Crude Comeback: 7 Oil Stocks Primed For A 2024 Rebound

  • Chevron (CVX): Integrated giant weathering current turbulence, primed for consolidation gains and dividend stability.
  • ConocoPhillips (COP): Upstream leader poised for a lift from lower rates and improved economic activity.
  • Occidental Petroleum (OXY): Exploration play benefiting from geopolitical complexities, offering predictable profitability.
  • Read more about the top oil stocks that could strongly rebound this year.

Oil stocks? At a time when society is increasingly looking to clean and renewable energy sources to meet net-zero emission targets, the idea of investing in hydrocarbon-related enterprises seems risky, perhaps even foolish. Nevertheless, fossil fuels – despite their somewhat controversial reputation – deserve closer examination.

Yes, many hydrocarbon players found themselves out of sorts last year. Even with production cuts initiated by major oil-producing nations, the needle didn’t move much. With the economy facing many headwinds, demand for hydrocarbons was likewise muted. At the same time, the renewable energy sector also didn’t enjoy a renaissance in 2023. Therefore, a case can be made for rebounding oil stocks.

Indeed, global renewable energy investments have started to slow down after a considerable acceleration in the space. Yes, some of the reduced investments are positive in that the lower costs of wind and solar don’t require as much capital to support as in earlier in the cycle. Nevertheless, the challenges of adoption give oil stocks downwind relevance.

Plus, you can’t overcome the science. Fossil fuels command high energy density by their very nature. So, you can’t throw away this sector. On that note, here are possible ideas for rebounding oil stocks.

Chevron (CVX)

As an integrated oil giant, Chevron (NYSE:CVX) deserves a place in your portfolio of oil stocks. Yeah, it hit a bum note last year. And to be honest, 2024 is getting off to a rocky start. Nevertheless, should consolidation in the sector accelerate, entities like Chevron should benefit the most. In some sense, they’re too big to fail.

What I also appreciate about Chevron is the resilient financials. For example, the company prints a three-year revenue growth rate of 18.1%, beating out 64.14% of its peers. During the same period, Chevron posted EBITDA growth of 22.4%, above more than 60% of sector rivals. As well, it prints solid operating and net margins, along with a return on equity (ROE) of 15.89%.

No, it’s not exactly a sterling discount, priced at 11.1X trailing-year earnings. That said, I appreciate the predictability in the business. Also, the company features a forward dividend yield of 4.15%, along with a track record of 36 years of consecutive dividend increases. Thus, it’s a solid candidate for rebounding oil stocks.

ConocoPhillips (COP)

A top-tier name among hydrocarbon exploration and production firms, ConocoPhillips (NYSE:COP) plies its trade in the upstream component of the hydrocarbon value chain. It’s one of the better-performing enterprises (compared to other oil stocks) but that’s not really saying much. Since July of last year, COP largely went sideways, punctuated with the occasional (but brief) pops higher.

Still, should the Federal Reserve move to a more accommodating monetary policy, COP could get interesting. With commodities and energy resources priced in dollars, lower interest rates should – all other things being equal – translate to higher crude prices. Combined with potentially improved economic activity, demand for hydrocarbons may increase. Subsequently, that may help lift ConocoPhillips’ business.

Looking at the financials, COP intrigues due to some attractive stats. For example, the company prints a three-year revenue growth rate of 28.4%, above nearly 81% of its peers. Additionally, shares trade at a price/earnings-to-growth (PEG) ratio of 0.51X. That’s favorably lower than the sector median 0.89X. Thus, it’s a good candidate for rebounding oil stocks.

Occidental Petroleum (OXY)

Based in Houston, Texas, Occidental Petroleum (NYSE:OXY) engages in hydrocarbon exploration in the U.S. and Middle East. As well, Occidental runs a petrochemical manufacturing in the U.S., Canada and Chile. As with many other oil stocks, OXY incurred choppy conditions throughout 2023.

Nevertheless, investors should keep Occidental on their radar. In part, the geopolitical framework should cynically benefit exploration and production companies. Without getting into the granularity, it’s difficult not to notice that the biggest oil producers tend to be from countries with which we share questionable relations. So, securing production pipelines would be of great importance to both the economy and national security.

