Finding the right stock is the key to successful investing, but it’s never as easy as that sounds. The answer to the question, which stock to buy? is no secret, but it is hidden, in the avalanche of data that the markets produce. What’s needed is some clear signal that will cut through the noise and indicate the right stocks for the times.
The quantity of data, and the sheer impossibility of parsing all of it in real time, makes a formidable barrier to successful stock picking – but Wall Street’s analysts have that part under control, which turns the question into one that’s much more manageable: which analysts to follow? The quick answer is, follow the top-ranked analysts.
That will take us to Raymond James analyst John Freeman. This 5-star stock expert is a perennial dweller among the top-rated analysts contributing to the TipRanks database; the 66% success rate of his stock calls, and the 39% average return those calls would bring to investors who follow them, have Freeman standing tall among his peers on Wall Street. He’s currently ranked #2 out of 8,170 analysts.
In recent weeks, Freeman has picked out three stocks that he believes are primed for over 70% gains. Let’s open up the TipRanks database and get the lowdown.
Marathon Oil Corporation (MRO)
The first ‘Freeman pick’ we’ll look at is Marathon Oil, a $17.4 billion oil industry leader. Marathon spun off from the parent company Marathon Petroleum in 2011, to focus on hydrocarbon exploration and production operations, and since then has built its business on some of the best production regions for oil and natural gas in the US. The Texas-based company has major production activities in the Bakken, Eagle Ford, Delaware, and Stack/Scoop regions, spread from Texas to Montana.
These extensive operations generated solid production numbers, the foundation of Marathon’s financial success. In Q322, the company average 295,000 net barrels of oil equivalent per day, with oil production making up 166,000 net barrels of that total. The company realized $2.25 billion in total revenues from that production, a total that was up 55% year-over-year.
Other financial metrics in Q3 were also solid. Net income came in at $817 million, or $1.22 per share; on an adjusted basis, these numbers were $832 million and $1.24. The adjusted EPS was up more than 217% y/y. Cash flows, which support the dividend and other shareholder returns, were also strong; Marathon had $1.556 billion in net operating cash for the quarter, and after accounting for working capital, still reported $1.44 billion in cash flow. This included $1.03 billion in adjusted free cash flow.
Marathon returned $1.2 billion to shareholders during the quarter, mainly through share repurchases – but also through a modest dividend. That payment, in the last declaration, was set at 9 cents per common share for payout on December 12. This dividend annualizes to 36 cents per share, and yields a modest 1.3%; the key point in the dividend is the rapid rate at which Marathon has been raising it – since the February quarter of 2021, the dividend has been increased by 200%.
Freeman sees Marathon’s strong commitment to maintaining share value – and to returning that share value to stockholders – as one of this stock’s most attractive features.
“Marathon represents one of the few companies in our coverage with steady/rising per-share metrics thanks to their incredibly aggressive buyback program. 4Q22 will be the low point, with MRO stating they intend to repurchase ~$300M of stock during the quarter, representing an estimated 51% of CFFO on the year. Assuming the same payout next year, we estimate a 13% yield on buybacks and 15% total shareholder return,” Freeman noted.
“Given Marathon’s strong balance sheet, and top tier return strategy, we reiterate our Strong Buy rating,” the top analyst summed up. That rating comes with a $48 price target that implies a one-year gain of ~82%. (To watch Freeman’s track record, click here)
Overall, the Street’s consensus rating on Marathon Oil is a Moderate Buy, based on 14 recent analyst reviews that include 7 Buys, 5 Holds, and 2 Sells. The shares are priced at $26.38 and their average price target of $34.86 suggests an upside potential of ~32% on the one-year horizon. (See MRO stock forecast on TipRanks)
Northern Oil and Gas (NOG)
Next up is Northern Oil and Gas, an exploration and production company in the North American market. Northern focuses its operations in North Dakota and Montana, specifically in the Williston Basin, but also has activities in the Marcellus shale region of Pennsylvania and West Virginia, and in the Permian Basin on the Texas-New Mexico border.
Like Marathon above, Northern’s recent Q3 results show that solid production numbers are underlying sound results. The company produced 79,123 barrel of oil equivalent per day in Q3, a company record, for a 37% increase from the year-ago period. Of the total, 57% was oil, and the rest was natural gas and natural gas products.
