Six Oil Stocks to Buy as the Economy Improves and Energy Prices Rise

Paul Dykewicz

Six oil investments to buy as the economy improves and energy prices rise are part of an industry that recently led BoA Global Research to forecast Brent crude soaring to $100 a barrel by 2022.

The six oil stocks to buy amid the recovering economy and increasing oil prices include the country’s biggest refiner of the so-called “black gold” and five stocks given buy ratings from BoA. The forecast of $100 a barrel for Brent crude next year came from BoA’s commodity team, but the company’s equity research staff is not quite as bullish.

Fund-Loving Pension Chairman Predicts Oil Rising to $100 a Barrel Amid Economic Recovery

Aside from short-term pullbacks, oil has been a good investment for more than a year, and that’s likely to continue, said Bob Carlson, who heads the Retirement Watch investment newsletter. Market forces and the major oil producers are likely to drive the price of oil to around $100 and it likely will stay around that level, if global economic growth remains strong, he added.

“I prefer to invest in the commodities themselves instead of companies in commodity businesses,” said Carlson, who also serves as chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. “Investing in the commodities avoids potential problems with management, debt levels, regulators, labor and more.”

Funds are the best way for most investors to take positions in commodities, Carlson counseled.

Pension fund and Retirement Watch chief Bob Carlson answers questions from columnist Paul Dykewicz.

Commodity Fund Offers Alternative to Six Oil Stocks to Buy

One good choice is the ETF iShares GSCI Commodity Dynamic Roll (COMT), Carlson continued. The fund seeks to follow the Goldman Sachs Commodity Index, which is more heavily weighted to energy than most other commodity indexes, he added.

Chart courtesy of www.StockCharts.com

COMT invests in most commodities using futures contracts. The fund has gained 9.30% in the last three months and 28.27% for the year to date.

“Another good choice is Parametric Commodity Strategy (EAPCX), an open-end mutual fund,” Carlson said. “This fund also takes most of its commodity positions through futures contracts. The fund’s benchmark is the Bloomberg Commodity Total Return Index, which isn’t as heavily weighted in energy as the GSCI.”

Chart courtesy of www.StockCharts.com

However, EAPCX does not try to track the Bloomberg Commodity Total Return Index, Carlson commented. Instead, EAPCX seeks to beat the index using a rules-based systematic investment process, greater diversification and more active rebalancing, he added.

“The managers don’t forecast the markets or take positions based on forecasts,” Carlson said.

The fund rose 8.94% in the last three months and 21.60% for the year date.

Wall Street Veteran Chooses Largest U.S. Oil Refiner as One of Six Oil Stocks to Buy

“Oil prices topped out in mid-July after OPEC stated it would increase production,” said Bryan Perry, who heads the Cash Machine investment newsletter, as well as the Premium Income, Quick Income Trader, Breakout Profits Trader and Hi-Tech Trader advisory services. As of July 19, WTI crude traded at $66.57/bbl. in what is the sharpest sell-off since late March. Assuming this pullback in crude is an orderly correction, following a torrid move higher year to date, it presents a compelling buying opportunity in some blue-chip energy stocks.”

Paul Dykewicz interviews Bryan Perry at a MoneyShow.

One such stock to consider is Marathon Petroleum Corp. (NYSE:MPC), America’s largest oil refiner, said Perry, who called it his favorite industry pick at the moment. Findlay, Ohio-based Marathon Petroleum Corp. not only has robust operations in refining but in midstream and retail markets, he added.

Chart courtesy of www.StockCharts.com

Refiner’s Resurgence Rates It One of Six Oil Stocks to Buy

Revenues at the company are forecast to jump by 23% to $85 billion in 2021 with earnings of $1.03 per share estimated to soar by 221% to $3.31 in 2022, Perry said. The stock traded at $64.84 in early June and is testing its 200-day moving average around $50, sporting a dividend yield of 4.5%, Perry continued.

If oil prices stabilize, Marathon Petroleum should prove to be a “very savvy purchase” for investors seeking to initiate or add to their energy holdings,” Perry predicted.  

Six Oil Stocks to Buy Gain Economic Support from Stock-Picking Professor

The 13-nation Organization of Petroleum Exporting Countries (OPEC) and its oil-producing allies recently agreed to provide millions of additional barrels of crude oil a day to the global market in the next two years, said Mark Skousen, PhD, who heads the Forecasts & Strategies investment newsletter, as well as the Home Run Trader, Five Star Trader, TNT Trader and the Fast Money Alert trading services. So, it is no surprise that the price of U.S. oil has dropped by 6% to less than $70 on Monday, July 19, added Skousen, a Presidential Fellow in economics at Chapman University.

The drop in oil prices hurt energy producers as the sector was enduring a shakeout due to the recent consolidation in the stock market. But a good contrarian buys on bad news with a view to taking profits when the outlook improves, Skousen counseled.

With the pandemic receding, interest rates near record lows and governments introducing multi-trillion fiscal stimulus around the world, it should not be long before oil prices and companies rebound, Skousen opined.

Mark Skousen, PhD, a descendent of Benjamin Franklin, meets with Paul Dykewicz in Philadelphia.

Money Manager Suggests a Fund and a Natural Gas Company Other than Six Oil Stocks to Buy

“I’m going to get contrarian here: while oil might spike above $100 on a supply shock or geopolitical tension, it’s going to take a lot of inflation and a lot of OPEC supply discipline to keep it there,” said Hilary Kramer, who heads the GameChangers and Value Authority advisory services. “This is not the 1970s, when U.S. energy independence was a cruel dream. If overseas producers talk tough, domestic shale operators will simply drill more wells. So, what do I like in the sector? All the majors are down 10-25%, so all you really need to do is pick up a broad market-cap-weighted basket like the Energy SPDR (NYSE:XLE) and wait for rising crude to lift all the boats.” 

