Analysts recommend these oil stocks.
Alternative energy stocks have been some of the hottest investments in the market in recent years — and for good reason. However, it will likely be decades before the world weans itself off of fossil fuels completely, and there is plenty of money to be made in oil stocks as the industry transitions to a cleaner future. Crude oil prices have roughly doubled in the past year, and analysts expect a surge in global demand this year. Here are seven of the best oil stocks to buy today, according to Bank of America.
Exxon Mobil Corp. (ticker: XOM)
Analyst Doug Leggate says ExxonMobil’s first-quarter earnings beat was driven in large part by strength in its chemicals business. Exxon recently announced deals to sell nonoperated U.K. assets, and it cut structural costs by $3 billion in 2020. Leggate says cost savings and profits from asset sales can be used to help fund Exxon’s 6% dividend and pay down its debt. Exxon is Leggate’s top oil major stock pick, and he says the company is well positioned to grow cash flow in the long term. Bank of America has a “buy” rating and a $90 price target for XOM stock.
Chevron Corp. (CVX)
Leggate says Chevron demonstrated impressive earnings strength in the first quarter despite its downstream segment taking a hit from winter storm Uri. The storm cost Chevron about $900 million in the quarter, but the oil giant still generated $850 million in excess cash after covering its capital expenditures and 5.2% dividend. Chevron once again raised its dividend and has averaged a 7% compound annual dividend growth over the past 34 years. Leggate says Chevron has the least-leveraged balance sheet among oil majors. Bank of America has a “buy” rating and a $130 price target for CVX stock.
Leggate says ConocoPhillips exceeded expectations thanks to its natural gas business in a noisy first quarter that included a noncash gain related to its Cenovus Energy (CVE) stake and losses from canceled hedges following the first-quarter acquisition of Concho Resources. Looking ahead, Leggate projects $5.9 billion in free cash flow for the remainder of 2021 and says the company’s analyst day event in June will likely provide a positive update on its future cash plans, which include $1.5 billion in planned buybacks. Bank of America has a “buy” rating and a $67 price target for COP stock.
Analyst Chase Mulvehill is increasingly optimistic about Schlumberger’s international growth outlook in the second half of 2021. Mulvehill says the digital transformation of the oil industry will be the central theme of the next cycle in oil services, and Schlumberger is one of his top stock picks in the industry. He says Schlumberger’s focus on workflow, data and asset optimization will serve the company well as oil capital expenditures ramp up. In the past 18 months alone, Schlumberger’s digital contract backlog has grown by 50%. Bank of America has a “buy” rating and a $36 price target for SLB stock.
Marathon Petroleum Corp. (MPC)
Marathon Petroleum recently closed a deal to sell its Speedway assets to 7-Eleven for $16.5 billion in after-tax proceeds. Shortly after closing, the Federal Trade Commission called the deal illegal, but Leggate says antitrust risk now lies with 7-Eleven. Marathon will pay back $6.5 billion in debt and complete $10 billion in share buybacks, which will ease the burden of the stock’s 3.8% dividend. Leggate estimates distributions from MPLX (MPLX) will cover about two-thirds of Marathon’s sustaining capital and dividend payments moving forward. Bank of America has a “buy” rating and an $83 price target for MPC stock.
Pioneer Natural Resources Co. (PXD)
Following a first-quarter earnings beat, Leggate estimates that Pioneer will generate about $2.3 billion in free cash flow in the next three quarters and more than $4 billion in 2022. He says the company’s impressive FCF outlook and 12% FCF yield help make up for what he saw as a fully valued $6.4 billion bolt-on acquisition of DoublePoint Energy. Leggate says Pioneer has sector-leading Permian Basin assets. Also, he says the company’s portfolio efficiency limits risk should oil prices retreat once again in the future. Bank of America has a “buy” rating and a $192 price target for PXD stock.
Phillips 66 (PSX)
Leggate says vaccine rollouts have set the stage for a rebound in refining margins, and Phillips 66 investors get paid a 4.3% dividend while they wait for that rebound. Leggate says Phillips 66’s numbers took a hit from winter storm Uri, but the loss of 60 million barrels of refined products has created a tighter supply ahead of a rebound in summer travel demand. Leggate says Phillips 66’s midstream and marketing businesses give the company less exposure to oil price risk than pure-play refiner stocks. Bank of America has a “buy” rating and a $113 price target for PSX stock.
Seven best oil stocks to buy:
— Exxon Mobil Corp. (XOM)
— Chevron Corp. (CVX)
— ConocoPhillips (COP)
— Schlumberger (SLB)
— Marathon Petroleum Corp. (MPC)
— Pioneer Natural Resources Co. (PXD)
— Phillips 66 (PSX)
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