Many oil stocks have been beaten up for several years as oil prices were depressed. However, there has been some relief recently, with the Organization of Petroleum Exporting Countries (OPEC) making moves to help relieve the oil oversupply that has been keeping prices down.
After a prolonged period of lower prices, West Texas Intermediate (WTI) has reached $63.19 per barrel at the time of this writing. The U.S. Energy Information Administration (EIA) forecasts an average price of just over $58 for 2018, indicating that it may be difficult for prices to sustain their recent gains. However, other predictions call for dramatic increases in oil prices this year. Companies that have been holding back on production may continue to monitor price developments until they can ensure a reasonable return on investment (ROI). (See also: How Oil Prices Impact the U.S. Economy.)
These four stocks are poised to turn higher oil prices into profits. Each of these companies has been gathering assets that will produce income in 2018. They have managed to survive through efficiency measures and are ready to expand if oil continues to climb higher. All figures are current as of Feb. 7, 2018.
EOG Resources, Inc. (EOG)
EOG Resources is unique in its approach to choosing drilling sites. It looks for premium sites that can produce a minimum 60% after-tax real rate of return when oil is at $50 per barrel or better. The company says it can still be profitable even when oil prices are testing the $50 level. EOG has used the period of depressed oil prices to divest itself of non-premium sites and focus on acquiring premium ones. The company acquired Yates Petroleum in 2016, giving it extensive acreage in the Delaware Basin, where EOG can use larger rigs to increase productivity and efficiency.
The stock entered a downward price channel in December 2016. However, revenues have risen for the past four quarters, helping the company cut its income losses, and its past three quarterly reports showed positive income. The stock found a bottom at around $84 per share in August 2017 and then skyrocketed, reaching an intra-day high of $119 per share before declining along with the broader market to current levels near $108. (For more, see: EOG Resources Q3 Earnings Gain on Increased Volumes.)
Comstock Resources, Inc. (CRK)
Comstock Resources, based in Frisco, Texas, may be the quietest success story in the oil patch. The stock had two breakouts in August 2016, and after hitting peak of around $13 per share in February 2017, it began forming a base. The stock price hit a low of just over $4 per share in October 2017 and moved sharply higher in the final months the year. It reached a high near $10.50 in late January 2018 before pulling back to current levels around $8.50.
The company has posted three consecutive quarters of increased revenues and positive operating income. Comstock formed a joint development venture with USG Properties Haynesville in January 2017, and it now has access to an additional 3,315 acres that will bear 20 wells. (See also: Comstock Earnings and Revenues Beat Estimates in Q3.)
- Average Volume: 373,137
- Market Cap: $130.517 million
- P/E Ratio (TTM): N/A
- EPS (TTM): -$8.72
- Dividend and Yield: 0.00 (0.00%)
- One-Year Target Estimate: $9.83
Devon Energy Corporation (DVN)
Looking at the fundamentals for Devon Energy, the company has reported positive income in the past four quarters. In December 2016, the stock entered a downward price channel, but it may have hit a bottom in mid-2017, recovering to over $44 in January 2018 from a low of around $30 in August 2017. After the past few days of market volatility, the stock is currently trading at $38.57.
With the potential for continued strength in oil prices, Devon shares could continue to rise, and depending on how investors feel about the outlook for the markets, the recent dip in the stock price could imply a buying opportunity. This Oklahoma-based company has been in business since 1971, so it is likely here to stay. (For more, see: Devon Energy Profit Beats Estimates; Capex Lower Than Planned.)
- Average Volume: 4,835,545
- Market Cap: $20.269 billion
- P/E Ratio (TTM): 13.12
- EPS (TTM): $2.94
- Dividend and Yield: $0.24 (0.60%)
- One-Year Target Estimate: $50.07
Enterprise Products Partners L.P. (EPD)
Enterprise Products Partners is not a driller – it is a pipeline and storage company. Thus, it is less susceptible to the price of oil because it has paying contracts with other companies for the transportation and storage of their oil. The company also runs export docks and exports liquefied petroleum gas. Enterprise Products Partners is no newcomer to the oil field, having been established in 1968.
The stock pulled out of a long downturn in November 2016 and rose until February 2017, when it began forming a base. After struggling to make progress throughout much of 2017, the shares posted significant gains into the end of the year, rising roughly 7.5% in the month of December. The upward momentum continued into January 2018, with Enterprise Products Partners stock approaching the $30 level before returning below $27 in the recent sell-off. (See also: Enterprise Products Misses Earnings Estimates in Q3.)
- Average Volume: 6,113,864
- Market Cap: $58.325 billion
- P/E Ratio (TTM): 20.78
- EPS (TTM): $1.30
- Dividend and Yield: $1.70 (6.28%)
- One-Year Target Estimate: $31.81
The Bottom Line
Some of the smaller names in the energy sector are poised to produce exceptional gains in 2018 if oil prices remain strong. Investors should watch the price of oil and perform due diligence on each of these stocks to make sure that they are taking advantage of potential relief from the oil oversupply situation. (See also: What Determines Oil Prices?)