There’s a kerfuffle going on right now with the Organization of the Petroleum Exporting Countries (OPEC) as they struggle to come to agreement on oil production levels for the remainder of this year. The disagreement has thrown oil stocks up in the air.
The energy alliance, often referred to as “OPEC+,” voted at the start of July on a proposal to increase oil production by roughly two million barrels per day between August and the end of the year. However, the United Arab Emirates threw a wrench into those plans when it voted against the proposal, leaving oil markets in limbo. While the price of crude oil initially held up at its current level of just over $76 a barrel on news of the spat, there’s no telling how oil prices will react if the logjam on oil production continues.
The OPEC disagreement comes as oil prices had been recovering nicely from the lows experienced curing the pandemic. In fact, before this latest OPEC standoff, investment bank Goldman Sachs (NYSE:GS), and others, had been forecasting that oil prices would reach $100 a barrel by year’s end.
Let’s look at the seven best oil stocks to buy now coming out of the tumultuous July OPEC meeting.
- Chevron (NYSE:CVX)
- ExxonMobil (NYSE:XOM)
- Marathon Oil (NYSE:MRO)
- Royal Dutch Shell (NYSE:RDS-A, NYSE:RDS-B)
- ConocoPhillips (NYSE:COP)
- BP (NYSE:BP)
- Suncor Energy (NYSE:SU)
Best Oil Stocks to Buy: Chevron (CVX)
The third largest oil producer in the U.S., San Ramon, California-based Chevron has performed well this year as oil price have risen to $75 a barrel. CVX stock is up 21.5% through the first half of this year and is now changing hands at $102.62 a share. The oil giant’s stock has managed to recover 73% since it bottomed at $59.39 in March 2020 when the Covid-19 pandemic first hit. And analysts continue to see growth ahead for Chevron. The median price target on the stock is $125 a share, which would imply another 22% growth over the coming 12 months.
Industry analysts like that Chevron is one of the more diversified U.S. oil companies, having both upstream (drilling) and downstream (chemicals and refining) operations. That diversification enables Chevron to weather the ups and downs of the global energy sector batter than most companies.
Shareholders also like that Chevron pays a hefty dividend yield of 5.05% and has increased its annual dividend payment for 33 consecutive years. Investors looking for an oil company to take a stake in should definitely consider Chevron.
The largest U.S. oil company with a market capitalization of nearly $250 billion is Irving, Texas-based ExxonMobil. Like Chevron, ExxonMobil is a highly diversified oil producer and is involved in the entire production process, from the initial drilling to end stage refining. Year-to-date, XOM stock has been a winner, rising 46% to a still affordable price of $60.28 a share. The stock has nearly doubled (up 97%) from its March 2020 low of $32.74 a share.
The company endured a bruising board battle this spring as environmental activist Engine No. 1 managed to win two seats on Exxon Mobil’s Board of Directors. Engine No. 1 has said that it will push ExxonMobil to further reduce its carbon emissions. ExxonMobil has pointed out that it is already taking steps to lower its emissions, allocating $3 billion for research around carbon capture and other emissions-cutting technologies.
Best Oil Stocks to Buy: Marathon Oil (MRO)
Bargain hunters looking for an undervalued oil stock should give consideration to Houston, Texas-based Marathon Oil. At its current price of $12.99 a share, MRO stock today is continuing to trade below its 2019 levels. That said, the stock has rallied nearly 300% from its March 2020 low of just $3.52 a share. Year-to-date, the stock is up 95%. Nevertheless, the massive gains over the past 12-months have not gotten Marathon Oil’s stock back to its pre-pandemic heights. The stock was trading at nearly $20 a share before Covid-19.
As oil prices have recovered this year, Marathon Oil has focused on repairing its balance sheet and rewarding shareholders who stuck by the company when its shares were trading in penny stock territory. In this year’s first quarter, Marathon Oil repaid $500 million in debt and said it planned to repay another $500 million of debt in the second quarter.
The company’s aggressive cost cutting measures, which include reducing production and administration expenses by 30%, have enabled Marathon Oil to repay debt. It also allowed the company to raise its quarterly dividend in the first quarter by 33%.
