Is it Time to Bottom-Fish Oil Stocks?
Oil stocks are trading way below their all-time highs and investors can go bottom-fishing and load on cheap oil stocks right now. Given the volatility, it is almost impossible to correctly predict bottom, but there are a few positive signs for long-term investors.
Exxon Mobil (XOM)
Buying Exxon at present prices is a no-brainer. Although Exxon has appreciated roughly 10% since hitting bottom, the oil giant is still very cheap. Investors can enjoy a high dividend yield of 3.8% while waiting for a recovery and in my opinion, Exxon is the best oil stock to buy right now. Being the largest producer, Exxon is nicely positioned to benefit from the rebound in oil prices. Despite the plunge in oil prices, the company has managed to increase its dividend. For decades, Exxon has always performed nicely for investors after a crash and at a P/E ratio of 14, the stock is a definite buy.
Oasis Petroleum (OAS)
Investors may think that they’ve missed the boat on Oasis Petroleum as the stock has shot up over 50% in the last two weeks. However, it is more than likely that the company’s outperformance will continue as it is still cheap. With a trailing P/E of 6.7, Oasis still has room to run higher, and a recovery in oil prices should push the stocks to higher levels. Hedge funds and institutional investors have upped their stakes in Oasis over the last few months, and this is another vote of confidence for investors. While the company can’t boast an impressive dividend yield like Exxon, Oasis has managed to develop new techniques that help it reduce its expense and increase margin. Thus, Oasis is well equipped to survive if oil prices stay flat, but will move considerably higher if oil prices rebound.
Whiting Petroleum (WLL)
Like Oasis Petroleum, Whiting Petroleum has also appreciated considerably over the last few weeks. I still believe the stock has a lot of room to run higher due to the expected increase in crude prices. The company does have a huge debt burden, however debt maturities will not take effect until 2018, giving the company enough time to turn its fortunes around. Institutional investors have upped their stake in Whiting Petroleum as well, and this is positive for long-term investors.
In addition, the company has focused on cost-cutting by selling non-profitable assets. This will improve the company’s overall efficiency, making it a good long-term bet.
Occidental Petroleum (OXY)
Occidental Petroleum has managed to perform steadily during the crude oil crash due to various cost-cutting measures that have improved its efficiency. However, the company has started increasing production in the recent weeks citing an increased demand. Oil prices have also shot up considerably since the time Occidental Petroleum increased production and the company looks well positioned to benefit from an expected recovery.
Although the aforementioned stocks are presently my favorite picks in the sector, I think investors should also buy other companies with high dividend yield like Chevron (CSX), ConocoPhillips (COP), and Kinder Morgan (KMI) and Murphy Oil (MUR). Buying dividend paying stocks while waiting for a rebound can be greatly beneficial for investors in the long-run. With cheaper prices spurring demand, and an expected decline in production, oil stocks should move higher in the coming months, making all the stocks mentioned above great buys.
Published on Oct 11, 2015By Ayush Singh
Posted in ...Market Commentary