Profit from the Oil Supply Crunch With These 7 Stocks

Stocks to buy

Looking for impactful oil stocks to buy now? The hydrocarbon energy market offers compelling narratives, having undergone an impressive metamorphosis. During the early stages of the Covid-19 pandemic, demand for these assets waned significantly. Fast forward to today, and hydrocarbon energy prices have surged, making them worthy of consideration.

Two factors lie at the heart of this resurgence. First, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, under the OPEC+ banner, have extended oil output cuts through 2023. This decision squeezes supply, driving up prices.

Second, as highlighted by Bloomberg, political pressures and changing industry priorities have deterred energy companies from adding oil capacity. Instead, a shift toward chemicals and new materials is evident.

Such dynamics, while troublesome for consumers, could be music to the ears of savvy investors. Let’s delve deeper into the most promising oil stocks to buy now.

Chevron (CVX)

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As a vertically integrated oil and gas powerhouse, Chevron (NYSE:CVX) covers the entirety of the energy industry’s value chain. From upstream operations in exploration and production to midstream storage and transportation, and down to downstream refining and marketing, Chevron has it all. Though it may not be the flashiest pick among stocks to buy now, there’s a reassuring stability to CVX.

Boasting a robust balance sheet, Chevron’s equity-to-asset ratio sits at an impressive 0.63x, outperforming 67.4% of its industry counterparts. In terms of financial performance, the company has shown consistent long-term revenue growth and commendable net margins.

While the Covid-19 pandemic did pose challenges, Chevron’s history of profitability remains intact. Its forward earnings multiple of 11.68 might seem a tad pricey, but in exchange, investors are backing an incredibly stable entity.

Additionally, Chevron’s dividend game is strong. It offers a forward yield of 3.62%. Though slightly below the sector average, it’s hard to overlook the company’s track record of 37 consecutive years of dividend increases. Market analysts label CVX as a moderate buy, setting their sights on a price target of $192.92, suggesting an upside potential of nearly 16% in the coming year.

Enbridge (ENB)

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Stepping into the realm of multinational pipeline and energy companies, Enbridge (NYSE:ENB) is an essential pillar for the nation’s infrastructural framework. The company’s crude oil system stretches an extensive 17,809 miles, underscoring its relevance. Yet despite its significance, ENB has faced challenges in the market.

However, the tide may soon turn for Enbridge, positioning it as a potential candidate among stocks to buy now. While there are legitimate investor concerns — like Enbridge’s hefty debt reflected in its cash-to-debt ratio of 0.01x and declining revenue growth — demand dynamics could be the game-changer. Basic supply-demand principles point toward a potential uptick.

In terms of valuation, ENB’s forward earnings multiple stands at 17.39x. On the brighter side, the company boasts a healthy operating margin of 19.48% and has maintained profitability over the past decade. When it comes to dividends, Enbridge’s forward yield of 7.55% is eye-catching.

But potential investors should also consider its high payout ratio of 127.07%. Still, analysts lean toward a moderate buy recommendation for ENB, eyeing a price target of $40.92, indicating possible 17% upside.

Phillips 66 (PSX)

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Diving into the midstream and downstream sectors of the hydrocarbon value chain, Phillips 66 (NYSE:PSX) seems poised for positive momentum, especially within its marketing business unit. As communities gradually emerge from the shadows of the Covid-19 pandemic, we’re witnessing a surge in roadway traffic, which should inevitably amplify demand at Phillips 66’s gasoline stations.

What investors get with Phillips 66 isn’t necessarily a financial dynamo but rather a steady performer. Take its Altman Z-Score of 4.1, for instance — it suggests a firm financial footing.

Value hunters might see PSX as a potential entry among stocks to buy now, given its compelling metrics. A notable three-year revenue growth rate of 14.9% is paired with a trading multiple of just 5.25x on trailing earnings, placing it at a competitive advantage against 73.15% of its peers.

Further sweetening the deal, Phillips 66 offers a forward dividend yield of 3.51%. Although this might trail the sector’s average, a modest payout ratio of 31.93% reinforces confidence in dividend sustainability. The analyst community, for its part, slates PSX as a moderate buy, projecting a price target of $131.64, which hints at 7.5% upside potential.

Schlumberger (SLB)

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Schlumberger (NYSE:SLB), the behemoth in the oilfield services domain, takes pride in being both the world’s premier offshore drilling company and its top offshore drilling contractor by revenue. Though SLB’s performance this year has left some investors wanting, a noticeable uptrend since early July suggests a shift in sentiment.

