% higher. U.S. government bond yields tick up, with that of the 10-year Treasury hovering just below 4.3%.

2. Oil prices continue to climb higher, with West Texas Intermediate crude, the U.S. oil benchmark, climbing above $90 a barrel for the first time since last November. Club oil holdings Coterra Energy (CTRA) and Pioneer Natural Resources (PXD) are up 1.48% and 0.88%, respectively, in early trading. Here’s the Club’s take on oil’s 10-month highs.

3. U.S. wholesale inflation climbs more than expected in August, according to the Labor Department’s monthly producer price index. At the same time, U.S. retail sales come in higher than predicted for last month, the Commerce Department reports, though the gains are largely driven by higher gasoline prices.

4. The European Central Bank raises interest rates by a quarter percentage point, bringing its deposit rate to a record-high 4%. The increase is the ECB’s 10th-conesecutive rate hike.

5. British chip designer Arm Holdings, owned by SoftBank Group (SFTBF), sets its highly anticipated initial public offering at $51 a share, valuing the company at over $54 billion. At this price, there’s not a lot of room for error. The firm will start trading Thursday on the Nasdaq under the stock symbol ARM.

6. The European Union launches an “anti-subsidy” investigation into China’s electric-vehicle companies, with Beijing calling the move “blatant protectionism.” Will Europe go 27.5% tariffs on Chinese cars? This could be a real issue for China.

7. China’s central bank is cutting the reserve requirement ratio for all banks, except those that have implemented a 5% reserve ratio, by 25 basis points from Sept. 15, in the government’s latest effort to prop up its faltering economy.

8. Jim Farley, the CEO of Club holding Ford Motor (F), rejects allegations by United Auto Workers President Shawn Fain that the automaker is not taking bargaining seriously ahead of a Thursday night strike deadline. Here’s the Club’s take on how a union strike could impact Ford.

9. KeyBank raises its price target on Chip designer Cadence Design Systems (CDNS) to $290 a share, up from $270, while reiterating an overweight rating on the stock. The firm’s call comes after KeyBank analysts met with early users of the company’s new AI-enabled EDA design portfolio. Cadence is a partner of AI chipmaker and Club holding Nvidia (NVDA).

10. Wolfe Research upgrades ecommerce firm Etsy Inc. (ETSY) to outperform, from peer perform, with a $100-per-share price target. The firm cites “many paths” for Etsy shares to outperform over the next 12-18 months.

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(See here for a full list of the stocks at Jim Cramer’s Charitable Trust.)

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.

THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER.  NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB.  NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Oil prices are at 10-month highs. Here’s what Cramer thinks it means for two energy stocks

An oil pump jack in Great Plains, southeastern Wyoming.

Marli Miller | Universal Images Group | Getty Images

Oil prices are hovering around 10-month highs, as a stout summer rally extends into the fall and delivers additional gains for the Club’s energy stocks, Pioneer Natural Resources (PXD) and Coterra Energy (CTRA). And Jim Cramer believes it’s not too late to buy either of them.

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Top Wall Street analysts pick these dividend stocks for solid returns

Michael Wirth, CEO of Chevron.

Adam Jeffery | CNBC

When times get rocky for the stock market, dividends can offer investors a measure of stability in the form of portfolio income.

Here are five attractive dividend stocks, according to Wall Street’s top experts on TipRanks, a platform that ranks analysts based on their past performance.

Chevron

Energy giant Chevron‘s (CVX) earnings declined in the second quarter of 2023, as energy prices have cooled down compared to last year when the Russia-Ukraine conflict sent oil and gas prices soaring.

Nonetheless, Goldman Sachs analyst Neil Mehta recently upgraded Chevron to buy from hold, citing leading capital returns and inflection in free cash flow next year. He raised his price target for CVX stock to $187 from $166.

Mehta stated that Chevron lagged its key rivals over the past two to three years due to issues related to upstream execution and lower refining exposure compared to Exxon. However, the analyst said that some of the upstream execution risks have been addressed, with major projects in Tengiz at 98% completion and Permian volumes growing better than anticipated in Q2 2023.

Regarding capital returns, Mehta noted that Chevron has grown its dividends for more than 25 years. The stock has a yield of 3.3%. Moreover, earlier this year, the company increased its annual share repurchase guidance range to $10 billion to $20 billion from $5 billion to $15 billion.

“We highlight that from 2024-2026, we expect a sharp improvement in ROCE [return on capital employed], production per share growth and FCF per share, all enabling a top decile return of capital profile in the S&P 100,” said the analyst.

Mehta ranks 262nd among more than 8,500 analysts tracked by TipRanks. His ratings have been profitable 66% of the time, with each rating delivering an average return of 12.3%. (See Chevron Stock Chart on TipRanks)  

ConocoPhillips

Mehta is also bullish on another dividend-paying energy stock – ConocoPhillips (COP). While the company’s second-quarter earnings and cash flow fell slightly short of the analyst’s expectations, he sees the possibility of a more constructive setup in the second half of 2023 as pricing realizations normalize and volumes increase.

