The energy sector has been the worst-performing one in the S&P 500 for several years running. It's not even close. The S&P 500 has rallied 75% over the past five years, while energy stocks, as measured by the Energy Select SPDR ETF, have produced a negative 5% return. On a more positive note, the sector has bounced back a bit this year, rising 7% year to date. Still, that has badly trailed the scorching-hot S&P 500, which is up nearly 30% on the year.
Wall Street analysts, however, expect better things from energy stocks in 2020. Not only are they bullish on the sector overall, but they also see some potentially big winners. Here's a look at the five oil stocks that they believe have the most upside in 2020.
Concho Resources: 28% upside potential
Most analysts are bullish on Permian Basin-focused oil driller Concho Resources (CXO). Overall, 79% of those who follow the company have a buy or equivalent rating on its stock, with their consensus 12-month price target coming in at $100.74. With shares recently trading at around $78.75 apiece, analysts see 28% upside.
One reason analysts like what's ahead for Concho Resources is that it recently launched a $1.5 billion share repurchase program. With its stock tumbling more than 20% this year due to the poor results of a well spacing test in the second quarter, its buyback could retire about 10% of its outstanding shares. That repurchase program could provide a meaningful lift to Concho's stock in the coming year.
EOG Resources: 31% upside potential
Eighty-three percent of the analysts who cover shale giant EOG Resources (EOG 1.04%) have a buy or equivalent rating. Even after adding in their less bullish peers, the 12-month consensus price target for the stock is $99.03 per share, which is about 31% above its recent price.
What analysts love most about EOG is that it continues to exceed expectations. That was the case during the third quarter, as its oil production beat its guidance while costs came in below projections. That trend should continue in 2020, which is why analysts believe EOG's shares have lots of room to run.
Marathon Petroleum: 38% upside potential
Refining giant Marathon Petroleum (MPC 0.31%) is a favorite among the analyst community. Currently, 89% of those who follow the stock have a buy or equivalent rating, with a 12-month consensus price target of $80.65. That implies 38% upside given that shares recently traded at $58.61 apiece.
The main factor driving that optimism is that activist investor Elliott Management is pushing the company to make changes to boost shareholder value. One of those is to spin off its Speedway gas station business into a separate publicly traded company, which Marathon expects to complete by the end of next year. That move to unlock value, as well as others the company intends on making to boost its profitability, could propel its stock higher in 2020.
TechnipFMC: 43% upside potential
While not as many analysts are bullish on TechnipFMC (FTI -1.38%) -- roughly 81% rate its stock a buy or equivalent -- those that are believe its shares could soar. That's clear from the 12-month consensus price target of $28.56, which is 43% above its recent trading price.
The top reason analysts see so much upside is that TechnipFMC plans to split into two publicly traded companies in 2020. One will focus on providing engineering and construction services to the energy sector, while the other will be a fully integrated technology and services provider. That move has the potential to unlock value for investors as those companies focus on their core areas of expertise.
Diamondback Energy: 46% upside potential
Analysts adore Permian Basin driller Diamondback Energy (FANG 0.49%). An eye-popping 97% of those who follow the company rate its stock a buy or something equivalent. Furthermore, their 12-month consensus price target is $124 per share, which is a whopping 46% above its recent price.
One thing analysts love about Diamondback is that it's on track to generate a gusher of free cash flow next year. If crude averages $55 a barrel in 2020, the company will produce $675 million in free cash flow. It will haul in even more cash if oil stays near its current price of around $60 a barrel. Diamondback will likely return all that cash to investors via its rapidly rising dividend and share repurchase program. As a result, analysts believe it can generate high-octane returns in 2020.
Rife with opportunities
While the energy sector has underperformed in recent years, analysts see some bright spots that could deliver big gains for investors in the coming year. They see the most upside in these five oil stocks, due in part because most have a noteworthy catalyst that could boost their share prices in 2020. Investors should at least take a closer look at this group, as they could deliver big-time returns over the next 12 months.