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Strategic Energy Investments for 2024: Defensive Stocks and Potential Upsides

Bank of America's Doug Leggate Highlights Chevron, Occidental, and Exxon Mobil in Shaping a Stable Portfolio

The 2024 energy market presents challenges due to anticipated oil volatility from geopolitical risks in Ukraine, the Middle East, and OPEC policy shifts. Doug Leggate of Bank of America recommends defensive stocks, highlighting Occidental Petro (OXY), Chevron (CVX), and Exxon Mobil (XOM). These major players, fueled by significant acquisitions in 2023, promise substantial value.

Oil and Gas Infrastructure

Chevron's acquisition of Hess for $53 billion enhances its cash flow and sets a transformative portfolio trajectory, with Leggate projecting a 19% upside and a target of $180. Occidental Petro's $12 billion acquisition of CrownRock secures its top spot, forecasting a remarkable 35% upside, setting a price target at $80.
Exxon Mobil, displaying resilience in oil market fluctuations, maintains sector leadership. The pending $60 billion venture with Pioneer Natural Resources accelerates Exxon's cash flow, expected to double by 2027. Leggate assigns Exxon a target of $140, indicating a robust 37% upside. Chevron's recent impairment of U.S. upstream assets, primarily in California, due to regulatory challenges, introduces new complexities. Moreover, recognizing losses related to abandonment obligations in the U.S. Gulf of Mexico adds additional considerations for investors. Despite these developments, Leggate's defense-oriented recommendations aim to provide stability amidst market uncertainties.

Chevron's Regulatory Impairment, Exxon Mobil's Q4 Earnings Factors

On a related note, Chevron's recent announcement indicates impairments to its U.S. upstream assets in Q4, primarily in California. Regulatory challenges have led to lower anticipated future investments, prompting Chevron to recognize a loss related to abandonment and decommissioning obligations in the U.S. Gulf of Mexico. This stems from assets previously sold to companies now under Chapter 11 bankruptcy protection. The aggregate impact, treated as special items, is estimated at non-cash, after-tax charges of $3.5 billion to $4.0 billion in Q4 2023.

Exxon Mobil, providing insights into its Q4 results, details factors influencing adjusted upstream earnings. Changes in gas prices are anticipated to positively impact Q4 earnings by $0.4-0.8 billion. However, impairments and other market factors, as outlined by the company, may have varying effects. Exxon's downgrade to Neutral from Buy at Mizuho, along with the downgrade of Occidental Petro to Neutral, reflects evolving market dynamics. These updates underscore the importance of strategic considerations amid fluctuating energy landscapes.

Conclusion

As Bank of America adjusts overall oil and gas sector price targets due to a declining oil curve, Leggate's top picks exhibit exceptional upside potential for 2024. These defensive stock recommendations strategically position investors to navigate commodity volatility. In recognizing the intricacies of the energy market, Leggate's choices aim to offer stability and resilience in the face of potential uncertainties. Investors are encouraged to consider these insights for informed decision-making in the evolving energy landscape.


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