Goldman is Recommending These 2 Oil Companies With Huge Dividends And Giant Buybacks

By Anjali Paliwal - October 18, 2012 | Tickers: BP, XOM, MPC | 0 Comments

• Email
• Print

Goldman Sachs' Robert D. Boroujerdi and his team recently published a report recommending the 27 best stocks with high dividend yield and significant potential accretion from buy backs. The following are two Oil & Gas stocks which are featured in the list:  

Source: Goldman Sachs

I believe these stocks make a good buy at current levels. Here is a look at these stocks in detail.

Exxon is the world’s largest Oil and Gas Company which has an estimated reserve of around 25 billion boe, from its solid asset base. It has a robust pipeline of 21 projects expected to be operational by 2014, which are likely to provide an upside catalyst for its business in the near term and provide it immunity from any downturn in the industry. Furthermore, XOM’s recent acquisition of XTO and Celtic Exploration will help it in increasing revenues. In addition to good topline prospects, the company’s industry leading cost structure and integrated operation will continue to support its high margins.

The company has a well diversified portfolio of international assets with the US accounting for only 24%.  Its above average forward dividend yield of 2.4% and strong share repurchase history makes it a favorable defensive stock.  Hence, I recommend this stock for a medium to long term perspective.

Marathon Petroleum’s shares have delivered solid returns this year and the stock has risen from ~$31 in January to its current ~$55. The company reported impressive second quarter operating earnings and I believe this trend will likely continue going forward. The biggest positive catalyst for Marathon’s business is its agreement for acquiring BP’s Texas City Refinery of 451 mbd and other related asset for $2.5 billion in a very attractive deal earlier this month. Its refining capacity will increase to 1.7 million barrels/day from its current 1.2 million barrels/day after this deal. Additionally, this deal will also bring operational efficiencies and help Marathon to enhance its presence in southeastern US retail.

I think with growing revenue and sufficient free cash flow, MPC will increase share repurchases and dividends in the future, and hence I would recommend it as a buy.

In addition to these two stocks I also like BP Plc (NYSE: BP). The company has an industry high dividend yield of ~4.6% and if it successfully implements its divestiture program, it may soon resume share buybacks. After Marathon Petroleum’s acquisition of the Texas City refinery, 90% of BP’s targeted divestment goal of $38 billion by the end of the year is complete. Including its Carson refinery sale to Tesoro, it has accumulated $10 billion in the past two months. This amount should further increase with GoM property sales to Plains and Draugen to Shell. These proceedings will help it to invest in its upstream and downstream remodeling strategy, which will generate better returns.

BP has a high margin asset base which is expected to produce 150 kboe/d by 2015. An industry high dividend yield of 4.6% and the possibility of share buyback warrant a better valuation for the company. Also, its current share price already reflects its liability from the Macondo oil spill, so the downside is limited. I find its risk reward profile favorable and would recommend buying it along with Exxon and Marathon Petroleum.

• Email
• Print
• Feedback