Let’s talk about finding returns – the primary goal of every investor in the market. Basically, there are two ways to set up a profitable stock portfolio. Investors can look for stocks that are on target, or stocks that generate reliable income through dividends. Ideally, investors can find both.
Analyst Noah Hungness looks at current market conditions for Bank of America and recommends two dividend stocks that look attractive right now. Notably, both stocks have recently fallen from their 52-week highs, offering an attractive combination of dividend yield and upside potential, supported by discounted prices.
We used the TipRanks database to look up the broader Street-level view of Hungness’ picks and found that both get a ‘Strong Buy’ rating – and both offer double-digit upside potential. Here are the details.
Permian Resources (PR)
The first stock we’ll look at is Permian Resources, one of several independent oil and natural gas exploration and production companies working in Texas’ oil country. Permian’s name is the giveaway here; the company is one of the largest pure-play E&Ps in the rich Permian Basin, the geological formation that has put Texas back on the world map of energy producers in recent decades. Permian Resources owns extensive acreage – on the order of 400,000 net leasehold and 68,000 royalty acres – in the Midland Basin of the greater Permian, and in the Delaware Basin straddling the Texas-New Mexico border.
Permian focuses on acquiring and developing high-yield oil and gas properties within these formations, with the goal of increasing returns for investors. The company uses a combination of technical expertise and operational flexibility to ensure its investments are optimized to generate high returns over a productive lifespan. The company views this approach as the key to a successful and disciplined business. Permian Resources is based in Midland, Texas, and has a market capitalization of nearly $12 billion.
In its last reported quarter, 1Q24, Permian described its results as “strong,” with revenue of $1.24 billion. This was a 101% increase year over year and exceeded forecast by $30 million. Ultimately, earnings per share of $0.25 were less impressive, falling 14 cents per share below forecast.
These figures were supported by a strong increase in oil and natural gas production compared to the previous year. In 1Q24, Permian reported crude oil production of 151.8 MBbls/d, and total average production (oil and natural gas) of 319.5 Mboe/d. These figures were approximately double the production reported in 1Q23.
Permian has committed to returning capital to shareholders, and in the first quarter the company spent $31 million to buy back 2 million shares – and increased its dividend payout. The basic dividend was increased by 20% to 6 cents per ordinary share and was paid on May 29, together with a variable dividend of 14 cents per share. The combined 20 cent payment yields an annual interest of 80 cents and a yield of 5.2%, well above the current inflation rate. The company has a history of paying variable dividends in addition to the regular dividend payment.
We should note here that Permian shares are down 16% from the 52-week high it reached in April this year. Some of that decline occurred after the company announced on May 13 a secondary stock offering totaling more than 51 million shares by several large retail shareholders.
Looking at Bank of America’s view, we see that analyst Hungness is optimistic and notes several advantages in the company’s operations. He writes: “We believe the combination of PR’s operational execution, premium multiple and low leverage has positioned the company well to continue its consolidation strategy, but the company has seen a recent pullback… which we believe provides an attractive entry point into the best companies. performing stocks in the sector since early 2023.”
Hungness also notes that Permian has realized benefits from last year’s acquisition of Earthstone, and sees the company positioned to continue to realize financial windfalls from M&A: $4.5 billion in Earthstone acquisition generating 133 kboed (41% oil ) added… given how unconsolidated Delaware is, we see potential for deals to continue adding runways around PR’s core acreage.
For Hungness, these factors add up to a buy rating on the stock, and he sets his price target at $20, implying the stock will rise 30% over the next twelve months. (To view Hungness’ track record, click here)
Overall, the Strong Buy consensus rating for Permian Resources is derived from 13 recent analyst ratings – which equate to a lopsided 12 Buys and 1 Hold. The shares are priced at $15.41 and their average price target of $20.92 suggests a one-year upside potential of 36%. (To see Permian’s stock forecast)
Agree Energy (CHRD)
Next up is Chord Energy, an oil and gas company operating in the northern part of the Great Plains. Specifically, Chord owns more than 126,000 net acres in the Bakken Shale of the greater Williston Basin formation, the oil-rich production area that has made North Dakota a major player on the global energy stage. Chord’s holdings are primarily in the Bakken of North Dakota, but extend south into greater Williston and west into Montana.
Chord’s business model is based on high-quality assets and a low break-even price. The company has six operational installations and approximately 57% of its proven reserves consist of crude oil. During 1Q24, the last reported period, the company’s 99 MBopd exceeded the high end of previously published expectations. Total production in the quarter was 168.4 MBoepd. That total included 58.8% crude oil, with the remainder being natural gas and natural gas liquids.
Revenue in the quarter was $1.09 billion, which beat forecasts by more than $323 million and grew more than 21% year over year. Similarly, non-GAAP EPS of $5.10 per share exceeded expectations by $0.34 and was 13.5% higher than Q1-23.
In addition, Chord has now completed the previously announced acquisition of Canadian oil and gas company Enerplus. The closing of the transaction was announced on May 31. This merger increased Chord’s total Bakken acreage to 1.3 million.
Looking at the dividend, we see that Chord announced a combined base and variable payment of $2.94 per common share ($1.25 base, $1.69 variable) on May 7, which was announced on June 5 paid. The total annualized dividend amounts to $11.76 per common share and provides a high yield of 7.15%. We can note here that shares in Chord are down 13.5% from the peak reached last April.
Analyst Hungness specifically points to the share price drop as a reason for investors to buy in, pointing out that this gives the shares a relative discount price. He says of Chord: “Shares have retreated as the oil price created an attractive buying opportunity for a core E&P name. CHRD currently trades at 3.6x 2025 DACF, compared to the peer average of 4.7x. While CHRD does not fit our oil growth theme and is aimed at keeping production stable over the next decade, stocks at this level offer compelling risk reward with operational upside catalysts. Following the Enerplus combination, CHRD has a larger platform to push the boundaries of capital efficiency, with the track record of recent years standing out. In our opinion, the scale and reputation as an operator lay the foundation for (more) potentially profitable mergers and acquisitions.”
Hunger quantifies its position with a buy rating on CHRD, and its $201 price target suggests a one-year upside of 22%.
The broader view of these stocks on Wall Street is a bit more bullish. The Strong Buy consensus rating is unanimous, based on 9 positive reviews in recent weeks, and the $219.56 average price target implies a 33.5% one-year upside from the current trading price of $164.49. (To see CHRD 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’ stock insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.
