Welcome to Episode #107 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 Zacks Director of Research, Sheraz Mian, who is also a former oil analyst, in their annual, end of the year discussion about the price of oil and the oil stocks.
Their first podcast on the oil industry was in December 2015. Since then, they’ve given predictions about what would happen with crude, and the energy companies.
Tracey’s the first to admit that they have been wrong in the past. In late 2016, for example, Tracey and Sheraz had concerns about if the E&Ps and the drilling contractors could even find the workers to re-start rigs and increase production (they did.)
Additionally, OPEC and the other big producers like Russia, actually came to an agreement on production cuts AND haven’t really been cheating.
Has Oil Finally Bottomed?
US rig counts have jumped dramatically in the last year but that growth stalled out in August 2017.
Crude supply has been normalizing, which has pushed the price of WTI and Brent to new 2-year highs.
Most analysts believe the worst of the price declines are likely over. But it’s unclear how much higher crude could move in 2018.
Tracey and Sheraz discuss the possible scenarios for price increases including geopolitical events in Saudi Arabia and Venezuela, as well as record US oil production.
Investors Have Fled the Oil Stocks
Crude initially plunged in 2015. Since then, there have been several “false” rallies in the oil stocks which have spooked investors.
The oil stocks are now mostly being ignored. But third quarter earnings were the best in several years and earnings estimates are back on the rise.
If you’re an investor looking to get back into the oil stocks, where should you invest?
Big Oil, the E&P stocks, or the service companies?
Or should you be buying in all three?
Oil Stocks to Buy in 2018
1. Exxon Mobil (XOM - Free Report) is a Zacks Rank #1 (Strong Buy) for the first time since 2008. Earnings are expected to be up 52% this year and 12% next year. You also get its refining and chemical businesses.
2. Chevron (CVX - Free Report) is really expected to see a jump in earnings after a tough 2016. EPS is forecast to rise by 327% in 2017 and another 17% in 2018. Chevron has more exposure to rising oil prices than some of its competitors.
3. Pioneer Natural Resources (PXD - Free Report) is one of the largest E&P players in the Permian Basin, which is one of the key shale producing regions in the United States. Earnings are also on the move higher, jumping 800% this year and another 107% in 2018.
4. Halliburton (HAL - Free Report) is the market leader in the US in hydraulic fracturing but also has the international side. Investors may want to look at the opportunities outside of the US. HAL is expected to grow earnings by 82% next year.
5. RPC (RES - Free Report) is the most profitable pumper in the US. It continues to raise prices and sees this pricing power holding through the first quarter of 2018. Earnings are expected to rise 222% this year and another 88% next year.
There are plenty of other names investors should also focus on, as the entire industry is being ignored by the Street. Tracey and Sheraz discuss some other possibilities.
The turn in the earnings, to the upside, is undeniable though. The “story” is changing in the energy sector.
What other surprises await oil stock investors in 2018?
Find out on this week’s podcast.
Looking for Stocks with Skyrocketing Upside?
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