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Exxon Mobil and 4 Other Energy Stocks to Buy This Summer
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After a prolonged period of weakness, crude prices have ultimately started to improve, especially from the mid-February lows. Last month, oil prices settled above the psychologically important $50 per barrel level for the first time in more than 10 months.
This is definitely good news for upstream energy players as their business is directly related to the price of crude. However, the big question in everyone’s mind now is, will the shine in black gold last through summer? Analysts have varied opinion that is confusing investors. But there is nothing really to worry about.
Crude on Path to Recovery
After mid-2014 the oversupplied crude market started taking a toll on oil prices amid lackluster global demand. Crude started running down a steep mountain to touch the bottom. While doing so, the commodity also compelled the market to follow the same route. Eventually, the major benchmarks were in the red after oil started hitting multi-year bottoms. Also, week after week, major energy players started touching their respective 52-week lows.
The trend was also maintained in the beginning of this year and in mid-February, West Texas Intermediate (WTI) crude fell to a 12-year low mark of $26.05 per barrel which reflected investors’ worries over the excess supply in crude markets.
However, all of a sudden, the commodity market took a U-turn and managed to cross the $50 a barrel mark. The surge in benchmark crude was driven by supply outages in Nigeria, Libya, Venezuela and Canada – countries that hold some of the world’s major sources of crude.
Dilemma in Crude Rally
This is definitely a million-dollar question as the entire oil energy sector is dependent on the movements of the commodity’s price. Big brokerage houses and large investment banks have been coming up with their forecasts with so many valid reasons.
Overall we can say that with almost 70% improvement in oil prices – WTI crude closed at $44.75 per barrel yesterday - since the mid-February lows there will be huge incentives for upstream energy players to again start investing in exploration and production activities. For sure, the move will help oil production to increase in the already existing oversupplied market. But where will that extra crude output lead oil prices to? Crude might go down again.
Now, the picture will change abruptly if there is significant increase in near-term global market demand for the commodity. Recently, Paris-based International Energy Agency (IEA) projected 2016 global crude demand to grow by 1.4 million barrels per day (bpd), higher than the prior forecast of 1.3 million bpd. However, IEA warned that if global crude demand fails to surpass its latest projection, higher crude production will nullify the small improvement in worldwide commodity demand and will eventually push oil price to the bearish territory.
Which Stocks to Consider?
There is no cue to whether the crude rally will last in the coming months. Yet, we have introduced five oil stocks that have solid fundamentals and the possibility to outperform the broader U.S. equity market in an unpredictable oil pricing scenario.
For this, we have gone through our proprietary screening methodology to select a handful of stocks.
The first is Exxon Mobil Corporation (XOM - Free Report) — the world’s best run integrated oil company based on its track record of high return on capital employed. As the world’s largest publicly traded oil company, ExxonMobil has long been a core holding for investors seeking defensive as well as continued dividend growth.
The integrated player currently carries a Zacks Rank #2 (Buy), which implies that the stock will outperform the broader U.S. equity market over the next one to three months.
We advise investors to add Transocean Ltd (RIG - Free Report) which is the world’s largest offshore drilling contractor and leading provider of drilling management services. With less oil being discovered on land and companies having to dig ever deeper to get to their reserves, Transocean is poised to benefit from a market with robust multi-year demand trends, given its technologically advanced and versatile drilling fleet.
Transocean presently carries a Zacks Rank #2.
The third pick is Diamond Offshore Drilling Inc. (DO - Free Report) — a major contract driller, providing comprehensive offshore drilling services to the global energy industry. The company boasts solid fundamentals with significant free cash flow potential and a clean balance sheet. Moreover, the company intends to increase its footprint in emerging markets (like Australia, Brazil and West Africa) to reap benefits from the recently discovered deepwater fields.
Presently, Diamond Offshore holds a Zacks Rank #2.
Houston, TX-based Marathon Oil Corporation (MRO - Free Report) is also on radar. The company’s strong inventory of development projects should lead to production growth over the coming years. Also, its recent plan to buy PayRock Energy Holdings is a huge positive as the latter possesses 61,000 net surface acres of land in Oklahoma.
The company carries a Zacks Rank #2.
The last pick is Petroleo Brasileiro S.A. or Petrobras (PBR - Free Report) . Also holding a Zacks Rank #2, this is the largest integrated energy firm in Brazil and one of the largest in Latin America.
