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5 Oil Stocks to Buy on OPEC Action Indications

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On Monday, OPEC’s President Mohammed bin Saleh Al Sada provided fresh indications of talks between oil exporting countries in the bloc in order to arrive at an agreement on controlling crude production. Slack global demand and a fall in prices of oil may have led to producers considering such a move, according to a report in The Wall Street Journal.

Opinion remains divided about the likelihood of oil exporting countries reaching an agreement on controlling production. However, several market watchers believe that simply a discussion among the key stakeholders would be enough to boost sentiment. Adding oil stocks from sectors with relatively lower risk may be a good idea in such an environment.

OPEC President Sounds an Optimistic Note

Qatar’s minister of energy and industry and OPEC president Dr. Mohammed bin Saleh Al Sada sounded optimistic about the market for crude. In a statement made in Vienna, he said that he expected demand for crude to firm up in the second half of this year. Additionally, he emphasized that the worldwide supply of crude would decline during this period. 

Additionally, Dr. Al Sada also said that OPEC was closely watching the situation in oil markets and was regularly discussing with member countries about the possible methods that could be used to introduce a modicum of stability into the market for oil. More importantly, he said that the bloc’s members would most probably meet during the 15th International Energy Forum to be held in end September in Algeria in order to discuss the imposition of controls on production.

Prices Fall on Higher Domestic Production Outlook

Crude prices declined on Tuesday after the U.S. Energy Information Administration (EIA) raised its short outlook. According to the EIA’s new estimates, U.S. output will come in between an average of 8.73 million barrels in 2016 and 8.31 million barrels next year. This is higher than its earlier estimate of 8.61 million and 8.2 million for 2016 and 2017, respectively.

However, market watchers believe that the very prospect of discussions between OPEC members could curb the price fall. Additionally, oil market participants await the release of EIA data on Wednesday. According to a survey undertaken by The Wall Street Journal, the EIA’s report will likely reveal that domestic crude inventories declined by 800,000 barrels during the week ended Aug 5. During the week ended Jul 29, crude output in the U.S. dropped for the first time in four weeks by 55,000 barrels per day (bpd) to 8,460,000 bpd.

Our Choices

While some amount of skepticism continues to prevail among investors, it is increasingly likely that OPEC will soon enter into a discussion on controlling output. Meanwhile data and projections show that the demand supply gap is likely to come down at least on the domestic front.

This looks like a good time to pick select oil stocks. However, it may make for a better choice to pick companies with relatively safer businesses like refining and marketing or pipelines. At the same time, it is important 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.

Murphy USA Inc. (MUSA - Free Report) is a retailer of gasoline products and convenience store merchandise primarily in the United States.

Murphy USA has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Its earnings estimate for the current year has improved by 46.9% over the last 30 days. Its earnings estimate for the current year has improved by 7.6% over the last 30 days.

NGL Energy Partners LP (NGL - Free Report) is a limited partnership operating a vertically integrated propane business with three operating segments: retail propane; wholesale supply and marketing; and midstream.

NGL Energy Partners has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 5.9% over the last 30 days. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 14.92, lower than the industry average of 16.78.

Cypress Energy Partners, L.P. offers pipeline inspection and integrity as well as environmental services across North America.

Cypress Energy Partners has a Zacks Rank #2 (Buy) and a VGM Score of A. It has a P/E (F1) of 26.49, lower than the industry average of 30.17.

CONE Midstream Partners LP is an owner, operator, developer and acquirer of natural gas gathering and related midstream energy assets.

CONE Midstream Partners has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 23.1% for the current year. Its earnings estimate for the current year has improved by 3.3% over the last 30 days. It has a P/E (F1) of 11.59, lower than the industry average of 17.50.

Boardwalk Pipeline Partners, LP is a master limited partnership engaged in the transportation, processing and storage of natural gas.

Boardwalk Pipeline Partners has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 35.4% for the current year. Its earnings estimate for the current year has improved by 8.7% over the last 30 days. It has a P/E (F1) of 14.23, lower than the industry average of 17.50.

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