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4 Energy Stocks to Profit from Before Jun 2 OPEC Meet
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The Organization of the Petroleum Exporting Countries or OPEC – the international cartel of oil producers – is scheduled to meet in the Austrian capital of Vienna on Thursday, June 2. As usual, the outcome of the gathering of the 13 member countries from the Middle East, Africa and Latin America is expected to have far-reaching implications for all involved in oil trade – from retail stations to the budgets of oil-dependent nations.
Has Anything Changed from the Past?
Things have considerably changed from when OPEC last met in December. At that time, the meeting was overshadowed by sharp criticism of the Saudi Policy of oversupply by fellow members Venezuela and Iran. Notwithstanding opposition, OPEC scrapped its output target of 30 million barrels. Subsequently, a move toward production freeze with non-OPEC countries failed in April owing to the traditional Saudi-Iranian rivalry.
What Now?
However, with crude currently hovering close to the psychological $50 per barrel mark, we feel the time has come for the long-beleaguered sector to come back to life. This we feel can be attributed to the Saudi policy which is akin to OPEC’s "keep on pumping" decision which would ultimately revive demand and more importantly, peg back growing competition from the U.S. shale industry.
The Triggers
As of now, the commodity is taking a breather thanks to a host of macro issues round the globe including production disruption in Canada due to the Alberta wildfires, militant attacks and the threat of a nationwide strike in Nigeria, the political rout in Venezuela, and reduced shale production in the U.S. Going by market trends, we believe that given the fact that Saudi Aramco, Saudi Arabia’s state-owned oil and gas entity, is preparing for partial privatization and an initial public offering, the focus on oversupply would be intact.
Iranian Factor
We expect the Saudi proxy plan to find support from Iran. Earlier, for years, Iran saw lower production levels because it was restrained by international trading sanctions. However, since January, sanctions on Iran have been lifted, allowing the country to sell its oil abroad. The country was freed from these limits about a month ago. Subsequently, the nation has ramped up production to 3.56 million barrels per day (bpd) and is steadily progressing toward its targeted output of 4 million bpd.
Top Picks
With market consensus pointing to no production freeze at the OPEC meeting, we feel the time has come for a closer look at the space. Declining non-OPEC output and the fact that several agencies and analysts do not see a production freeze agreement undermine the outcome of the OPEC meeting. This indicates that oil prices are unlikely to lapse into another steep decline. However, it is important to focus on company fundamentals and inherent strengths. Now, the complicated backdrop may make it difficult to pick winning stocks.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each style score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
EXCO Resources Inc. : Headquartered in Dallas, TX, EXCO Resources is an oil and natural gas exploration, exploitation, acquisition, and development and production company. In the last reported quarter, the Zacks Rank #2 (Buy) stock delivered a positive earnings surprise of 36.36%. Enbridge has a VGM Score of A.
World Point Terminals L.P. : St. Louis, MO-based World Point Terminals is involved in operations like development and acquisition of storage terminals for crude oil. The partnership delivered a positive earnings surprise of 3.85% last quarter. Zacks Rank #1 (Strong Buy) World Point Terminals has a VGM Score of A.
McDermott International Inc. : Incorporated in 1959, Houston, TX-based McDermott International holding a Zacks Rank #2 is an engineering and construction company that serves the worldwide offshore oil and gas field developments. Last quarter, the company delivered a positive earnings surprise of 1,200%. McDermott has a VGM Score of A.
Enbridge Inc. (ENB - Free Report) : Based in Calgary, Canada, Enbridge is an energy transportation and distribution company with operations in North America and internationally. The company has a Zacks Rank #2 and a VGM Score of B.
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4 Energy Stocks to Profit from Before Jun 2 OPEC Meet
The Organization of the Petroleum Exporting Countries or OPEC – the international cartel of oil producers – is scheduled to meet in the Austrian capital of Vienna on Thursday, June 2. As usual, the outcome of the gathering of the 13 member countries from the Middle East, Africa and Latin America is expected to have far-reaching implications for all involved in oil trade – from retail stations to the budgets of oil-dependent nations.
Has Anything Changed from the Past?
Things have considerably changed from when OPEC last met in December. At that time, the meeting was overshadowed by sharp criticism of the Saudi Policy of oversupply by fellow members Venezuela and Iran. Notwithstanding opposition, OPEC scrapped its output target of 30 million barrels. Subsequently, a move toward production freeze with non-OPEC countries failed in April owing to the traditional Saudi-Iranian rivalry.
What Now?
However, with crude currently hovering close to the psychological $50 per barrel mark, we feel the time has come for the long-beleaguered sector to come back to life. This we feel can be attributed to the Saudi policy which is akin to OPEC’s "keep on pumping" decision which would ultimately revive demand and more importantly, peg back growing competition from the U.S. shale industry.
The Triggers
As of now, the commodity is taking a breather thanks to a host of macro issues round the globe including production disruption in Canada due to the Alberta wildfires, militant attacks and the threat of a nationwide strike in Nigeria, the political rout in Venezuela, and reduced shale production in the U.S. Going by market trends, we believe that given the fact that Saudi Aramco, Saudi Arabia’s state-owned oil and gas entity, is preparing for partial privatization and an initial public offering, the focus on oversupply would be intact.
Iranian Factor
We expect the Saudi proxy plan to find support from Iran. Earlier, for years, Iran saw lower production levels because it was restrained by international trading sanctions. However, since January, sanctions on Iran have been lifted, allowing the country to sell its oil abroad. The country was freed from these limits about a month ago. Subsequently, the nation has ramped up production to 3.56 million barrels per day (bpd) and is steadily progressing toward its targeted output of 4 million bpd.
Top Picks
With market consensus pointing to no production freeze at the OPEC meeting, we feel the time has come for a closer look at the space. Declining non-OPEC output and the fact that several agencies and analysts do not see a production freeze agreement undermine the outcome of the OPEC meeting. This indicates that oil prices are unlikely to lapse into another steep decline. However, it is important to focus on company fundamentals and inherent strengths. Now, the complicated backdrop may make it difficult to pick winning stocks.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each style score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
EXCO Resources Inc. : Headquartered in Dallas, TX, EXCO Resources is an oil and natural gas exploration, exploitation, acquisition, and development and production company. In the last reported quarter, the Zacks Rank #2 (Buy) stock delivered a positive earnings surprise of 36.36%. Enbridge has a VGM Score of A.
World Point Terminals L.P. : St. Louis, MO-based World Point Terminals is involved in operations like development and acquisition of storage terminals for crude oil. The partnership delivered a positive earnings surprise of 3.85% last quarter. Zacks Rank #1 (Strong Buy) World Point Terminals has a VGM Score of A.
McDermott International Inc. : Incorporated in 1959, Houston, TX-based McDermott International holding a Zacks Rank #2 is an engineering and construction company that serves the worldwide offshore oil and gas field developments. Last quarter, the company delivered a positive earnings surprise of 1,200%. McDermott has a VGM Score of A.
Enbridge Inc. (ENB - Free Report) : Based in Calgary, Canada, Enbridge is an energy transportation and distribution company with operations in North America and internationally. The company has a Zacks Rank #2 and a VGM Score of B.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>