Oil prices collapsed last week. For the first time in history, the WTI benchmark fell into negative numbers for the May futures contract. Even though it recovered slightly, WTI is still low by 73%, currently trading at just $14.
On the other hand, the main global benchmark, Brent is trading at $20, lower by 66%. Analysts think that such steep drops in oil are mainly caused by the sudden loss in demand due to the lockdowns in the response of pandemic.
However, every coin has two sides. While the oil industry suffered a significant blow, now is an excellent time to grab oil shares. The collapse has driven share prices down far below their recent peaks, in some cases, by more than 50%.
Which oil stock do the experts recommend?
Analysts advise Diamondback Energy due to its strong-buy rating. This company is one of the many small-to mid-cap oil producers. However, its production totals more than 130,000 barrels of oil equivalent each day.
Diamondback has taken advantage of the oil boom in Texas’ Permian Basin along with the other companies, turning that basin into North America’s top oil-producing region. The company began 2020 with success, reporting $1.104 billion in top-line revenue, as well as $1.93 in earnings per share for the fourth quarter in 2019. It beat the analysts’ forecasts on both metrics.
Furthermore, Diamondback announced a growth in the regular dividend, increasing it to 37.5 cents per share quarterly. That put the annualized rate at $1.50 per share, while the yield, at 4.2%, is more than double the average dividend yield found among S&P-listed stocks.
Scott Hanold, RBC’s analyst, stated that Diamondback became one of few that have amassed a combination of quality assets, minerals ownership, strong economic growth, and water business. All of these help to provide a competitive advantage.
He believes that Diamondback has one of the lowest cost structures in the basin, as well as a corporate cash flow break-even that is among the best in the industry. Hanold set his price target at $50, with a 38% upside potential for the shareholders.
