Chevron (CVX - Get Report) and Royal Dutch Shell (RDS.B - Get Report) are top picks among the "supermajor" oil and gas companies while BP (BP - Get Report) , Total (TOT - Get Report) and Exxon Mobil (XOM - Get Report) are less desirable, according to a report Tuesday by energy-centric investment bank Tudor, Pickering, Holt & Co.
The analysts like Chevron for its high-margin growth, free-cash-flow turnaround from its Australian liquefied natural gas projects and its "top quality" Permian position. They also like Shell for its "safe" dividend and "achievable" asset sale program, which will help it reduce debt and ultimately re-initiate a stock buyback.
TPH wasn't as keen on BP, which the firm put in the "middle of the pack" due to its stretched balance sheet with Macondo liabilities but it's more positive on its production and cash-flow-growth outlook after a recent presentation.
The analysts said Total also has relatively high leverage when including hybrids and they're concerned about the company's project execution risk and lack of longer-term projects. And they think Exxon Mobil remains challenged in terms of future growth, "which should weigh on its premium valuation."
With oil prices seeming to solidify in the upper $40 per barrel range, analysts have been issuing recommendations so investors can take advantage of energy stock valuations that remain low and a possible continued rise in commodity prices.
Last week, Jefferies analysts Jason Gammel and Marc Kofler said they believed that the fundamentals of the oil market remain favorable for continued price recovery and that global inventories will begin to draw in the third quarter.
"In the near term, Brexit and corresponding strength in the U.S. dollar could prove a headwind," they said. "However, the market will soon require a price signal that stimulates incremental investment in productive capacity; it may be delayed by Brexit but won't be precluded by it."
Jefferies' preferred names included Chevron as well as Marathon Oil (MRO - Get Report) in the U.S. and Shell and Galp Energia in the European Union. They also kept their underperform rating on ConocoPhillips (COP - Get Report) , Repsol and Statoil (STO) , encouraging investors to continue to take profits on ConocoPhillips and Repsol while downgrading their recommendation on Total to hold from buy.
Exxon Mobil stock got a boost last week when the oil and gas giant confirmed a large discovery off the coast of Guyana. Exxon Mobil's partner in the field, Hess (HES - Get Report) , also saw a run-up in its shares.
For Chevron, the endorsement comes as the company said Tuesday it had committed $36.8 billion along with Exxon and other partners into expanding a project in Kazakstan. The investment in the oilfield, known as Tengiz, was initially announced in May.