The prospect of further upside makes SLB a contender in the list of stocks to buy now. Granted, its financials have been wobbly — with the pandemic leading to a downturn in its three-year revenue growth. However, a revived thirst for oil has kindled demand for Schlumberger’s services. The latest sales metrics underscore a marked improvement in the company’s top line.

From a valuation standpoint, SLB’s forward earnings multiple of 16.65x might seem steep. However, with the oil sector catching a positive tailwind, this premium could be more palatable than prohibitive.

Although the forward dividend yield of 1.66% may not turn many heads, a supremely low payout ratio of 27.29% offers reassurance. Drawing insights from market analysts, SLB receives a strong buy recommendation with a price target set at $67.91, suggesting a potential upside of more than 12%.

Northern Oil and Gas (NOG)

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Specializing in exploration and production, Northern Oil and Gas (NYSE:NOG) dedicates its efforts to the acquisition and development of oil and natural gas assets. As gleaned from its online presence, the company’s operational focus is on the premier basins across the U.S.

Considering the present political climate and its implications for the energy sector, Northern Oil appears well-positioned to cater to the heightened demand, staking its claim as one of the stocks to buy now.

While NOG mirrored the underwhelming performance of many oil companies earlier in the year, its trajectory since July has been decidedly bullish. Even with its recent stock appreciation, NOG’s valuation metrics hint at an intriguing bargain.

It trades at a mere 5.1x forward earnings, providing a competitive edge against 68.77% of its counterparts. Impressively, NOG boasts a 3.03x trading multiple against operating cash flow, juxtaposed against a sector median of 4.84x.

On the dividend front, Northern Oil’s forward yield of 3.8% should attract attention. A conservative payout ratio of 19.18% assures investors of the company’s dividend reliability. As for Wall Street’s perspective, analysts confidently rate NOG a strong buy, forecasting a price target of $47.11, pointing to an upside of over 17%.

Riley Exploration Permian (REPX)

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Venturing into the more speculative realms of oil stocks to buy now, Riley Exploration Permian (NYSEAMERICAN:REPX) is, in essence, a play tailored for the daring investor. With its exploration and production efforts centered in the prolific Permian Basin, REPX seems primed to capitalize on the burgeoning demand for hydrocarbon resources.

A glance at its financials reveals certain red flags. Riley’s lean cash-to-debt ratio of 0.02x underscores its indebtedness. Additionally, an Altman Z-Score of 1.9 teeters on the brink, vacillating between a company under distress and one in murky waters. However, looking past these concerns reveals a silver lining.

Boasting a three-year revenue growth rate that eclipses 90.67% of its peers and a net margin surpassing 91.5% of its industry counterparts, REPX’s financial foundation seems resilient. Even more enticing, its forward earnings multiple sits at a modest 4.08x, undercutting 84.76% of its peers.

Riley’s dividend narrative also warrants attention. A forward yield of 4.38% slightly outpaces the industry average, and an ultra-conservative payout ratio of 14.35% bolsters confidence in its dividend sustainability. Echoing this sentiment, Neal Dingmann from Truist Financial flags REPX as a buy, pinning a $49 price target on the stock, which implies a hearty 62% upside.

Vaalco Energy (EGY)

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To be blunt, Vaalco Energy (NYSE:EGY) might be the most audacious pick among our list of oil stocks to buy now. As its corporate dossier reveals, Vaalco delves deep into the realm of hydrocarbon exploration, a segment that’s recently seen a spike in demand, largely driven by evolving climate perspectives and geopolitical machinations.

What makes EGY particularly captivating is its relative inertia this year, especially when compared to its sector peers. This static performance potentially signals an imminent uptrend, a possibility further buttressed by some sparkling financial metrics. A glance at its books reveals a three-year revenue growth rate of 54.2%, dwarfing 93.58% of its industry counterparts. Even more impressively, its EBITDA surged by 73.4% over the same period, outpacing 92.24% of peer entities.

When it comes to valuation, EGY presents an intriguing narrative. It’s trading at a forward earnings multiple of just 2.86x, significantly undercutting the sector’s median of 8.11x. While ultra-low multiples can sometimes be red flags, Vaalco’s robust growth dynamics, combined with the overarching industry momentum, make EGY an enticing gamble.

As for dividends, Vaalco touts a forward yield of 5.73%. With a payout ratio of a mere 17.9%, it’s a testament to the company’s financial prudence. Tapping into analyst sentiments, the consensus on EGY leans towards a moderate buy, with a projected price target of $8.06, hinting at a near doubling of its current market value.

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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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