Oil stocks to buy ahead of next OPEC meeting

 

Oil prices have firmed in 2017, but they have not risen as much as some analysts had forecast. OPEC nations promised production cuts, which have helped firm prices, but supply has not fallen enough to really drive oil prices higher.

Oil prices have been rising since the end of summer, but remain well below their 2014 level.

There is concern among some traders that OPEC will not follow through on its cuts, and that the group of companies that make up the group will decide to increase output as prices rise to take advantage of the higher prices.

OPEC will meet again in November, and there are signs that the group will decide to continue the production deal longer than the previously agreed upon March 2018 deadline. Over the weekend, OPEC Secretary-General said that consultations were already under way to discuss extending the agreement, and even hinted that additional oil-producing countries may join the deal.

If OPEC does decide to extend the agreement, oil prices should at the very least, hold firm, and could easily build on recent gains through the remainder of the years.

Let’s take a closer look at five oil-related stocks that you may want to consider ahead of next month’s OPEC meeting.

Exxon Mobil

Oil giant Exxon Mobil (XOM) has been one of the weaker performing stocks in the sector, but recent sentiment has turned bullish, with the stock trading higher over the last month. The company reported disappointing earnings in late-July, but sales were better than expected. The stock has a P/E of 29.7, with earnings expected to rise by 44.7% this year, and by an additional 12.2% next year. Of course, higher oil prices would result in stronger than expected earnings growth, which would allow the stock to build on recent gains. The stock is currently trading at $82.50, and analysts have an $84.09 average price target on the stock.

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Chart courtesy of www.stockcharts.com

EOG Resources

EOG Resources (EOG) is in the oil and gas exploration business. What sets EOG apart from many of its competitors is that it seeks to develop sites where the company is able to turn a 60% return, after tax, on the product it sells. What this means is that even when oil trades below $50 a barrel the company is still able to turn a profit. This allows the company to hold up better when oil prices move lower, and allows it to really turn a tidy profit as prices start to rise. With oil prices firming this year, analysts expect to see full year earnings growth of 137.9% for the current year, and an additional 142.6% next year. Shares are currently trading at $96.95, and analysts have an average price target of $106.45 on the stock.

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Chart courtesy of www.stockcharts.com

Devon Energy

Devon Energy (DVN) is an oil and gas exploration company based out of Oklahoma. The stock began trending lower at the start of the year, but found support in August, and shares have trended higher over the last six weeks. The valuation on DVN is very attractive, with a P/E of just 8.2, and earnings are expected to rise 19.8% next year. Analysts expect to see more upside for the stock. DVN is now trading at $36.35, and analysts have set an average price target of $40.71 on the stock, suggesting shares could rise by an additional 12.0%. 11 of the 19 analysts covering the stock give it a “strong buy” rating, so enthusiasm is high, and if oil prices are able to move higher through the remainder of the year, DVN is likely to enjoy big gains as well.

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Chart courtesy of www.stockcharts.com

Chevron

Unlike most oil and gas stocks, Chevron (CVX) has appreciated nicely on the year, and the stock is currently trading just shy of its 52-week high, and not far below its record high. Earnings growth this year is forecast to be 318%, and next year analysts see earnings rising by 23.9%. The current growth estimates are impressive, and could be greatly understated if oil prices are able to extend recent gains on news of more OPEC cuts. The stock’s valuation is a bit of a concern, with a P/E of 38.6, but given the robust growth estimates the valuation on its own will not be enough to derail this stock. CVX trades at $119.22, which is pretty much in-line with the stock’s $119.50 average price target, but if the company is able to post positive earnings numbers on October 27 analysts will likely increase their targets to allow the stock to move higher.

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Chart courtesy of www.stockcharts.com

Imperial Oil

Imperial Oil (IMO) is a Canadian based oil and gas explorer. The stock has moved higher over the last month, and the stage is set for additional appreciation through the remainder of the year. Even with the recent gains, the stock’s valuation remains attractive, with a P/E of just 12.7. Analysts forecast earnings growth of 116% for the current year, and see profits rising an additional 35.5% next year. The stock remains well below where it was trading at the end of last year, and as long as oil prices hold their recent gains or move higher there is the potential for the stock to trend higher through the remainder of the year.

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Chart courtesy of www.stockcharts.com

Symbols: CVX DVN EOG IMO XOM
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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