The Santos Ltd (ASX: STO) share price is the best performing large cap energy stock on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index since the start of 2019 as many experts believe it's the best oil & gas producer to own.
The Santos share price has surged over 20% from the start of the year when the Woodside Petroleum Limited (ASX: WPL) share price, Oil Search Limited (ASX: OSH) share price, Origin Energy Ltd (ASX: ORG) share price have lagged with gains of 11% to 15% each.
Only the Beach Energy Ltd (ASX: BPT) share price delivered a better outcome but it's not a large cap.
Strong production and outlook
Santos' well received December quarter production report highlighted its leverage to the oil price recovery as revenue hit a record high.
What's more, it's 2019 outlook bright, thanks in no small part to its recent acquisition of Quadrant Energy.
Sentiment towards the sector has improved sharply since the end of 2018 as crude prices tumbled on oversupply worries.
UBS is the latest broker to issue a note highlighting Santos as its preferred pick among the energy majors, followed by Woodside and Oil Search.
Lower risk
"Including discretionary capex STO has the lowest b/even [break-even] 2019 FCF [free cash flow] of <US$25/bbl as the additional earnings from Quadrant and hedging profile should offset ramp up in capex from the company's brownfield assets," said UBS.
"STO is our preferred pick as it provides earnings growth of 37% and a 2019e FCF yield of 13%. STO also provides the most upside (with the lowest P/NPV on a risked basis)."
UBS also pointed out that Santos' risk profile is lower than Woodside and Oil Search as its growth is not only under management's control, but the execution risk for onshore and shallow offshore wells are lower than Woodside and Oil Search.
This is because Woodside operates rigs in deep waters and Oil Search's growth is largely dependent on partners XOM and Total with high capex and long duration build time.
UBS has a "buy" recommendation on Santos and Woodside with a price target of $7.20 and $37.30 a share, respectively.
The broker has a "neutral" rating on Oil Search and a target price of $8.20 a share.
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