Like Chevron, Occidental isn’t really offered at a discount, with shares priced at 12.75X trailing-year earnings. However, it’s a predictable enterprise, with a solid 33.1% three-year EBITDA growth rate. In addition, the company features decent margins across the board. Thus, OXY could make an interesting case for rebounding oil stocks.

Enbridge (ENB)

One of the biggest names in the midstream segment of the energy value chain, Enbridge (NYSE:ENB) owns and operates pipelines throughout Canada (its home nation) and the U.S. Per its public profile, its network – which transports crude oil, natural gas and natural gas liquids (NGLs) – covers 38,300 kilometers (or about 23,799 miles). It’s easily one of the most relevant oil stocks to buy.

To be fair, ENB’s performance warranted concerns as it slid lower from January to late October. Since the Halloween season, however, shares have started to move up aggressively. During the same period, speculation picked up about the Fed potentially reducing interest rates in 2024. Based on the latest rumblings, a dovish approach may be in the cards.

If so, ENB deserves a closer look because of the implied boost in economic activity. However, despite Enbridge’s relevance, investors must trust the narrative. Priced at a forward earnings multiple of nearly 18X, it’s not cheap by any means. Still, Enbridge’s consistent profitability underscores its utility.

Kinder Morgan (KMI)

For another alternative to the midstream component of the value chain, Kinder Morgan (NYSE:KMI) could be worth your while. Based in Houston, Texas, Kinder Morgan represents one of the largest energy infrastructure companies in North America. Per its public profile, the enterprise specializes in owning and controlling oil and gas pipelines and terminals. Its network covers approximately 83,000 miles of pipelines and 143 terminals.

As stated earlier, there’s been much talk about the Fed’s pivot to a dovish monetary policy. Again, if that approach materializes, Kinder should benefit from the increase in economic activity. As well, investors should also note that some desperation may hit the labor market. In particular, layoffs continue to occur, with technology-related entities imposing headcount reductions due to artificial intelligence replacing human workers.

In other words, people might need to scramble to justify their value, which may involve hitting the road and interviewing for jobs in person. And while KMI is also not one of the cheap oil stocks, it commands consistent profitability.

Marathon Petroleum (MPC)

If you anticipate a monetary policy shift toward the dovish end of the spectrum, Marathon Petroleum (NYSE:MPC) should be on your radar for rebounding oil stocks. Per its corporate profile, Marathon engages in petroleum refining, marketing, and transportation. Essentially, it’s tied to the downstream component of the energy value chain, with some exposure to the midstream side.

Fundamentally, lower interest rates may spur business activity. Because of lowered borrowing costs, would-be entrepreneurs might take the plunge. Further, established companies may implement expansionary initiatives. And that may translate to increased hiring and not all new jobs created will likely be remote. Subsequently, more folks should be on the road.

As well, the personal saving rate should decline as money effectively gets cheaper. Under this scenario, people may be willing to spend on discretionary purchases such as road trips or flights for vacations. Collectively, these factors should boost demand for downstream specialists. In fact, analysts peg shares a moderate buy with a maximum price target of $180.

Phillips 66 (PSX)

Another alternative for those interested in downstream oil stocks is Phillips 66 (NYSE:PSX). Headquartered in Houston, Texas, Phillips 66 specializes in refining, transporting, and marketing natural gas liquid petrochemicals. Per its public profile, the company is also active in the research and development of emerging energy sources. It partners with Chevron on chemicals via a joint venture.

Should monetary policy strike an accommodative tone, Phillips 66 could be an intriguing idea. After the 2020 doldrums, vehicle miles traveled spiked to around July 2021. That was when inflation ran super-hot and months later, the Fed signaled that it would adopt a hawkish stance to cool accelerating consumer prices. Coincidentally, during this period of elevated borrowing costs, the vehicle miles statistic ran sideways.

However, if borrowing costs decline to more normal levels, vehicular activity could increase. In part, that’s because a higher relative dollar value incentivizes savings, which means less mobility. However, a lower dollar value incentivizes spending (among other things), which could translate to increased mobility. Thus, PSX makes an intriguing candidate for rebounding oil stocks.

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 Publishing Guidelines.