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Exxon Mobil and 4 Other Energy Stocks to Buy This Summer
After a prolonged period of weakness, crude prices have ultimately started to improve, especially from the mid-February lows. Last month, oil prices settled above the psychologically important $50 per barrel level for the first time in more than 10 months.
This is definitely good news for upstream energy players as their business is directly related to the price of crude. However, the big question in everyone’s mind now is, will the shine in black gold last through summer? Analysts have varied opinion that is confusing investors. But there is nothing really to worry about.
Crude on Path to Recovery
After mid-2014 the oversupplied crude market started taking a toll on oil prices amid lackluster global demand. Crude started running down a steep mountain to touch the bottom. While doing so, the commodity also compelled the market to follow the same route. Eventually, the major benchmarks were in the red after oil started hitting multi-year bottoms. Also, week after week, major energy players started touching their respective 52-week lows.
The trend was also maintained in the beginning of this year and in mid-February, West Texas Intermediate (WTI) crude fell to a 12-year low mark of $26.05 per barrel which reflected investors’ worries over the excess supply in crude markets.
However, all of a sudden, the commodity market took a U-turn and managed to cross the $50 a barrel mark. The surge in benchmark crude was driven by supply outages in Nigeria, Libya, Venezuela and Canada – countries that hold some of the world’s major sources of crude.
Dilemma in Crude Rally
This is definitely a million-dollar question as the entire oil energy sector is dependent on the movements of the commodity’s price. Big brokerage houses and large investment banks have been coming up with their forecasts with so many valid reasons.
Overall we can say that with almost 70% improvement in oil prices – WTI crude closed at $44.75 per barrel yesterday - since the mid-February lows there will be huge incentives for upstream energy players to again start investing in exploration and production activities. For sure, the move will help oil production to increase in the already existing oversupplied market. But where will that extra crude output lead oil prices to? Crude might go down again.
Now, the picture will change abruptly if there is significant increase in near-term global market demand for the commodity. Recently, Paris-based International Energy Agency (IEA) projected 2016 global crude demand to grow by 1.4 million barrels per day (bpd), higher than the prior forecast of 1.3 million bpd. However, IEA warned that if global crude demand fails to surpass its latest projection, higher crude production will nullify the small improvement in worldwide commodity demand and will eventually push oil price to the bearish territory.
Which Stocks to Consider?
There is no cue to whether the crude rally will last in the coming months. Yet, we have introduced five oil stocks that have solid fundamentals and the possibility to outperform the broader U.S. equity market in an unpredictable oil pricing scenario.
For this, we have gone through our proprietary screening methodology to select a handful of stocks.
The first is Exxon Mobil Corporation (XOM - Free Report) — the world’s best run integrated oil company based on its track record of high return on capital employed. As the world’s largest publicly traded oil company, ExxonMobil has long been a core holding for investors seeking defensive as well as continued dividend growth.
The integrated player currently carries a Zacks Rank #2 (Buy), which implies that the stock will outperform the broader U.S. equity market over the next one to three months.
We advise investors to add Transocean Ltd (RIG - Free Report) which is the world’s largest offshore drilling contractor and leading provider of drilling management services. With less oil being discovered on land and companies having to dig ever deeper to get to their reserves, Transocean is poised to benefit from a market with robust multi-year demand trends, given its technologically advanced and versatile drilling fleet.
Transocean presently carries a Zacks Rank #2.
The third pick is Diamond Offshore Drilling Inc. (DO - Free Report) — a major contract driller, providing comprehensive offshore drilling services to the global energy industry. The company boasts solid fundamentals with significant free cash flow potential and a clean balance sheet. Moreover, the company intends to increase its footprint in emerging markets (like Australia, Brazil and West Africa) to reap benefits from the recently discovered deepwater fields.
Presently, Diamond Offshore holds a Zacks Rank #2.
Houston, TX-based Marathon Oil Corporation (MRO - Free Report) is also on radar. The company’s strong inventory of development projects should lead to production growth over the coming years. Also, its recent plan to buy PayRock Energy Holdings is a huge positive as the latter possesses 61,000 net surface acres of land in Oklahoma.
The company carries a Zacks Rank #2.
The last pick is Petroleo Brasileiro S.A. or Petrobras (PBR - Free Report) . Also holding a Zacks Rank #2, this is the largest integrated energy firm in Brazil and one of the largest in Latin America.
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 >>