Back to top

Analyst Blog

Oil prices rose early on Monday in Asia as expectations heightened that prominent oil producing countries may make headway on a production freeze deal. Statements made by various members of OPEC over the weekend suggested that an agreement could be arrived at.

These countries have assembled in Algeria to discuss methods to prop up the market for crude. Given the volatile nature of oil prices, this is a significant development and means that it could be a good time to pick up oil stocks.

Algeria Lifts Deal Hopes

Noureddine Bouterfa, oil minister of Algeria said that it was likely that a deal on fixing a production limit could reached this week. Underlining that fact oil could slump back to as low $30 per barrel, Bouterfa warned of the consequences that would follow in case a deal could not be reached. He claimed that members could not afford to end the meeting on a negative note.

Of course, Bouterfa was quick to acknowledge that it was likely only the “elements” of a deal may be arrived at during the meeting. Ever since dates of the meeting were revealed in August, Brent crude prices have swung within a narrow range of $45 to $50. The major catalyst for these movements has been statements from several representatives of oil producing countries.

Saudi Arabia, Iran Could Spoil the Party

Meanwhile, officials from Saudi Arabia said that they did not expect several prominent oil producing countries to reach an agreement during the meeting. Such a statement has created some amount of uncertainty among market watchers. The oil producing major’s clash with rival Iran over the extent of production controls seems to be the major impediment toward reaching a deal.

Saudi Arabia had proposed to push production below the recent peak yearly average of 10.6million bpd. However, Iran, which has just emerged from major sanctions, seems to be unwilling to agree. This is because it would force the country to fix output at 3.6 million bpd. This is lower than the stated target of 4 million bpd, a level which president Hassan Rouhani proclaimed Iran has every right to produce.

Our Choices

Despite murmurs among discontented members, OPEC members may be forced to come to an agreement in the immediate future. Failing to do so would spell doom for oil and send it back to lows where it was languishing before its recent recovery.

This is why it makes sense to add oil stocks to your portfolio at this point. However, picking winning stocks may prove to be difficult.

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. 

Evolution Petroleum Corp. (EPM - Free Report) is involved in acquiring, exploiting and developing onshore crude oil and natural gas assets in the U.S.

Evolution Petroleum 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 4.5% over the last 30 days.

NGL Energy Partners LP (NGL - Free Report) is a limited partnership operating a vertically-integrated propane business.

NGL Energy Partners has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 16.62, lower than the industry average of 20.83.

China Petroleum and Chemical Corp. (SNP - Free Report) , or Sinopec, with its head office in Beijing, China, is one of the largest petroleum and petrochemical companies in Asia.

Sinopec has a Zacks Rank #1 and a VGM Score of B. It has a P/E (F1) of 18.10, which is lower than the industry average of 34.48. Its earnings estimate for the current year has improved by 3.9% over the last 30 days.

Ultra Petroleum Corp. (UPLMQ - Free Report) is an independent, exploration and production company focused on developing its long life natural gas reserves in the Green River Basin of Wyoming, and oil reserves in Bohai Bay, offshore China.

Ultra Petroleum has 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 13.2% over the last 30 days.  The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TOTAL S.A. (TOT - Free Report) , based in France, is among the top five publicly traded global integrated oil and gas companies based on production volumes, proved reserves and market capitalization.

TOTAL S.A. has a Zacks Rank #2 and a VGM Score of B. Its earnings estimate for the current year has improved by 0.1% over the last 30 days.  It has a P/E (F1) of 14.37, which is lower than the industry average of 23.95.

Where Do Zacks' Investment Ideas Come From?

You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>