Chart courtesy of www.StockCharts.com

If investors want something more concentrated, here’s an outside-the-box idea: natural gas processor Williams Companies (NYSE:WMB), which at an implied yield of 6.4% is showing significant stress, Kramer counseled. 

Chart courtesy of www.StockCharts.com

“I’d be surprised if cash flow on the horizon will support the dividend, so the market is right in being a little leery of this stock, Kramer said. “But while it will take some creative accounting to maintain a $0.41 quarterly payout, I’m thinking WMB can manage $0.30 per quarter without too much trouble… if management decides they need to cut at all. That’s worth a 4.5% yield, which is pretty good if you’re simply looking for a bond replacement over the next few years.”

Columnist Paul Dykewicz interviews money manager Hilary Kramer, whose premium advisory services include IPO Edge2-Day TraderTurbo Trader and Inner Circle.

And that possibility is a “worst-case scenario,” Kramer said. WMB’s management found a way to keep raising the dividend in every oil slump since 2002 and only cut in 2016 to free up cash for acquisitions, she added.

“At the time, Wall Street cheered,” Kramer recalled. “While I can’t promise that this time around, using this stock for income and not as a trading vehicle is probably the way to go right now.”

BoA Global Research Identifies Five of Six Oil Investments to Buy 

A recent research report by BoA identified five oil stocks as buys. Exxon Mobil Corp. stands out at the top of the group.

Key risks faced by Exxon Mobil include a challenging margin environment, significant delays to the new upstream projects critical to its growth targets and obstacles to capturing the price climate due to cost constraints. However, BoA set a lofty $90 price target for Exxon Mobil, 60.8% above its closing price of $55.96 on July 20.

Chart courtesy of www.StockCharts.com

Occidental Petroleum Corp. (NYSE:OXY) received a $44 price target from BoA that would mark a 73.4% jump from the company’s closing price of $25.37 on July 20. But the company’s downside risks, cited by BoA, include the tough oil and gas environment, potential delays in large-scale projects and exposure to the Middle East and the corresponding political risk it entails.

Chart courtesy of www.StockCharts.com

Hess Earns Spot Among Six Oil Stocks to Buy

Hess Corp. (NYSE:HES) earned a price objective of $115 from BoA, along with a caution to expect the company to show restraint on new spending projects aimed at growing the business. The risks to the forecast include the unpredictable pricing environment, possible slowdowns in drilling that could cause production to slip below expectations and exploratory drilling activities that could hold back the stock’s rise, BoA indicated.

Chart courtesy of www.StockCharts.com

FANG Earns Berth Among Six Oil Stocks to Buy

Diamondback Energy Inc. (NYSE:FANG) garnered a $114 price objective from BoA. However, it faces risks that include the uncertain pricing environment in the oil industry and the possibility of a slower rate of development than currently expected.

Chart courtesy of www.StockCharts.com

Deven Energy Also Is One of the Six Oil Stocks to Buy

Deven Energy Corp. (NYSE:DYN) received a $40 price objective from BoA, 57.9% above the stock’s closing share price of $24.54 on July 20. Challenges include trying to develop production in the Permian Basin and Eagle Ford shale, weak natural gas pricing and a potential global recession, according to BoA.

Chart courtesy of www.StockCharts.com

New Delta Variant of COVID-19 Spread May Affect Six Oil Stocks to Buy

The increasingly transmissible Delta variant of COVID-19 has raised concerns from health experts about increased spread of the virus across the United States. The variant is blamed for new surges in case numbers and deaths. Genetic variants of SARS-CoV-2 have been emerging and circulating around the world throughout the COVID-19 pandemic, according to the Centers for Disease Control and Prevention (CDC). 

For example, the CDC and the U.S. State Department each raised their warnings to the highest levels on July 19 for travel to the United Kingdom. The CDC cautioned to “avoid” traveling there, while the State Department issued a blunt “do not travel” warning for the United Kingdom.

A variant has one or more mutations that differentiate it from other COVID-19 varieties in circulation. The Delta variant is expected to become the dominant coronavirus strain in the United States, according to the CDC. With more than half the U.S. population not fully vaccinated, public health officials caution that a resurgence of COVID-19 cases may well occur this fall when many unvaccinated children return to school.

Progress in increasing the number of people vaccinated from COVID-19 lifts hope that new cases and deaths will keep falling. As of July 19, 186,317,651 people, or 56.1% of the U.S. population, have received at least one dose of a COVID-19 vaccine. The fully vaccinated total 161,473,715 people, or 48.6%, of the U.S. population, according to the CDC.

The Food and Drug Administration recently approved a third COVID-19 vaccine, manufactured by Johnson & Johnson (NYSE:JNJ), which requires only one dose rather than two, as with the first two vaccine providers: Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA).

COVID-19 cases worldwide have reached 191,216,295 and caused 4,101,590 deaths, as of July 20, according to Johns Hopkins University. U.S. COVID-19 cases reached 34,150,195 and caused 609,377 deaths. America has the dreaded distinction as the country with the most COVID-19 cases and deaths.

The six oil investments allow investors to profit amid the pandemic. Rising COVID-19 vaccine availability, improving economic data and a recent $1.9 trillion federal stimulus package should help to lift the prices of the oil investments to buy.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many othersCall 202-677-4457 for special pricing!

 

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