Shares of domestic oil companies bounced back from 52-week lows Monday after Bear, Stearns & Co. raised its ratings on the undervalued group on expectations oil prices will rise in 1999.
Bear Stearns raised Atlantic Richfield, Kerr-McGee and USX-Marathon Group to a "buy" from "neutral."
Called "bad performers in a bad stock market," Bear Stearns believes most oil stocks are undervalued, given the assumption that additional cuts in crude oil production will help boost the price of oil, as well as the price of oil stocks. The investment banker predicts the price of oil will hit $18.50 a barrel by 1999.
The price of oil has continued to fluctuate in the past month as investors fear a currency devaluation in Venezuela will flood the market with even cheaper crude. Oil fell 23 cents to $13.27 a barrel Monday.
Arco shares jumped 2 1/8 to 60 11/16 in recent trading. Shares of Kerr-McGee rose 13 1/6 to 40 7/8, as USX-Marathon shares gained 1 31/6 to 28 3/4.
Bear Stearns said Arco could be an attractive acquisition target, given its strong refining and marketing operations. The investment banker placed a 12-month price target for the company at $75 per share.
Kerr-McGee's oil and gas production is seen to increase by 26 percent this year, with a 25 percent jump expected in 1999. The company's recent field acquisitions in the Gulf of Mexico and the North Sea should help boost reserves and pump up Kerr's share price, the investment banker said in a report. Kerr-McGee's 12-month price target is $60 per share.
Bear Stearns raised its 12-month target price for USX-Marathon Group to $35 per share on the company's exploration potential. USX-Marathon's oil production is expected to rise 21 percent in 1998, with a projected rise of 16 percent in 1999.
By Aimee Male, CBS MarketWatch