Prep for the consequences of rising demand
- Exxon Mobil (XOM)
- ConocoPhillips (COP)
- Shell (SHEL)
- TC Pipelines (TRP)
- Enbridge (ENB)
- Murphy USA (MUSA)
- Phillips 66 (PSX)
Under normal circumstances involving geopolitical tensions between the U.S. and China, conflict tends to negatively affect crude oil stocks to buy. For instance, in 2019, China stated it would impose tariffs on U.S. crude oil imports, sending prices down sharply. However, the post-coronavirus new normal likely sparked a fresh paradigm for the hydrocarbon sector.
This time around, threatening to implement tariffs on critical energy resources would be an onerous action to take. With China recently reopening its economy, commercial activity should rise. Naturally, this framework will probably translate to greater resource consumption, thus boding well for crude oil stocks to buy. But here’s the wrinkle: Beijing knows that the Federal Reserve is committed to controlling inflation. However, should China step on the economic gas pedal, global inflation may rise, impacting the Fed’s monetary policy. Therefore, with the potential for cynicism to abound, these are the crude oil stocks to buy.
Exxon Mobil (XOM)
A John D. Rockefeller’s Standard Oil, Exxon Mobil (NYSE:XOM) blossomed into one of the biggest vertically integrated hydrocarbon specialists in the world. Presently, Exxon commands a market capitalization of $463 billion. Since the start of the year, XOM gained nearly 6%, slightly pipping the performance of the S&P 500 index. Moving forward, though, XOM could break out to a convincing lead.
After incurring a major blow following the onset of the Covid-19 crisis, Exxon’s books look considerably more appealing. For example, its Altman Z-Score pings at 5.15, reflecting low risk of bankruptcy. Operationally, the company really comes alive. Its three-year revenue growth rate stands at 15.9%, beating out 75% of its rivals. Further, its net margin is 14%, above 66% of other crude oil stocks to buy. At the moment, Exxon offers a forward yield of 3.23%. It features 40 years of consecutive dividend increases.
Lastly, Wall Street analysts peg XOM as a consensus moderate buy. Further, their average price target stands at $126.94, implying over 12% upside potential.
Specializing in hydrocarbon exploration and production (upstream), ConocoPhillips (NYSE:COP) has operations in 15 countries. At the present juncture, the company commands a market cap of $133.5 billion. Since the Jan. opener, COP dipped 4%. However, in the trailing year, shares managed to gain over 8% of equity value. For those seeking a solid deal on crude oil stocks to buy, COP makes a good case for itself. According to Gurufocus.com’s analysis on ConocoPhillips’ discounted cash flow (DCF), COP’s fair value should be $181.16. However, at time of writing, COP trades hands for $108.64.
In addition, the company enjoys significant strengths operationally. For example, its three-year revenue growth rate stands at 28.4%, beating out 87% of its peers. Further, its free cash flow (FCF) growth rate during the same period pings at 52.9%, outpacing 85.63% of the industry. Turning to Wall Street, covering analysts peg COP as a consensus strong buy. Also, their average price target stands at $139.75, implying nearly 29% upside potential.
Another one of the world’s biggest crude oil stocks to buy, Shell (NYSE:SHEL) makes for an interesting “hybrid” case. While its core enterprises focus on hydrocarbons, the company also invests in green technologies. Specifically, Shell will build Europe’s largest renewable hydrogen plant, which should attract new investors. The plant will be operational in 2025.
In the meantime, investors can enjoy an enticing argument for crude oil stocks to buy right now. Specifically, the market prices SHEL at a trailing multiple of 5.46. As a discount to earnings, Shell ranks better than 64.53% of the competition. In addition, SHEL trades at a forward multiple of 6.01. Here, the company ranks better than 60.91% of the field. Like the other crude oil stocks to buy, Shell delivers on the operational front. For revenue, FCF and book growth, the energy giant ranks above at least 64% of the industry. Looking to the Street, analysts peg SHEL as a consensus moderate buy. Also, their average price target stands at $69.61, implying nearly 12% upside potential.