Royal Dutch Shell (RDS-A, RDS-B)
Royal Dutch Shell is a global heavy weight among oil stocks. Known as a “supermajor,” the Dutch company was ranked as the sixth largest in the world based on 2020 revenues of $344.38 billion. Consider that Royal Dutch Shell’s revenues are equivalent to nearly 80% of The Netherlands’ entire gross domestic product (GDP) and you get an idea of how massive the company is today.
Despite its influence, RDS-A stock is up only 15% year-to-date at $40.29 a share, less than many other companies on this list. In the past 12-months, the company’s stock has gained about 24%.
Royal Dutch Shell recently announced plans to sell its holdings in the largest oil field in the United States for as much as $10 billion. The sale comes as Shell looks to focus on its more profitable oil-and-gas assets and grow its low-carbon investments. The sale would be for part or all of Shell’s 260,000 acres in the Permian Basin situated in Texas.
Shell has set out an ambitious climate strategy, with a target to cut the carbon intensity of its products 100% by 2050 from 2016 levels.
Best Oil Stocks to Buy: ConocoPhillips (COP)
Houston, Texas-based ConocoPhillips is primarily an oil exploration company. It also has one of the biggest global footprints among major U.S. oil companies with operations everywhere from Canada and Australia to China and Qatar. ConocoPhillips made the largest discovery of oil last year, finding between 75.5 million and 201 million barrels of oil in what’s known as the “Slagugle Well” off the coast of Norway. Year-to-date, COP stock is up 48% at $59.16 a share.
The large discovery in late 2020 led many analysts to boost their price target on COP stock. Investment bank Bernstein raised its target price for the stock to $80 a share from $63 previously.
Analysts and shareholders also like that ConocoPhillips recently announced plans to increase its stock buybacks. The company has announced that it will now spend $2.5 billion on share repurchases, $1 billion more than it previously planned to spend.
ConocoPhillips also announced that its capital expenditures for 2021 will be $200 million less than previously expected.
The company formerly known as “British Petroleum” is another oil supermajor and has operations in every facet of the oil industry; not only exploration, production and refining, but also in marketing and trading.
BP is also a global leader when it comes to renewable energy, holding leading positions in wind and solar power, as well as biofuels and smart grid technologies. Investors wanting a heavily diversified oil company have found it in BP.
Like its European counterpart, Royal Dutch Shell, BP stock is up less than its U.S. competitors. Year-to-date, the company’s share price has risen 25% to $25.58 a share. However, over the past 12-months, the stock is up only 12%.
Also like Shell, BP has announced that it is considering selling off some of its biggest assets in order to focus more on clean energy technologies. In BP’s case, the company is planning to sell off its holdings in Iraq’s gigantic Rumaila oil field. Exactly how much the Iraqi assets would net BP is unclear, but the sale is another sign that the company is going all in on renewable energy.
Best Oil Stocks to Buy: Suncor Energy (SU)
We end with Canadian oil company Suncor Energy. Based in Calgary, Alberta, Suncor is focused on extracting oil from the western Canadian province’s oil sands, although it also has extraction operations in Colorado.
In addition to refining crude oil, Suncor Energy operates one of Canada’s largest gas station networks through its Petro-Canada branded retail chain, which it acquired in 2009. The combination of refining and retail makes Suncor Energy a potentially attractive stock to own for investors wanting exposure to the oil sector.
So far this year, SU stock has risen 37% and now changes hands at $23.02 a share. The stock is up 40% over the past 12-months. The share price has been trending higher ever since the company reported strong first quarter results in May as oil prices continued to rise.
The company’s net earnings came in at 821 million CAD ($665 million) compared to a net loss of $3.53 billion CAD a year earlier. Funds from operation more than doubled in the first quarter to $2.11 billion CAD from $1 billion CAD a year ago.
Shareholders applauded when Suncor announced during its first quarter results that it had reduced its debt by $1.1 billion CAD and planned to repurchase some of its outstanding shares.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.