It’s been a bad week for oil stocks. Even though OPEC+ nations delayed their production cuts scheduled to begin in October, global demand for oil weakened considerably. China, in particular, which is the world’s largest importer, didn’t forecast increases in demand. The result was a decline in oil prices.
OPEC+ is the 13-member OPEC countries, plus Russia, and a smattering of smaller non-OPEC oil-producing countries.
The benchmark Brent crude price fell below $73 per barrel, while the popular U.S. West Texas Intermediate (WTI) price dipped below $70 a barrel. When you add in a further deterioration in China’s economy plus the return of 700,000 barrels per day of Libyan oil, it creates conditions that sent oil stocks tumbling. The S&P GSCI Crude Oil index fell more than 7% over the past week.
Yet this is an opportunity for investors to buy into the sector as the long-term tailwinds for the industry remain strong. The U.S. Energy Information Administration continues to expect oil prices to rise heading into the end of the year even though the increase is lower than what it forecast in July. It expects prices to end 2024 at $81 per barrel versus its prior estimate of $88 per barrel. It is looking for production and prices to continue rising throughout 2025 as well. Goldman Sachs (NYSE:GS) predicts peak oil demand is still decades away.
That makes any weakness in oil stock prices now an investment opportunity. The three companies below should be stocks to buy now.
Key Points About This Article:
- Oil stocks fell last week amid declining demand and increasing output amongst OPEC+ nations, which served to drive down oil prices.
- The long-term growth outlook for oil and natural gas remains high for the next decade and beyond, making the discount the market offered on energy stocks a great buying opportunity.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Exxon Mobil (XOM)
Integrated oil and gas giant Exxon Mobil (NYSE:XOM) is the first energy stock to buy. While other producers have diversified into renewables, Exxon remains rock-solid in its commitment to oil and gas. It is a far less risky maneuver as it sticks to Exxon’s core competency and provides a path to greater and faster growth and profits.
Exxon also quickly became the industry leader in the all-important Permian Basin with its acquisition last year of Pioneer Natural Resources. The addition of Pioneer’s 850,000 net acres to its own 570,000 net acres allowed Exxon to leapfrog over the competition and helped produce near record profits last quarter.
The oil giant’s stock dropped nearly 3% last week, making XOM’s performance in 2024 essentially flat. It offers investors a cheap valuation at 13 times earnings, less than twice sales, and 15 times free cash flow. While the PE and PS ratios are within its historical average, Exxon’s price-to-FCF is well below its norm.
Shell (SHEL)
New Shell (NYSE:SHEL) CEO Wael Sawan is focused on returning value to shareholders. While that means the oil stock is buying back lots of shares and paying dividends — some $6.1 billion worth in the second quarter — it is also dramatically reducing its costs. Shell remains committed to cutting $2 billion to $3 billion by the end of 2025. Fully $1 billion of that will come from exiting businesses.
Like other oil companies, Shell has transitioned from growth by any means to focusing solely on its most profitable projects.
The oil company is trying to close the valuation gap with its peers so it is also reining in its spending. Capital expenditures for the current year are forecast between $22 billion and $24 billion. Combined with its cost-cutting savings and increasing its distributions to shareholders, which are targeted at 30% to 40% of cash flows, Shell looks positioned for success.
SHEL stock fell over 5% last week, which makes its valuation extremely discounted. The oil stock trades at just 8 times next year’s earnings, a fraction of its sales, and a bargain-basement 7 times free cash flow. With a dividend yielding 4% annually, the oil company is a very attractive stock to buy now.
Enterprise Products Partners (EPD)
Midstream leader Enterprise Products Partners (NYSE:EPD) is the third energy stock to add to your buy list. It is one of the largest operators in the field with over 50,000 miles of pipeline and storage capacity for more than 300 million barrels of liquids. Enterprise also just agreed to acquire privately held natural gas gathering and treating services company Pinon Midstream for $950 million in cash.
It is a significant acquisition because Pinon’s Delaware Basin sour gas treating system pushes Enterprise Products’ plans to expand into the market forward by three to four years. There is a substantial lack of such services in the region, which has 7,500 wells, leading to restrictions on drilling activity. The Delaware Basin is located in the New Mexico and Texas region.
Producers have noted the lack of sour gas treating options. This acquisition gives Enterprise a leading foothold in the market. Coupled with the midstream operator’s existing solid financial standing, this could be a major growth initiative for the stock.
This probably explains why EPD stock was barely affected by this week’s oil industry news. Enterprise Products Partners operates on long-term, take-or-pay contracts. That means regardless of whether its customers use its capacity or take the product, it gets paid. That produces a very stable revenue stream and makes EPD a stock to buy now.
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