5 Top-Ranked Oil and Gas Stocks for 2011

Chevron, Halliburton and three other energy companies are positioned to outperform in 2011.
By Jake Lynch ,

BOSTON (TheStreet) -- Energy, having been outshined by gold and other commodities, is emerging as a popular investment theme for 2011. Crude oil is vacillating around $91 a barrel. Rebounding developed economies and fast-growing emerging markets are rendering oil and gas stocks attractive. Here is a look at the five highest-rated S&P 500 oil and gas stocks for 2011. Below, they are ordered by percentage of "buy" ratings, from plenty to most.

5.

Chevron

(CVX) - Get Report

is the world's second-largest energy company. Its rival is

Exxon Mobil

(XOM) - Get Report

.

Fundamentals

: Chevron's 12-month sales have risen 20%. Its third-quarter net income declined 1.7% to $3.8 billion. Earnings per share dropped 2.6% to $1.87. Revenue gained 7.7% to $46 billion. The operating margin widened from 11% to 12%. Chevron held nearly $15 billion of cash and $11 billion debt at quarter's end, equaling a net liquidity position of $3.9 billion. Its quick ratio of 1.2 and debt-to-equity ratio of 0.1 reflect fiscal prudence. Its stock is up 12% in 2010.

Analyst Opinions

: Of analysts covering Chevron, 19 recommend purchasing its shares and six advise holding. None say to sell. A median target of $95.57 suggests a return of 11%.

Barclays

is bullish, offering a price target at $110 and implying a looming gain of 28%. On the other hand,

Deutsche Bank

feels that Chevron is pricey, rating it "hold" and valuing the stock at $80. Chevron's forward P/E of 8.9 represents a 58% discount to the oil and gas industry average.

4.

Occidental Petroleum

(OXY) - Get Report

is an integrated oil and gas company based in Los Angeles.

Fundamentals

: Occidental's 12-month sales have advanced 27%. Third-quarter profit increased 28% to $1.1 billion, or $1.47 a share, as revenue stretched 19% to $4.9 billion. The operating margin widened from 35% to 40%. At quarter's end, Occidental carried $2.1 billion of cash and $2.5 billion of debt on its balance sheet, converting to a quick ratio of 1 and a debt-to-equity ratio of 0.1. Its stock has appreciated 12% in 2010 and 18% in the past three months.

Analyst Opinions

: Of researchers following Occidental, 19, or 83%, rate its stock "buy" and four rate it "hold." None rank it "sell." A median target of $97.87 suggests an impending 12-month return of 7%. Bullish forecaster

RBC

expects Occidental's stock to appreciate 15% to $105.

Deutsche Bank

rates Occidental "hold", valuing the stock at $84, nearly 8% below the market price. Occidental's forward P/E of 14 reflects a 35% oil and gas peer discount.

3.

EQT

(EQT) - Get Report

is an oil and gas company, with production, midstream and distribution operations.

Fundamentals

: EQT's 12-month sales have declined 2.9%. Third-quarter profit multiplied to $37 million, or 24 cents a share, from $2.9 million, or 2 cents, in the year-earlier quarter. Revenue stretched 18% to $257 million. The operating margin extended from 20% to 34%. EQT held $197 million of cash and $1.9 billion of debt at quarter's end, equaling a less-than-ideal quick ratio of 0.6 and a 0.6 debt-to-equity ratio. Its stock has dropped 3% in 2010, but is up 27% in three months.

Analyst Opinions

: Of analysts following EQT, 12, or 86%, advocate buying its stock and two counsel holding. None recommend selling. A median target of $49.06 implies an impending one-year gain of 15%.

UBS

is more optimistic, projecting a price of $55, suggesting a 29% return.

Citigroup

, on the other hand, expects EQT's stock to decline to $41.50. The stock's 2.1 book value multiple and 7.9 cash flow multiple represent 48% and 11% peer discounts.

2.

Schlumberger

(SLB) - Get Report

sells supply technology, project management and information services.

Fundamentals

: Schlumberger's 12-month sales have inched up 1.2%. Third-quarter profit more than doubled to $1.7 billion, or $1.38 a share, as revenue gained 26% to $6.8 billion. Adjusted profit gained a more modest 7% sequentially and 11% year-over-year. The operating margin decreased from 18% to 16%. Schlumberger held $2.6 billion of cash and $6.7 billion of debt at quarter's end, translating to a quick ratio of 1.1 and a debt-to-equity ratio of 0.2.

Analyst Opinions

: Of analysts covering Schlumberger, 32, or 86%, rate its stock "buy" and five rate it "hold." None rank the shares "sell." A median target of $85.74 suggests a 12-month return of just 5%. Yet,

BMO Capital Markets

expects the stock to rally 11% to $90.

Morgan Stanley

, ranking Schlumberger as one of its eight Best Stock Ideas, expects it to surge 60% to $130.

Raymond James

ranks the stock "outperform", but values it at just $75, implying 7% downside.

1.

Halliburton

(HAL) - Get Report

is a provider of products and services to the energy industry.

Fundamentals

: Halliburton's 12-month sales have grown 3.8%. Third-quarter net income more than doubled to $544 million. Earnings per share rose 83% to 53 cents, restrained by a higher share count. Revenue increased 30% to $4.7 billion. The operating margin extended from 14% to 18%. At quarter's end, the balance sheet stored $2.8 billion of cash and $4.6 billion of debt, translating to a lofty quick ratio of 1.9 and a conservative debt-to-equity ratio of 0.5.

Analyst Opinions

: Of researchers evaluating Halliburton, 32, or 91%, advocate purchasing its shares and three suggest holding. None advise clients to sell. A median target of $48.22 implies 19% of potential upside in the next year.

Raymond James

offers the highest price target, at $55, suggesting an impending return of 38%.

Sanford Bernstein

expects Halliburton to "outperform", but values it at $44, 10% below the current market price. It is up 33% in 2010.

-- Written by Jake Lynch in Boston.

To see these stocks in action, visit the

5 Top-Ranked Oil and Gas Stocks Portfolio

on Stockpickr.

RELATED STORIES:

Morgan Stanley's 8 Best Stock Ideas for 2011

Become a fan of TheStreet on Facebook.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

Loading ...