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5 Beaten-Down Oil Stocks That Need to be on Your Shopping List

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The Oil/Energy market had its worst week since March 2020, as investors grappled with recessionary fears. In the wake of the central bank deciding to hike the interest rate by a record-high 75 basis points in June and the possibility of doing the same in July, the commodity came under extreme pressure.

Futures in New York on Friday ended deep in the red, with the U.S. prices falling 9.2% for the week to settle at $109.56 a barrel. Meanwhile, Brent — the international benchmark — closed at $113.12, posting a weekly loss of 7.3%. Both contracts recorded their most dismal week going back to the start of the pandemic.

But based on fundamentals, experts see this price pullback as a transient stoppage in an otherwise large oil price rally. In other words, this presents a compelling buying opportunity in top-ranked energy stocks like Civitas Resources (CIVI - Free Report) , Murphy USA (MUSA - Free Report) , Suncor Energy (SU - Free Report) , Marathon Petroleum (MPC - Free Report) and Continental Resources (CLR - Free Report) . 

Crude Suffers a Beating

In addition to fears that the Fed’s aggressive monetary stance to fight mounting inflation could push the economy into a recession, a few weak economic data also worsened the situation. Per a large section of market watchers, prolonged supply-chain devastation stemming from China’s stringent COVID-19 curbs and the termination of the easy-money policy are likely to slow the economy, and as an extension, crude demand. A stronger greenback, which can weaken dollar-denominated commodities like crude, also contributed to the decline.

Record gasoline prices in the United States are partly to blame for oil’s debacle. Motorists in a number of states are currently paying in excess of $5 for a gallon of regular gas at the petrol pump. The national average has gone up by 60 cents in just a month and is nearly $2 above the year-ago price. With millions of Americans on the move, the “pain at the pump,” or the trend of high gasoline prices, is expected to continue in the near-to-medium term. This might ultimately spell trouble for the oil industry as it will most likely lead to demand destruction at some point.

Why the Pullback Might be Temporary

While oil’s multi-week winning streak fall to the wayside last week, certain analysts see the drop to be transitory and expect the commodity to bounce back shortly based on a slew of positive trends.

Overall, prices have been driven up by curbs on Russia, which is one of the world's largest producers of crude. Raising the prospect of a dramatic fall in oil flows, the European Union recently followed the U.S. in blocking imports of Russian energy to protest Moscow’s invasion of Ukraine. With no signs of the war ending anytime soon, the energy shortage should keep prices at an elevated level.

Even the fundamentals point to a tightening of the market. Per the latest government report, U.S. commercial stockpiles are currently down around 14% compared to the five-year average for this time of year, prompted by a demand spike owing to the reopening of economies and a rebound in activity.

In fact, despite slipping over the last few days, the Zacks Oil/Energy sector has gained 15.7% so far this year, in contrast to the S&P 500 Index’s 23.2% depreciation. Further, the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — is up more than 32% during this period to be at the top of the S&P sector standings.

Buy the Dip

With the energy picture generally looking up, savvy investors could use the pullback as an opportunity to buy their favorite stocks at a discount. We have narrowed down our search to five companies that carry a Zacks Rank #1 (Strong Buy). The Zacks Rank is a reliable tool that helps you to trade with confidence regardless of your trading style and risk tolerance. To learn more about how you can use this proven system for market-beating gains, visit Zacks Rank Education.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Civitas Resources: Formerly known as Bonanza Creek Energy, Civitas Resources was formed out of the merger between Bonanza Creek Energy and Extraction Oil & Gas. CIVI’s high-quality asset base, disciplined capital allocation and fortress balance sheet allows it to maintain an attractive long-term cash flow profile. The pure-play DJ Basin operator also pays out a quarterly dividend of 46.25 cents per share with a yield of more than 3%.

The Zacks Consensus Estimate for CIVI’s 2022 earnings has been revised 58.4% upward over the past 60 days. Civitas, headquartered in Denver, CO, has a projected earnings growth rate of 368.6% for 2022.

Murphy USA: It is a leading independent retailer of motor fuel and convenience merchandise in the United States. The proximity of Murphy USA’s fuel stations to Walmart supercenters helps the company to leverage the strong and consistent traffic that these stores attract. MUSA’s acquisition of QuickChek Corporation — a family-owned food and beverage chain located — is expected to help the company improve its offerings.

Over the past 60 days, this El Dorado, AR-based Murphy USA has seen the Zacks Consensus Estimate for 2022 improve 53.6%. MUSA beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 49.1%.

Suncor Energy: Suncor Energy is Canada's premier integrated energy company. The firm boasts an impressive supply chain network, owning significant oil sands and conventional production platforms, along with a strong downstream portfolio. SU is one of the best- positioned companies in the energy space given its access to abundant resources, rich operating experience and technical know-how. Suncor Energy's major projects, including Fort Hills and Syncrude, should support its growth momentum. The company's strong liquidity and modest near-term debt maturities are other positives.

The Zacks Consensus Estimate for SU’s 2022 earnings has been revised 50.8% upward over the past 60 days. Suncor, headquartered in Alberta, has a projected earnings growth rate of 191.2% for 2022.

Marathon Petroleum: Marathon Petroleum is a leading independent refiner, transporter and marketer of petroleum products. MPC’s $23.3 billion acquisition of Andeavor has integrated the premier assets of both the companies, bolstering the scale and leadership position of the combined entity in the United States. As it is, Marathon Petroleum's access to lower cost of crude in the Permian, Bakken, and Canada helps it benefit from the differentials.

Over the past 60 days, this Findlay, OH-based MPC has seen the Zacks Consensus Estimate for 2022 jump 133.7%. Marathon Petroleum beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 65%.

Continental Resources: The company has a premier position in the Bakken region, which is one of the largest onshore oilfields in the United States. CLR’s operations in the SCOOP and STACK plays of Oklahoma generate robust profits. It acquired Delaware Basin assets from Pioneer Natural Resources, marking its entry into the prolific Permian Basin. The acquisition has brightened its long-term production outlook. CLR also has a strong focus on returning capital to its shareholders through a combination of dividends and share repurchases.

The Zacks Consensus Estimate for Continental’s 2022 earnings has been revised 24.9% upward over the past 60 days. CLR, headquartered in Oklahoma City, OK, has a projected earnings growth rate of 161.6% for 2022.