Shares of U.S. exploration and production company Devon Energy (NYSE:DVN) rose a quick 14% in early trading on June 1. An hour into the trading day the stock was still up around 11%. There were two notable factors behind the move today, one industry-focused and the other specific to Devon.
From a big-picture perspective oil prices were on the rise this morning, something that tends to lead to price gains throughout the energy sector. Positive news out of OPEC as it meets to decide its production levels was a key reason for investor optimism. Notably, the excess oil put into storage during the worst of the coronavirus pandemic downturn is, according to OPEC, nearly worked off. That, in turn, should allow the group to raise production targets without causing a fresh glut of this vital global energy source. That is, indeed, good news and investors are probably right to be upbeat. Like other energy names, Devon benefits from higher energy prices.
That said, there was also a company-specific update out of Raymond James. An analyst at that firm upgraded Devon from outperform to strong buy. In other words, they really, really like it. The price target on the stock, meanwhile, increased from $34 to $40, a jump of nearly 18%. Investors tend to react positively to upgrade news, especially when it comes with an increased price target. So, given the rising oil prices today and the upgrade news, it’s hardly a shocker that Devon’s stock price rallied.
Oil and natural gas stocks can be very volatile and ever since the pandemic-related industry downturn in 2020 the energy sector has been extra erratic. Emotions have run both hot and cold, pushing stocks around on an often wild ride. Devon is not a small name, with a nearly $20 billion market cap, but neither is it among the biggest companies in the sector. Right now, given the uncertainty around oil (things look good today, but that could change tomorrow) and the world’s shifting view of carbon-based fuels, it might be better for investors to err on the side of caution and stick to the largest, financially strongest, and most diversified names. Companies like Chevron come to mind for those wishing to focus in on oil, while France’s Total could be a good option for investors looking to address the clean energy shift taking shape in the energy sector.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.