Want The Best Oil Stocks? Look No Further…
Has Oil Bottomed?
No doubt about it, this was an exciting week for the energy markets.
As you may be aware, the price of West Texas Intermediate (WTI) crude surged to $54.24 on Wednesday. That’s a 20% rally from the January 29th low – a one month high.
Not surprisingly, this week’s rally has energy investors wondering if the drastically oversold commodity has finally bottomed. Without question, a 20% rally in a matter of days is a step in the right direction.
But here’s the deal…
I don’t expect this week’s rally to hold. In fact, I’d be very surprised if WTI didn’t test the high $40 area again in coming weeks.
Why?
While longer-term oil market fundamentals are improving, the short-term oversupply issues will remain a substantial headwind. Estimates vary, but it appears the global oil market is oversupplied by about 1.5 million barrels of oil per day.
However, here’s the key takeaway from this week’s rally…
Investors are realizing that long-term fundamentals are shifting in favor of the oil market bulls.
First of all, major oil producers are slashing their 2015 exploration plans. Just this week, BP Amaco (BP) announced 2015 capital expenditure reductions of $4 billion.
Adding fuel to the fire is the fact the US drill rig count is falling off a cliff.
According to Baker Hughes (BHI), oil directed rigs are falling sharply. All told, 1,223 rigs were exploring for crude the week ending January 30th. That’s a whopping 23% decline in the last few months and the lowest oil directed rig rate since January 2012.
So while it still may be too early to go long crude oil, the seeds have been planted for an eventual rally.
And that means it’s the perfect time to start nibbling on the best oil stocks in the business…
The Best Oil Stocks You Can Buy!
With crude virtually guaranteed to return to higher prices, investors are looking for sure-fire ways to profit.
But you have to be very careful right now. Investing in the oil exploration and production industry is akin to walking through a minefield. With oil prices down 60% from last year’s high, a large swath of the industry is financially stressed.
That’s why I recommend long-term investors stick to the best oil stocks in the business.
Which ones are they?
First of all, let me tell you my criteria for finding them.
I don’t know about you, but when I am looking for an energy investment (not a short-term trade), I want it to pay me regardless of whether the stock price appreciates or declines.
That’s right, the first thing I’m looking for is a dividend payment of at least 3%. With a worthwhile dividend, you’ll be more inclined to hang on to your investment if crude takes another dive into the $40 range- or lower.
What else?
I want low debt to equity levels. The riskiest oil stocks you can buy have high debt relative to shareholder equity. If commodity prices don’t cooperate soon, highly leveraged oil explorers may find themselves in bankruptcy.
We definitely want to steer away from that!
With the above criteria in mind, here are the best oil stocks you can buy…
- Exxon Mobil (XOM) – 3% annual dividend with debt/equity of 0.12
- Chevron (CVX) – 3.9% annual dividend with debt/equity of 0.16
- Occidental Petroleum (OXY) – 3.5% annual dividend with debt/equity of 0.19
- Conoco Philips (COP) – 4.3% annual dividend with debt/equity of 0.38
- Royal Dutch Shell (RDS.A) – 4.3% annual dividend with debt/equity of 0.24
In my opinion, the companies above are the safest way to profit from the inevitable rebound in crude oil prices.
How To Buy The Best Oil Stocks In The Business…
Now that you know which ones they are, let me explain how you buy them.
Whatever you do, don’t just throw a wad of capital at them all at once.
Instead, gradually buy into them with equal capital tranches over the next few weeks. Start your initial position with a small percentage (say 15%) of the total amount of your energy portfolio you intend to invest.
When crude oil eases toward the $40 range again (which it most likely will), the stocks above will decline. That’s when you add to your position with an additional 15% tranche.
Repeat this process with each downward dip in crude oil prices over the next few weeks until you reach 100% of the capital you intend to invest.
At that point, just sit back and relax…
With long-term market fundamentals shifting in favor of bulls, downward pressure in oil will eventually ease. When the commodity rallies back to the $70 area, you’ll be sitting pretty in the best oil stocks the market has to offer!
Until Next Time,
Justin Bennett
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.
Category: Crude Oil, Energy, Natural Resource Stocks