Mehta added that though ConocoPhillips is in a higher spending mode to support longer-term and high-return projects, he continues to expect attractive capital returns in 2024 and beyond. The analyst projects a capital return yield of 7% in 2024, with room for further upside.

The analyst’s 2024 capital return projection is based on $5 billion of share buybacks and the expectation of a higher dividend payout of $4.3 billion compared to the prior estimate of $3.7 billion. ConocoPhillips has a capital return target of $11 billion for 2023, and it has returned about $5.8 billion to shareholders in the first half of the year through share repurchases and fixed and variable dividends.

Mehta reiterated a buy rating on COP and raised the price target to $128 from $120, saying, “We see COP as the most advantaged on return on capital employed, with a 2024-2026 avg ROCE of 21% vs the US Major peer avg of 16%.” (See ConocoPhillips’ Financial Statements on TipRanks) 

Pioneer Natural Resources

Next on this week’s list is Pioneer Natural (PXD), an independent oil and gas exploration and production company. Recently, PXD modified its capital return framework to pay at least 75% of free cash flow to shareholders through base and variable dividends and opportunistic share repurchases. The remaining 25% will be used to strengthen the balance sheet.

Mizuho analyst Nitin Kumar noted that in the second quarter — marking the inaugural quarter for the updated capital return framework — post-base dividend free cash flow was evenly divided between buybacks (about $125 million) and variable dividends ($138 million). He also mentioned that Pioneer recently announced its third-quarter dividend payment and pointed out that its forward dividend yield is over 3.0%, based on $1.25 per share of base dividend and $0.59 per share of variable dividend.  

Kumar, who has a buy rating on PXD with a price target of $265, highlighted that PXD’s second-quarter volumes and above-guidance production validated his prediction of an improvement in well productivity, as indicated by his firm’s proprietary database.    

“Critically, this well productivity is allowing management to increase oil/total production guidance by ~1%/3% while reducing capex by ~3%, setting the stage for strong capital efficiencies into 2024 without factoring in the impact of cost deflation anticipated by the industry,” said Kumar.

Kumar holds the 26th position among more than 8,500 analysts on TipRanks. Moreover, 79% of his ratings have been profitable, with each generating a return of 23.2%. (See PXD Insider Trading Activity on TipRanks)

Seagate Technology

Seagate (STX), one of the prominent makers of computer hard drives, is under pressure because of the uneven pace of recovery in China and cautious enterprise spending due to macro headwinds.

Nevertheless, Baird analyst Tristan Gerra, who ranks 398th among more than 8,500 analysts tracked on TipRanks, remains bullish on this dividend-paying tech stock. Seagate generated free cash flow of $626 million in fiscal 2023 and paid $582 million in dividends while directing $408 million toward repurchasing shares. STX offers a dividend yield of 4.2%.

The analyst noted that the June quarter’s shipments fell significantly due to the ongoing inventory correction among most of the company’s customers, with this trend expected to last a couple of additional quarters. However, the analyst contended that hard disk drive (HDD) secular demand trends remain intact.  

Gerra thinks that the worst is behind the company. He expects STX’s gross margin to improve due to the company’s aggressive cost reduction and ramp-up of higher-density architecture.

The analyst reiterated a buy rating on STX stock with a price target of $70. He said, “Net, business remains structurally sound, and we see no reason for Seagate not to return and eventually exceed a historical $5-$5.50 EPS run rate.”

Gerra has a success rate of 56% and each of his ratings has returned 10.3% on average. (See Seagate Hedge Fund Trading Activity on TipRanks)          

McDonald’s

Last on this week’s list, there’s fast-food chain McDonald’s (MCD), which impressed investors with strong second-quarter results. The company is a dividend aristocrat and has raised its dividend payment for 46 consecutive years. MCD has a dividend yield of 2.1%. 

Following the impressive Q2 2023 print, RBC Capital analyst Christopher Carril reiterated a buy rating on MCD and increased the price target to $340 from $325.

The analyst highlighted that the company delivered another solid quarter against elevated estimates, driven by still-elevated average check and positive guest counts, which were supported by its robust marketing efforts. 

“McDonald’s stable and improved business model, global scale and near best-in class dividend yield all help to balance relatively lower unit growth, in our view justifying a multiple above that of all franchised peers,” said Carril.

Carril ranks No. 661 out of more than 8,500 analysts tracked on TipRanks. Also, 64% percent of his ratings have been profitable, with an average return of 12.3%. (See McDonald’s Blogger Opinions & Sentiment on TipRanks)  

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Oil prices are finally rallying. Here’s what it means for three key energy stocks

Oil rig and pump of H&P Rig 488 in Stanton, Texas, on June 8, 2023.

Suzanne Cordeiro | AFP | Getty Images

A long-awaited rally in crude oil prices has helped the Club’s three oil-and-gas companies become some of our top-performing stocks over the past month. And with new signs the commodity could continue to rally this year, we’re sitting tight on our energy holdings.

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