The three best oil stocks to buy now are midstream energy companies specializing in the gathering, transportation and distribution of crude oil, natural gas and other hydrocarbon-based products.
Despite the emergence of renewable energy, 57% of the world’s energy consumption in 2019 came from oil (33%) and gas (24%), with a further 27% from coal. The trend remains true even in western countries, despite a lower rate of coal consumption, with 69% of U.S. energy demand met by either natural gas or petroleum.
Oil stocks are also some of the best investments for investors seeking high dividend payouts. As utilities, oil companies are more scalable and less volatile due to the low elasticity of energy demand, creating more consistent revenue streams and allowing for high dividend payments. The average dividend yield in the midstream oil and gas industry stands at 6.5%.
Plus, global oil and natural gas demand is expected to return to pre-COVID-19 levels by the end of 2021, according to the International Energy Agency. An investment in oil stocks could prove to be highly fruitful in the near future, with global energy consumption projected to increase by 50% between now and 2050, according to the U.S. Energy Information Administration,
3 Best Oil Stocks to Buy Now, According to DividendInvestor.com
The three best oil stocks to buy now were found and analyzed through our very own Dividend Screener on the Dividend Investor website. The Dividend Screener is a simple web-based tool that allows investors to sift through thousands of potential equities by adding their own customized criteria to find stocks that fit their unique needs.
Also used in the analysis of the three best oil stocks to buy now was the platform designed by our partners at Stock Rover, offering a rigorous screening program to assess performance metrics for investors. To sign up for a free two-week trial, click here.
Here are the three oil stocks to buy now.
3 Best Oil Stocks to Buy Now: #3
MPLX LP (NYSE:MPLX)
MPLX LP (NYSE:MPLX) is an Ohio-based, large-cap master limited partnership (MLP) formed by Marathon Petroleum Corporation in 2012 to acquire and operate midstream energy infrastructure assets. The company has two main branches of operation: logistics and storage (L&S) and gathering and processing (G&P). The L&S arm of the business stores, transports and distributes refined petroleum, crude oil and other hydrocarbon products. G&P, meanwhile, is involved in the gathering, transportation, fractionation and storage of natural gas, ethylene and propylene.
For the past five years, MPLX has displayed tremendous growth, increasing sales by an average of 50.9% annually, from $1.1 billion in 2015 to $7.6 billion in 2020. In comparison, the average industry and S&P 500 growth over the past five years have been 4.3% and 10.1%, respectively. Despite suffering a setback in fiscal year (FY) 2020, with revenue declining by 16.3% from FY 2019 revenue, MPLX has continued its upward trend, with first-quarter 2021 sales increasing by 135.8% from Q1 2020 sales. Net income also has increased by $3.46 billion in the first quarter of 2021, compared to Q1 2020. As a result, MPLX’s stock price has skyrocketed by 165.9% since March 2020 and by 51.3% over the past 12 months.
MPLX’s stock price during the last year is plotted below, alongside a 50-day moving average to display the upward trend in stock price over the trailing 12 months.
Chart provided by Stock Rover.
MPLX is also an attractive option for investors seeking high dividend payments. Its current dividend yield stands at 9.5%, well above the S&P 500 average of 1.2%, and even the midstream oil and gas industry average of 6.5%.
MPLX’s willingness to raise its total diluted share count may worry some investors, since total diluted shares have grown from 338 million shares when the company acquired MarkWest Energy Partners in 2015 to 1.04 billion in 2021. However, MPLX has made sure not to oversaturate the market and decrease relative earnings.
The company’s price-to-earnings (P/E) ratio has declined from 21.37 in December 2015 to 11.58 today. Its cash flow per share has jumped by 13.5% since 2015, meaning that both relative earnings and shareholder value have increased despite an increased diluted share count.
A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $29.67, 3.6% higher than its latest closing price of $28.63. With analysts projecting a 10.7% growth in sales for 2021, MPLX received a “Buy” recommendation from Stock Rover.
3 Best Oil Stocks to Buy Now: #2
Western Midstream Partners LP (NYSE:WES)
Western Midstream Partners LP (NYSE:WES), a Texas-based subsidiary of Houston’s Occidental Petroleum Corp. (NYSE:OXY), is similar to MPLX by specializing in the acquisition, development and operation of midstream energy assets. The company gathers, processes and distributes natural gas, crude oils and natural gas liquids (NGLs). However, unlike MPLX, Western Midstream Partners also offers “produced-water services,” including the collection and disposition of such water.