Northern realized $276.8 million in GAAP cash flow during the quarter, with cash from operations coming in at $269.3 million. This was up 7% quarter-over-quarter, and included $110.6 million in free cash flow. The FCF was up 99% year-over-year.
During Q3, Northern closed on a major acquisition in the Texas Delaware Basin. The company picked up properties from Alpha Energy Partners, for a settlement of $155.1 million in cash. This is a bolt-on acquisition, with expected production next year of 3,000 to 3,500 barrels of oil equivalent per day.
For return-minded investors, we should note that Northern started paying dividends in the June quarter of last year, at 3 cents per common share; the company has increased the payment in every quarterly declaration since then, and the most recent, for 30 cents per common share, represents an increase of 20% over the last payout. The 30-cent div is scheduled for payment on January 31, 2023. At that rate, it will annualize to $1.20 and yield 3.7%.
Freeman notes that Northern saw higher-than-expected capital expenditures during Q3, mainly related to the company’s recent acquisition moves. Looking ahead, he writes of Northern’s capital guidance: “NOG’s capital guidance was bumped substantially with full year up 11% to $485M at the midpoint. The bump isn’t without benefits, as net spuds increased by 3% and net wells added to production increased by 6.5%. It also stands to reason that NOG has had a bit more ground game success this year than they had forecast.”
“The company has made substantial additions to wells in progress every quarter this year, from 49.1 in Q1 to 61.5 in Q3. We aren’t naive enough to think NOG will be insulated from inflationary pressures, but 5% increase in AFEs from last quarter stands up pretty well to industry peers,” Freeman added.
To this end, Freeman rates NOG a Strong Buy, while his $60 price target suggests an 85% price gain in the year ahead.
Overall, Northern Oil and Gas gets a Strong Buy rating from the analyst consensus, based on 10 recent reviews which break down 9 to 1 in favor of Buy over Hold. With a trading price of $31.32 and an average price target of $50.30, Northern has an average upside potential of ~61% for the coming year. (See NOG stock forecast on TipRanks)
Antero Resources (AR)
The last stock on our list of Freeman picks is AR, or Antero Resources. This company is a natural gas producer working in the area of the upper Ohio River, in the Marcellus and Utica shale formations where Pennsylvania, Ohio, and West Virginia come together. This area, in the heart of Appalachia, has long been known as one of the richest natural gas basins in the US. Antero boasts well over half a million net acres of productive holdings, with more than 17.7 trillion cubic feet of proven natural gas reserves.
The company’s net production during 3Q22 was 3.2 billion cubic feet per day of natural gas, a total that includes 171 thousand barrels per day of natural gas liquids. This brought in a net cash from operations of $1.1 billion, a free cash flow of $797 million, and a non-GAAP adjusted net income of $531 million.
Antero does not pay out a dividend, but the company has a strong share buyback program – which saw the company buy back over $382 million shares during the third quarter. In Antero’s Q3 financial release, the company announced that it was increasing its buyback authorization by $1 billion, to a new total of $2 billion.
In addition to supporting the share price through repurchases, Antero is also committed to reducing debt, and the company paid of $404 million during the quarter. As of September 30, Antero had $1.17 billion in outstanding debt, a total that is down nearly $1 billion so far this year.
Freeman sees Antero benefiting from continued increases in natural gas demand, and his forecast for next year paints a pretty picture of the company’s prospects.
“While 2023 guidance remains a quarter away, RJe 2023 production of ~3.4 Bcfe/d (~in line with Street) represents a ~5% increase y/y, which sets them apart from most of their Marcellus peers driven by both 1) increased ethane production via Shell’s Petrochemical Complex and 2) a net-gain of ~3.75% WI on each well drilled post-March 2023, following conclusion of AR’s Quantum joint venture,” Freeman noted.
“Currently,” the analyst added, “AR trades at just a ~3.7X forward EBITDA multiple and sports a 22% 2023 FCF yield — both best among large-caps.”
Quantifying his stance, Freeman gives Antero’s stock a Strong Buy rating with a price target of $55, which indicates his confidence in a 72% upside over the next 12 months. (To watch Freeman’s track record, click here)
All in all, there are 8 recent analyst reviews on file for Antero, and they include 5 Buys and 3 Holds – which gives the stock a Moderate Buy consensus rating. Meanwhile, the average price target of $50.14 implies a 57% upside from the current trading price of $31.82. (See Antero stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
