Which Oil Stock To Buy
Crude oil (opens in new tab) futures, which have already come down well off their highs, fell sharply on Monday amid increased anxiety about demand from China, one of the world's largest energy consumers.
which oil stock to buy
While it's far too soon to bail out on the energy trade (opens in new tab), it's probably fair to say that the easiest of money has already been made. With that in mind, it seemed like a good time to see which S&P 500 exploration and production oil stocks get the highest recommendations from industry analysts.
A quick note on S&P Global Market Intelligence's ratings system: S&P surveys analysts' stock recommendations and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score equal to or below 2.5 means that analysts, on average, rate the stock at Buy. The closer a score gets to 1.0, the stronger the consensus Buy recommendation.
Below please find Wall Street's three highest rated oil stocks to buy now. (Stocks are listed in reverse order of analysts' consensus recommendations, from lowest to highest conviction. Ratings and market data are as of Nov. 28.)
Diamondback Energy (FANG) is an independent oil and natural gas company with production focused in the Permian Basin of West Texas. Shares are up by 33% so far this year, which is actually something of a disappointment.
That's because FANG is actually a sector laggard. The S&P 500's energy sector is sitting on a YTD price gain of more than 60%. But analysts say FANG's relative underperformance just sets it up for more outsized gains ahead. With an average target price of $181.40, the Street gives the stock implied price upside of 26% in the next year or so.
Of 30 analysts issuing opinions on FANG, 15 rate it at Strong Buy, 11 say Buy, two call it a Hold and two say sell. That sort of conviction solidifies Diamondback Energy's status as one of the best oil stocks to buy now.
Selesky and other COP bulls emphasize the company's size, scale and combination of "both long-cycle and unconventional short-cycle projects." ConocoPhillips' record of "disciplined investment, strong free cash flow and consistent returns of cash to shareholders through dividends and stock buybacks" also supports the Buy case for long-term investors.
And, like many of the best oil stocks to buy now, COP shares still look relatively cheap. Uncertainty regarding the future course of oil prices has COP stock changing hands at just 9.2 times analysts' 2023 earnings per share (EPS) estimate. That's quite a bargain when compared against the stock's five-year average of 21.2 times projected EPS, per Refinitiv Stock Report Plus.
Of the 29 analysts covering EOG tracked by S&P Global Market Intelligence, 18 have it at Strong Buy, seven say Buy, three call it a Hold and one rates it at Sell. Their average price target of $156.67 gives this oil stock implied upside of about 15% in the next 12 months or so. Add in the dividend yield, and the implied total return is closer to 18%.
"Energy stocks have performed well as management teams have shifted to returning cash to shareholders," says Rob Thummel, senior portfolio manager at TortoiseEcofin. "We expect capital discipline to remain in place so capital expenditures and production growth will remain low while dividends and stock buybacks will grow."
Also, the company is growing its oil production volumes in the Permian Basin, a prolific oil patch in Texas and New Mexico, he notes. XOM will also benefit from new oil production in Guyana and its minority ownership interest in the Golden Pass liquefied natural gas facility in Texas, which is expected to start up in 2024, he says.
Marathon Petroleum is an independent oil and gas refiner focused primarily on the U.S. Midwest, West Coast and Gulf Coast regions. It refines crude oil and other feedstocks, purchases ethanol and refined products for resale, and distributes the products using barges, terminals and trucks owned or operated by the company. Its Speedway retail business segment sells transportation fuels through more than 2,700 stores. The company also owns and operates crude oil and refined product pipelines.
Oil stocks, which also declined over the summer, are now trading sideways or trending lower along with oil prices. This presents a potential buying opportunity for investors who are looking to ride oil stocks higher as we head into the New Year.
Another great attribute of XOM stock is that it is a Dividend Aristocrat. Specifically, ExxonMobil has increased its dividend payout to shareholders for 39 consecutive years. The company currently pays a quarterly dividend of 91 cents per share, and its yield stands at 3.3%.
Second, while CVX stock is up 45% over the last year at $173, the shares still do not look overvalued with a price-earnings ratio of only 9.85 and a market capitalization of $335 billion. Lastly, the company pays a quarterly dividend of $1.42 a share for an attractive 3.2% yield.
Houston-based Occidental Petroleum (NYSE:OXY) has gotten a lot of attention over the last year as the new favorite stock of famed value investor Warren Buffett. A relentless deal hunter, Buffett says he is always on the lookout for strong businesses and undervalued stocks, and, when he finds the right combination, he buys shares with a purpose.