The company has consistently managed to beat the industry in terms of both growth and returns. Its return on equity stands at 32.7%, with an average annual revenue growth rate of 12.1% for the past five years, compared to industry averages of 10.4% and 4.0%, respectively. However, what distinguishes WES the most is its performance during the pandemic.
Despite COVID-19 reducing oil and gas demand, the company boasts an impressive return rate of 137.9% and an earnings per share (EPS) growth rate of 204.2% over the past year. For comparison, the average industry return and EPS growth rates over the same period are 31.3% and 28.3%, respectively. WES has shown no signs of slowing down either, as its 49.9% year-to-date return rate has continued to outpace both the industry and S&P 500 averages of 30.2% and 12.3%, respectively.
Since March 2020, Western Midstream Partners has seen its share price increase fivefold, growing from $3.32 to $20.12, a 506.0% growth in fourteen months. The share price has surged by 122.5% over the past twelve months. WES’s stock price in the last year is plotted below, alongside a 50-day moving average to show the share price’s rise.
Chart provided by Stock Rover.
Although WES has experienced a 6.2% decline in revenue over the past year, compared to an average industry drop of 18.4%, its future seems bright. Company revenue is expected to rebound in 2022 and grow by 6.3% as the global economy continues its recovery from the pandemic. The increase in EPS and shareholder’s value over the past 12 months also appears here to stay as EPS is projected to grow by a further 13.3% during the next 12 months.
A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $22.20, 11.1% higher than its latest closing price of $19.98, earning MPLX a “Buy” recommendation.
3 Best Oil Stocks to Buy Now: #1
Energy Transfer LP (NYSE:LP)
Energy Transfer LP (NYSE:LP), formerly known as Energy Transfer Equity LP, is one of the country’s largest midstream service providers. The company, headquartered in Dallas, Texas, owns and operates a diverse network of pipelines and facilities through its various subsidiaries and assets that gather, process, transport and distribute crude oil, natural gas, NGLs, propane and other refined products.
COVID-19 hit Energy Transfer hard, with the company experiencing a 15.9% decline in revenue over the past year due to a reduction in demand. However, the stock has massive upside. According to Reuters, ET experienced a $2.4 billion windfall in profit from trading and selling natural gas during winter storm Uri, which has allowed the company to pay down over $2 billion worth of liabilities over the past year, ensuring an investment-grade rating on the company’s debt for the near future. The company’s management has also signaled an initiative to either pursue stock buybacks or increase distributions once the company’s leverage falls below 4.5x debt to equity.
In a further piece of good news, the United States District Court for the District of Columbia also recently ruled that the Dakota Access Pipeline (DAPL), in which ET has a 36.4% stake, can remain open until an environmental study is completed in spring 2022. Although Energy Transfer’s stake in the Dakota Access Pipeline may worry some investors due to the project’s uncertainty, DAPL only accounts for a minor portion of the 4.7 million barrels of crude oil transitioned through ET’s pipeline daily. Furthermore, crude oil transportation only accounts for a third of total company revenue. Management is also very optimistic about the project’s future, with Energy Transfer CEO Thomas Long insisting that the company “[does] not see a scenario where the pipeline will be shut [down],” he said in a February 2021 earnings call.
Combined with a recovering global economy and an increased energy demand, the recent news has analysts predicting a significant resurgence for Energy Transfer. Compared to the same period last year, sales for the company are projected to grow by 91.3% in Q2 2021 and 43.9% during the third quarter for a total annual growth rate of 55.7% in 2021. Plus, 2021 EPS growth, projected at 986.1%, is also expected to shatter the industry average of 6.7%, elevating ET into potential must-buy status
ET’s upside has caused its stock price to climb by 36.0% in the past 12 months and 108.2% since March 2020. TE’s stock price and growth over the last year are displayed below, alongside a 50-day moving average.
Chart provided by Stock Rover.
A discounted cash flow (DCF) analysis, using Stock Rover, values the stock at $12.67, 27.9% higher than its latest closing price of $9.90. With analysts projecting a 55.7% growth in sales for 2021, earning ET a “Strong Buy” recommendation from Stock Rover and a place among our three best oil stocks to buy now.