TC Pipelines (TRP)
A major North American energy company, TC Pipelines (NYSE:TRP) focuses on the midstream component of the sector’s value chain. This segment mainly deals with transportation and storage of critical resources. Currently, TC Pipelines commands a market cap of just over $42 billion. Since the start of the year, shares gained 6% of equity value.
To be fair, it hasn’t been an easy road. In the past 365 days, TRP dropped nearly 27%. However, for patient investors, it could be an intriguing name among crude oil stocks to buy. For one thing, Gurufocus.com’s proprietary calculations for fair market value labels TRP as modestly undervalued. Operationally, TC’s three-year FCF growth rate stands at 33.2%, above nearly 72% of its peers. Notably, TC’s forward yield measures 6.62%, beating out the energy sector’s average yield of 4.24%. In fairness, though, the payout ratio of 85.58% will need to be monitored. Lastly, Wall Street analysts peg TRP as a consensus moderate buy. Their average price target is $44.65, implying 8% upside potential.
Another midstream specialist, Enbridge (NYSE:ENB) features a crude oil system that consists of 28,661 kilometers (17,809 miles) of pipelines. As well, its natural gas pipelines stretch for 38,300 kilometers (23,799 miles). At this juncture, Enbridge carries a market cap of $78.7 billion. Since the start of the year, ENB slipped roughly half-a-percent below parity.
As with other midstream crude oil stocks to buy, Enbridge might require some patience. However, the underlying business is effectively a natural monopoly due to the extreme barrier to entry. In addition, Enbridge operates a decently and consistently profitable enterprise. Its highlight is its operating margin, which pings at 15.35% (above 61.48% of the industry). Similar to TC Pipelines, Enbridge offers generous passive income with a forward yield of 6.8%. However, its payout ratio does stand at 117.11%, drawing some sustainability concerns. Also, covering analysts peg ENB as a consensus hold. However, their average price target came out to $44.03, implying over 13% upside potential.
Murphy USA (MUSA)
Operating in the downstream component of the energy value chain, Murphy USA (NYSE:MUSA) operates a chain of retail gasoline stations. Primarily, they’re located (smartly) near discount-oriented big-box retailers, facilitating maximum customer volume. Currently, the company commands a market cap of $5.63 billion. Since the Jan. opener, MUSA declined by 5%.
Still, in the past 365 days, MUSA gained a blistering 43%. And it could rise even more. With normalization trends materializing in the personal and professional realms, Murphy could be one of the more enticing crude oil stocks to buy. In addition, the company provides an attractive bargain. Right now, the market prices MUSA at a trailing multiple of 9.23. As a discount to earnings, Murphy ranks better than 76.79% of the competition. Also, MUSA trades at a forward multiple of 11.26. Here, the company ranks better than 70.87% of its peers.
Turning to Wall Street, covering analysts peg MUSA as a consensus moderate buy. In addition, their average price target stands at $314.25, implying over 21% upside potential.
Phillips 66 (PSX)
A spinoff of ConocoPhillips, Phillips 66 (NYSE:PSX) focuses on the downstream segment of the energy industry: refining, chemical and retail. At the moment, Phillips 66 carries a market cap of $49.18 billion. Since the start of the year, PSX gained 5% of equity value. In the trailing year, it’s up nearly 26%.
While it’s already performed well, PSX remains one of the crude oil stocks to buy. Currently, the market prices PSX at a trailing multiple of 4.62. As a discount to earnings, the enterprise ranks better than 69.3% of the industry. Also, PSX trades at a sales multiple of 0.3. Here, the company ranks better than nearly 81% of the field. While Phillips 66 falls a bit under average when it comes to passive income for its sector, overall, it holds its own with a forward yield of 3.96%. Also, the payout ratio is quite low at 32.65%. Therefore, sustainability of the yield shouldn’t be a concern.
Finally, covering analysts peg PSX as a consensus moderate buy. Their average price target stands at $127.11, implying nearly 20% upside potential.
This post originally appeared at InvestorPlace.
On the date of publication, Josh Enomoto 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.