Buffett seems to like what he sees from OXY stock. The Oracle of Omaha has been buying shares of the U.S. oil company hand over fist since last spring. His total investment now stands at 188.4 million shares, or 20.2% of the company, worth $11.3 billion.
British Petroleum (NYSE:BP) is another oil producer whose stock is looking very attractive right now. Its shares are up 25% in the last year and trading at $34. The stock has a dividend yield of 4% and an ultra-low forward P/E ratio of 5.4.
Canadian company Suncor Energy (NYSE:SU) has attracted activist investor Elliott Management, which took a stake in the oil producer in 2022 and promptly called for changes at the company. To appease Elliott Management, which is run by hedge fund titan Paul Singer, Suncor announced in July that it would expand its board of directors and undertake a strategic review of its retail business, which includes 1,500 gas stations across Canada, with a view to selling the part of its business estimated to be worth about 11 billion CAD ($8.05 billion).
Additionally, the recent collapse of the Silicon Valley Bank disturbed the equities market which also slightly affected the oil prices as they fell by around 2% on March 13. However, this seems temporary and is expected to be offset by the recovery in demand by China.
In one of our articles, we highlighted that the global oil demand will reach its peak between 2023 and 2025. Nevertheless, due to climate risks, the world is making a shift toward renewable energy sources which will offset the demand for crude oil and other fossil fuels in the future. The demand for coal-based energy is slowly declining and it is only a matter of time before the fossil fuel demand drop starts affecting crude oil.
In the current market, crude oil stocks might be volatile but several of them have remained to be some of the most profitable companies in the world and have decent shareholder returns. Some of the crude oil stocks that investors need to look out for are Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and Schlumberger Limited (NYSE:SLB).
We analyzed the global crude oil market and chose the best stocks to buy, keeping their hedge fund sentiment as the most important metric and taking the analyst ratings around each stock into consideration. Most of the companies on the list have strong balance sheets and have maintained good profitability over the years. Moreover, their capital returns have also remained healthy.
Halliburton Company (NYSE:HAL) is a significantly fairly valued company with a PE ratio of 19.9x at the time of writing, compared to its peer average of 21.2x. Moreover, it is also trading below the US Energy Services industry which has a PE ratio of 23x.
In the fourth quarter of 2022, 50 hedge funds held positions in Halliburton Company (NYSE:HAL), up from 48 in the third quarter. The biggest stake in the company was held by Pzena Investment Management, with 7.89 million shares worth $310.624 million. It was followed by Point72 Asset Management which increased its stake in the company by 144% in the fourth quarter to 3.3 million shares worth $129.947 million.
Diamondback Energy, Inc. (NASDAQ:FANG) is an American oil and gas company with the entirety of its operations in the Permian Basin. In 2022, the company produced around 386 thousand barrels of oil equivalent per day and had proved reserves of 2.3 billion barrels of oil equivalent; 53% of which was petroleum. Moreover, in 2023, Diamondback Energy, Inc. (NASDAQ:FANG) provided its production guidance at 430 - 440 thousand barrels of oil equivalent per day.
On March 10, Mizuho analyst Nitin Kumar upgraded Marathon Petroleum Corporation (NYSE:MPC) stock from Neutral to Buy and raised his price target to $160 from $133. The analyst holds a bullish view of the US oil and gas industry after the fourth quarter results. Moreover, out of the 12 Wall Street analysts that have covered Marathon Petroleum Corporation (NYSE:MPC) stock, 11 maintain a Buy or Overweight rating on it and only one of them keeps a Hold rating with an average price target of $147.92.
Chevron Corporation (NYSE:CVX) is one of the best crude oil stock along with some other notable names, such as Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and Schlumberger Limited (NYSE:SLB).
Oil and natural gas prices have been falling recently, but that doesn't mean now is a bad time to invest in companies that produce those commodities. The companies themselves look pretty healthy as they're raking in money from oil and gas prices that remain elevated by historical standards. Plus, the bankruptcies of the pandemic weeded out weak companies. Although widespread renewable energy is on the horizon, electrical grids and the transportation industry will continue to rely on petroleum for some time. That's especially true for natural gas, which burns cleaner than coal and is seen as a bridge fuel to renewable energy. "To paraphrase Mark Twain, 'The reports of the death of fossil fuel companies are greatly exaggerated,'" says Robert Johnson, finance professor with Creighton University. 041b061a72