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U.S. oil futures have been very volatile in 2016 with prices recovering from a 12-year low of $26.21 a barrel in February to $50/barrel mark in early June and then slipping again to under $40.
While factors like Canadian wildfires, Nigerian outages/disruptions, production issues in Venezuela and a strike by Kuwaiti oil workers contributed to the jump in prices earlier this year that saw the benchmark recover significantly, these issues have largely vanished from the market. As of now, overproduction of crude and a glut of refined products keep the commodity under pressure.
At over 520 million barrels, current crude supplies are up 14% from the year-ago period and are at the highest level during this time of the year. As it is, improvement in oil fundamentals remain fragile with the existing stocks of refined product inventories – gasoline and distillate – remaining at their maximum seasonal levels in at least 20 years despite healthy demand. Piling on the misery is the Baker Hughes report, revealing a steady rise in the U.S. oil rig count and pointing to the resurgence in shale drilling activities.
A number of major industry players, including Exxon Mobil Corp. (XOM - Free Report) , Royal Dutch Shell plc and BP plc (BP - Free Report) have reported sub-standard second-quarter numbers as lower energy prices take a toll.
But over the past few trading days, West Texas Intermediate (WTI) crude futures have surged around 10% to top $45-a-barrel on renewed expectations of a production freeze from the 14-member OPEC bloc and Russia. However, several analysts have expressed skepticism over this mini-rally, pointing to the last such attempt made in April that failed spectacularly.
Is now the time to be buying energy stocks?
While record high inventories and robust production could still push the commodity to the depths of multiyear lows, signs are emerging that oil prices are likely to stabilize and gradually pick up. Not only is global demand expanding but energy companies have significantly scaled back on plans to explore for and bring out more oil. This should lead to lower future production and supply/demand rebalancing.
However, not all oil stocks are the same. In fact, one needs to have an appetite for risk in order to invest in the energy sector. For savvy investors though, there are opportunities to earn big returns.
How to Identify the Outperformers?
With a wide range of energy firms thronging the investment space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver attractive returns. While it is impossible to be sure about such outperformers, this is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy.
Finally, the chosen ones have VGM Score less than or equal to B. 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.
Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential.
5 Stocks to Invest In
Murphy USA Inc. (MUSA - Free Report) : Murphy USA is a retailer of gasoline products and convenience store merchandise primarily in the US.
Zacks Rank #1
VGM Score ‘A’
Independence Contract Drilling Inc. (ICD - Free Report) : Houston, TX-based Independence Contract drilling offers land drilling services for oil and natural gas producers primarily in the U.S.
McDermott International Inc. : Incorporated in 1959, Houston, TX-based McDermott International is an engineering and construction company, solely focused on the offshore oil and gas business.
Zacks Rank #2
VGM Score ‘B’
Contango Oil & Gas Co. : Contango Oil & Gas Co. is a Houston, TX-based operator that explores, develops, exploits, and acquires crude oil and natural gas properties in the onshore Texas Gulf Coast and Rocky Mountain regions of the U.S.
Zacks Rank #2
VGM Score ‘B’
Bottom Line
With crude prices picking up steam, this is the perfect time to indulge in some energy stocks to make sure your portfolio is perfectly oiled up! While we keep our fingers crossed for a profitable second half, let these hot bets with their strong ranks and VGM Scores spell magical returns for you.
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 >>
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5 Best Oil Stocks to Buy Today
U.S. oil futures have been very volatile in 2016 with prices recovering from a 12-year low of $26.21 a barrel in February to $50/barrel mark in early June and then slipping again to under $40.
While factors like Canadian wildfires, Nigerian outages/disruptions, production issues in Venezuela and a strike by Kuwaiti oil workers contributed to the jump in prices earlier this year that saw the benchmark recover significantly, these issues have largely vanished from the market. As of now, overproduction of crude and a glut of refined products keep the commodity under pressure.
At over 520 million barrels, current crude supplies are up 14% from the year-ago period and are at the highest level during this time of the year. As it is, improvement in oil fundamentals remain fragile with the existing stocks of refined product inventories – gasoline and distillate – remaining at their maximum seasonal levels in at least 20 years despite healthy demand. Piling on the misery is the Baker Hughes report, revealing a steady rise in the U.S. oil rig count and pointing to the resurgence in shale drilling activities.
A number of major industry players, including Exxon Mobil Corp. (XOM - Free Report) , Royal Dutch Shell plc and BP plc (BP - Free Report) have reported sub-standard second-quarter numbers as lower energy prices take a toll.
But over the past few trading days, West Texas Intermediate (WTI) crude futures have surged around 10% to top $45-a-barrel on renewed expectations of a production freeze from the 14-member OPEC bloc and Russia. However, several analysts have expressed skepticism over this mini-rally, pointing to the last such attempt made in April that failed spectacularly.
Is now the time to be buying energy stocks?
While record high inventories and robust production could still push the commodity to the depths of multiyear lows, signs are emerging that oil prices are likely to stabilize and gradually pick up. Not only is global demand expanding but energy companies have significantly scaled back on plans to explore for and bring out more oil. This should lead to lower future production and supply/demand rebalancing.
However, not all oil stocks are the same. In fact, one needs to have an appetite for risk in order to invest in the energy sector. For savvy investors though, there are opportunities to earn big returns.
How to Identify the Outperformers?
With a wide range of energy firms thronging the investment space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver attractive returns. While it is impossible to be sure about such outperformers, this is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy.
Finally, the chosen ones have VGM Score less than or equal to B. 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.
Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential.
5 Stocks to Invest In
Murphy USA Inc. (MUSA - Free Report) : Murphy USA is a retailer of gasoline products and convenience store merchandise primarily in the US.
Zacks Rank #1
VGM Score ‘A’
Independence Contract Drilling Inc. (ICD - Free Report) : Houston, TX-based Independence Contract drilling offers land drilling services for oil and natural gas producers primarily in the U.S.
Zacks Rank #2
VGM Score ‘A’
PBF Logistics L.P. : Parsippany, NJ-based PBF Logistics operates refined petroleum products storage and transporting facilities.
Zacks Rank #2
VGM Score ‘A’
McDermott International Inc. : Incorporated in 1959, Houston, TX-based McDermott International is an engineering and construction company, solely focused on the offshore oil and gas business.
Zacks Rank #2
VGM Score ‘B’
Contango Oil & Gas Co. : Contango Oil & Gas Co. is a Houston, TX-based operator that explores, develops, exploits, and acquires crude oil and natural gas properties in the onshore Texas Gulf Coast and Rocky Mountain regions of the U.S.
Zacks Rank #2
VGM Score ‘B’
Bottom Line
With crude prices picking up steam, this is the perfect time to indulge in some energy stocks to make sure your portfolio is perfectly oiled up! While we keep our fingers crossed for a profitable second half, let these hot bets with their strong ranks and VGM Scores spell magical returns for you.
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 >>