Oil Stocks To Become More Expensive: Here's 1 Way To Play It

Oppenheimer commented on oil stocks Sunday and felt that shares would become more expensive.

Analyst Fadel Gheit and Luis Amadeo noted that energy stocks were “trading significantly below their 12-month highs and not by as much above their 12-month lows.”

The performance of energy stocks indicated that oil prices had bottomed and that oil stocks had significant upside potential even while Brent oil prices were likely to remain in a $65 to $70 range, according to the analysts.

Gheit thought “the energy industry is beyond the initial shock and denial phase and will soon enter the panic and capitulation phase, which could trigger what we believe is a much-needed industry consolidation.”

For Exxon Mobil Corporation (NYSE: XOM), the analysts felt that no acquisition was too big, considering the company’s $300 billion in treasury shares.

Here's What Citi Thinks

In a related research note, Citi analysts led by Scott Gruber commented Monday on U.S. Oil Services and also saw oil prices stabilizing.

Gruber concluded that with deceleration in U.S. rig count declines and stability in long-dated futures prices, investors should buy dips in shale services stocks.

With “crude prices and US rig count likely to move higher in 2H, then additional upside remains in our view. Thus we continue to recommend that energy investors buy shale service providers,” Gruber wrote.

The Citi analysts recommended the following three stocks:

Baker Hughes Incorporated (NYSE: BHI) - Buy, $75 price target

The price target was based upon a blend of book value multiple and DCF in addition to a deal completion. The stock recently traded at $66.73, up 0.29 percent.

Halliburton Company (NYSE: HAL) - Buy, $52 price target

The analysts applied a 2/3 weighting to an earnings multiple and a 1/3 weighting to a DCF target price to arrive a price target. The stock recently traded at $46.50, up 0.52 percent.

Patterson-UTI Energy, Inc. (NASDAQ: PTEN) - Buy, $22 price target

The price target was an average of a 6.3x multiple on the 2016 EBITDA forecast and a 1.1x multiple on PTEN's forecast for year-end 2015 BVPS. The stock recently traded at $20.33, up 1.55 percent.