The economic turmoil roiling the capital markets has made investors jittery worldwide. With an impending recession and four-decade high inflation levels, the common public is finding it hard to make profitable investment decisions.
In such a scenario, the energy sector can be looked upon as a place where investors can deploy their capital. Why is this the case? According to World Bank, the average price of Brent crude oil is likely to be around $100 per barrel in 2022, its highest level since 2013 and a rise of more than 40% compared to 2021. Notably, with tensions seeing no signs of abating, energy prices are unlikely to cool down in the near term.
Keeping these macro-economic tailwinds in the picture, the margins of energy companies are likely only going to expand, with them enjoying greater operational strength along with revenues. However, which energy stocks should you invest in? That remains the pertinent question.
Here, we present the TipRanks Expert Center, which brings forth the industry’s top experts who have successfully navigated through various economic cycles and have made impressive returns with their stock picks.
In today’s Expert Spotlight Piece, we highlight such an expert who has been a potent stock picker in the energy sector over the years and whose picks have generated fantastic returns. Today we are focusing on Raymond James analyst John Freeman.
John Freeman is the Managing Director at Raymond James. Freeman has been associated with Raymond James for more than two decades and has been a one-company man, thus far. He graduated with an MBA from University of Notre Dame’s Mendoza College of Business. Further, he holds a graduate degree in Finance and International Business from Baylor University.
Where Does Freeman Stand among TipRanks Analysts?
According to the TipRanks Star Ranking system, Freeman is ranked #6 out of the 7,892 analysts in the database. Moreover, out of the 20,057 experts tracked overall, Freeman occupies the 15th position.
Meanwhile, Freeman has a success rate of 61%, with an average return of 35.1% over the past year. Moreover, his calls have generated an alpha of 28.5% and 29.1% over the S&P 500 (SPX) and the energy sector, respectively, during the same period.
According to TipRanks, Freeman’s most profitable pick has been Laredo Petroleum (LPI) between October 23, 2020 to October 23, 2021, generating an impressive return of 731%.
Let’s have a look at two of his top picks.
Devon Energy Corporation (NYSE: DVN)
Based out of Oklahoma City, Devon Energy is primarily focused on hydrocarbon exploration in the United States. As of December 31, 2021, the company had reserves of 1,625 million barrels of oil equivalent. This comprised of 44% petroleum, 27% natural gas liquids, and 29% natural gas.
Notably, the company has a market cap of $38.29 billion.
In its latest results for the first quarter, the company reported revenues of $3.81 billion, up 85.9% year-over-year. Moreover, the company reported an adjusted EPS of $1.88 which denotes a year-over-year growth of 35%.
Further, total production stood at 575,000 Barrel of Oil Equivalent (BOE) per day, up 15.2% year-over-year.
Moreover, the company also recently announced the acquisition of RimRock Oil & Gas’ leasehold interest and related assets in the Williston Basin for $865 million.
Following the announcement of the acquisition, Freeman reiterated a Buy rating on the stock. The analyst, however, raised his price target from $90 to $105, which implies upside potential of 75.9% from current levels.
With a success rate of 88%, the analyst has rated the stock a total of 55 times. Further, he has generated an average profit of 139.6% on the stock.
Overall, consensus among analysts is a Moderate Buy based on 11 Buys and six Holds. The average DVN price target of $83.59 implies upside potential of 44.1% from current levels. Shares have gained 31.6% over the past year.
Antero Resources Corporation (NYSE: AR)
Another company focused on the hydrocarbon space, Antero Resources is based out of Denver, CO and has market cap of $10.7 billion. As of December 31, 2021, the company had 17,729 billion cubic feet of estimated proved reserves, of which 61% was natural gas, 21% was ethane, 17% was natural gas liquids, and 1% was petroleum.
The company’s latest results for the first quarter were decent, with both revenue and earnings witnessing yearly growth.
Revenues for the quarter rose to $1.2 billion, up 53% from the prior year. Meanwhile, earnings came in at $1.15 per share which denotes a year-over-year growth of 85.5%.
Average net production for the quarter stood at 3.2 Bcfe/d, including 160 MBbl/d of liquids.
Freeman reiterated a Buy rating on the stock while raising his price target from $52 to $60, which implies an upside potential of 74.6% from current levels.
Freeman expects that the company’s continued net debt reduction endeavors are going to result in 2022 shareholder yields of 13%-14%, and 2023 shareholder yields of around 20%.
Freeman has a success rate of 71% in the stock. The analyst has rated the stock a total of 50 times. Further, he has generated an average profit of 57.9% on the stock.
Overall, the Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on six Buys and two Holds. The average AR price target of $47.50 implies the stock has upside potential of 38.2% from current levels.
The uncertain global economic landscape is only going to add wind to the sails of energy prices. With no respite in sight from the same, leading energy companies like Devon and Antero are expected to benefit.
Further, Freeman’s track record in picking winners from the energy sector can be taken into consideration by investors to make fruitful investment decisions in such volatile times.