Energy stocks got pummeled in 2017, with most losing value this year even though crude prices have rallied and are at their best levels in years. Because of that sell-off, analysts think that some oil and gas stocks are now significantly undervalued, with the following five currently sitting well below where analysts think they should trade.
Here's a closer look at why analysts believe these energy stocks could hit those price targets, which would make them big winners in 2018.
Continue Reading Below
A dirt-cheap natural gas stock
Natural gas producer Range Resources has gotten crushed this year, with its stock losing more than 50% of its value. That's mainly due to lower natural gas prices, which weighed on the company's earnings and caused it to water down its production growth outlook for 2018. That said, some analysts believe the stock has fallen too far this year, with Barclays, for example, upgrading Range to overweight in October and raising its price target from $18 to $24, saying that shares trade at their "most compelling level in years." Fueling that view is the expectation that Range's drilling results in the Marcellus shale will keep improving and that the company will earn returns as good as or better than rivals thanks to its prime position in that shale play.
Show me the money
Fellow natural gas producer Gulfport Energy also got hammered this year due to weaker gas prices, with its stock falling more than 40% through mid-December. Analysts believe, however, that Gulfport's stock could reverse course in 2018 if the company can prove that it can make money at lower gas prices. Imperial Capital, for instance, rates the stock an outperform with a $19 price target based on the view that Gulfport Energy can continue improving its operations and drilling economics, which should boost profitability.
The light at the end of the tunnel
Drilling contractor Nabors Industries has tumbled a stunning 64% this year due to the unexpected slowdown in drilling activities after crude revisited the low $40s earlier this summer. Because of that, Nabors posted a bigger-than-expected loss in the third quarter, which caused debt to jump. While that poor showing concerned some analysts, a Jefferies' analyst upgraded the stock to a buy and raised the price target from $8 to $9. The analyst sees "incremental positives" for drillers, with the expectation that drilling activities and rig dayrates will improve in 2018, which should drive earnings higher.
Too cheap to ignore
Permian Basin-focused driller Callon Petroleum tumbled nearly 29% this year due to a range of issues, including the impact of weaker oil prices this summer and some drilling issues that caused the company to reduce its full-year production outlook. However, analysts believe Callon's shares fell too far this year. Bank of America, for example, gave the stock with a buy rating in October and set a $15 price target, citing an "unwarranted" discount to peers, especially in light of the company's growth prospects. Meanwhile, Jefferies named Callon one of its top picks among exploration and production stocks due to its strong position in the red-hot Permian.
Waiting for the weight to lift
Midstream giant Energy Transfer Partners shed about 27% of its value this year even though its financial situation finally seemed to turn the corner thanks to the start up of several expansion projects. With more growth on the way, this high-yield stock appears to be dirt cheap right now. One reason for that discount is the concern over the high fees it pays parent Energy Transfer Equity, which eat up a significant portion of cash flow and will only grow in the future. Analysts believe, though, that the company will eventually address these concerns, which would lift a huge weight and likely send Energy Transfer soaring.
The risk nearly rivals the reward
While analysts think that these energy stocks could rebound significantly in the coming year, that outcome isn't a sure thing. That's because many of these companies still have issues to address, which makes them riskier bets to meet those lofty price targets. So even though analysts think that these oil and gas stocks could be huge winners in 2018, they might also continue to be disappointments if things don't go just right. That's why investors should carefully weigh the risk that these stocks might keep sinking before buying into the upside potential.
10 stocks we like better than Range ResourcesWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Range Resources wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of December 4, 2017