5 Oil and Gas Stocks With More Fuel in the Tank

5. PDC Energy

• Market value: $7.5 billion
• Dividend yield: 1.3%
• Analysts' consensus recommendation: 1.43 (Strong Buy)
• One-year implied upside: 20%

Shares in PCE Energy (PDCE (opens in new tab), $77.87) were up nearly 60% for the year-to-date through April 15, but the Street says they have more room to run.

Analysts praise the exploration and production (E&P) company's strong fourth-quarter results, equally robust 2022 outlook and, most importantly, its ability to generate free cash flow (FCF, the cash remaining after a company's expenses, capital expenditures and financial commitments are met.)

"We remain Buy-rated on PDCE given the company's strong FCF profile and newly announced commitment to return 60%-plus of post-dividend FCF to shareholders in the form of its growing base dividend and share repurchases," Goldman Sachs analyst Umang Choudhary says.

Analysts also applaud PDC's February acquisition of Great Western Petroleum, a transaction valued at $1.3 billion. Truist Securities analyst Neal Dingmann (Buy) says additional "low-cost, accretive M&A transactions" could provide further catalysts for PDCE stock.

The Street's consensus recommendation on PDC Energy comes to Strong Buy, per S&P Global Market Intelligence. Nine analysts rate the stock at Strong Buy, four say Buy and one has it at Hold.

Meanwhile, only a handful of oil and gas stocks have as much potential upside as PDCE shares, at least according to the analyst community. The pros' average price target of $93.14 gives PDCE implied upside of 20% in the next 12 months or so.

4. Phillips 66

• Market value: $39.9 billion
• Dividend yield: 4.4%
• Analysts' consensus recommendation: 1.82 (Buy)
• One-year implied upside: 21%

Shares in oil and gas refiner and marketer Phillips 66 (PSX (opens in new tab), $82.85) are leading the S&P 500 by more than 20 percentage points so far this year, and the Street sees even more market-beating returns ahead.

With an average target price of $100.06, analysts give PSX stock implied upside of 21% in the next 12 months or so. Add in the generous dividend, and the projected total return comes to more than 25%.

That's why the refinery stock gets a consensus recommendation of Buy, with fairly high conviction. Six analysts rate shares at Strong Buy, eight say Buy and three have them at Hold.

Analysts praise PSX's financial strength, diversification and "long history of returning excess cash to shareholders" via buybacks and dividends.

"Balance sheet strength and place on the cost curve are critical, and favor refining and marketing companies that are well positioned to manage their businesses in a range of oil price scenarios," writes Argus Research analyst Bill Selesky (Buy). "PSX is one of these companies, as it benefits from its size, scale and diversified business portfolio."

At Goldman Sachs, analyst Neil Mehta (Buy) continues "to see underappreciated value at Phillips 66," noting that shares have underperformed relative to peers this year.

3. Ovintiv

• Market value: $13.8 billion
• Dividend yield: 1.5%
• Analysts' consensus recommendation: 1.79 (Buy)
• One-year implied upside: 22%

Surging oil and gas prices are helping E&P play Ovintiv (OVV (opens in new tab), $53.18) "right size" its balance sheet, analysts say, which will allow it to return even more cash to shareholders.

"We remain Buy-rated on OVV given its enhanced FCF profile relative to peers, coupled with the company's upcoming shareholder returns inflection to 50%-plus of FCF (from 25% currently) as the balance sheet improves," writes Goldman Sachs analyst Neil Mehta.

At Truist Securities, analyst Neal Dingmann (Buy) is likewise bullish on OVV's rising free cash flow, return of cash to shareholders and debt reduction efforts. He adds that the company "could also add an accretive moderate acquisition in the coming months while not materially changing its shareholder return plans."

The bottom line, bulls say, is OVV is a turnaround story that really is starting to turn. That's why shares in the oil and gas stock – up nearly 60% for the year-to-date – have plenty more outperformance ahead.

Indeed, with an average target price of $64.90, analysts give OVV stock implied upside of 22% in the next 12 months or so.

Ten analysts rate OVV at Strong Buy, nine say Buy and five call them a Hold, per S&P Global Market Intelligence. That works out to a consensus recommendation of Buy, with fairly high conviction.

2. Diamondback Energy

• Market value: $24.6 billion
• Dividend yield: 1.7%
• Analysts' consensus recommendation: 1.63 (Buy)
• One-year implied upside: 22%

Diamondback Energy (FANG (opens in new tab), $138.44), an oil and gas E&P firm, gets a consensus recommendation of Buy, with high conviction. Although shares are up more than 28% for the year-to-date through April 15, investors can still reap outsized rewards in the year ahead, analysts say.

Indeed, with an average 12-month price target of $168.25, the Street gives FANG implied upside of 22%.

Once again, the investment thesis hinges on keeping capex down, and cash to shareholders up.

"Management remains committed to capital discipline, FCF generation and shareholder returns," writes Raymond James analyst John Freeman (Strong Buy).

Freeman notes that FANG recently increased its base dividend by 20% to $2.40 per share annually.

"FANG's priority will remain a consistent and growing base dividend," the analyst adds, "but the company will also complement that base dividend with either share buybacks or variable dividends to return 50% of FCF to shareholders."

At CFRA Research, analyst Stewart Glickman highlights FANG's rising dividend and the favorable macroeconomic backdrop in making his Buy case for shares.

"With tighter markets expected in 2022, which should yield strong pricing, we believe FANG is positioned for a strong year," Glickman writes.

Seventeen analysts rate the oil and gas stock at Strong Buy, while another 10 say Buy and five call it a Hold.

1. Chesapeake Energy

• Market value: $12.1 billion
• Dividend yield: 3.1%
• Analysts' consensus recommendation: 1.45 (Strong Buy)
• One-year implied upside: 24%

Chesapeake Energy (CHK (opens in new tab), $94.36), a natural gas E&P company, is tops for upside among these oil and gas stocks, and it makes UBS Global Research's list of Top Picks for 2022, thanks to rising prices for natural gas and other factors.

Chesapeake, like PDCE, is benefiting from strategic acquisitions. In early March, the company closed its deal for privately held Chief E&D Holdings for $2.6 billion. That represents the firm's second major acquisition since late 2021. Most importantly, it allows CHK to return even more cash to shareholders.

"Base dividends will increase to 50 cents a share," writes UBS analyst Lloyd Byrne (Buy). "Recall in January, CHK increased its annual dividend by about 14% to $2.00 per share and maintained the $1 billion stock buyback program." (The company also pays variable dividends based on adjusted free cash flow.)

Although the favorable gas market has propelled CHK to a gain of more than 45% for the year-to-date through April 15, analysts say it's still undervalued. Indeed, with an average target price of $116.70, the Street gives CHK stock implied upside of 24% in the next year or so.

Little wonder, then, that analysts' consensus recommendation comes to Strong Buy. Of the 11 analysts covering the stock surveyed by S&P Global Market Intelligence, seven rate it at Strong Buy, three say Buy and one calls it a Hold.