Welcome to Episode #58 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
In this episode, Tracey is joined by Sheraz Mian, Zacks Director of Research, and a former oil analyst, to discuss where the oil market stands at the end of 2016 and what oil stocks investors should be looking at heading into 2017.
Tracey and Sheraz first discussed the oil stocks in late 2015 when the crude sell-off was just in the first innings. It wouldn’t hit $25 until February 2016.
Back in 2015, Tracey and Sheraz were both worried about which companies had the best balance sheets and how many would survive the most vicious sell off in crude in the last 50 years.
But a year later, the story has changed. The US and International rig counts have bottomed and are slowly starting to trickle up. Crude is up off its lows and while it’s not near the $60 or $70 level many thought it would be at the end of the year, it’s in a zone where the oil companies can make money.
Cost cutting is mostly complete which means fewer layoffs. The lending situation has also improved which makes it easier for energy companies to renegotiate loans with their banks.
Where does this leave investors looking to get into oil stocks?
WTI has fallen 14% this fall which has pushed down the exploration and production stocks from their 2016 highs. Sheraz believes this is a buying opportunity in that area, especially for long term investors. In the short term, he still expects crude and the oil stocks to be volatile.
The Best Oil Stocks for 2017
1. Chevron (CVX - Free Report) is the “safe” play and Sheraz’s favorite among the Big Oil stocks.
2. Apache (APA - Free Report) just made a big discovery in the Alpine High and analysts believe this has big potential in the next few years. Tracey owns this stock in her personal portfolio.
3. EOG Resources (EOG - Free Report) is very diversified. It has over 14,000 drilling locations in numerous areas.
4. Pioneer Natural Resources (PXD - Free Report) has one of the best balance sheets in the industry.
5. In the small and mid-cap E&P sectors, look at Whiting Petroleum (WLL - Free Report) which is strong in the Bakken and Synergy (SYRG), a small E&P in the Wattenberg in Colorado. The insiders have been buying shares in SYRG.
Sheraz also thinks investors can poke around in some of the big service companies. With some rigs being reactivated, the first contractors they will call are companies like Schlumberger (SLB) and Halliburton (HAL).
Sheraz and Tracey still think it’s too early to get into the niche oil service companies like those that transport personnel to the rigs or provide safety gear. The industry, while on the upswing, isn’t yet at full throttle. Those might be plays later in 2017.
What else should you know about the oil stocks and how to play them?
Tune into this week’s podcast to find out.
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