Oil prices have risen sharply this year, and there is reason to believe they could rise further. Underinvestment, recovery in demand and low inventories are indeed significant upward factors for oil.
However, many companies in the energy sector have very cheap valuations, and many investors are under-invested in this area. In this article, we have selected the 3 stocks that we believe have the greatest upside potential in this oil bull market.
A new bull market in oil
However, with containment measures still in force in some countries and the fact that air travel, cruises, etc. have not yet fully recovered, demand for oil may not yet fully recovered. Moreover, the IEA predicts that demand will have fully recovered in a year.
In addition, with the prices of natural gas being very high all over the world, especially in Europe and Asia, the consumption of natural gas will shift towards the consumption of oil in some cases, for example when electricity is produced by burning fuel. oil instead of natural gas. This is also a bullish factor for oil.
Find below our selection of the 3 best stocks to profit from the rise in oil via the stock market.
1 – Chevron
Today, it has entered a period of declining spending, which makes it relatively agile for an oil major. Limited capital commitments give the company the flexibility to focus on projects with low breakeven points, which means they can be profitable even if oil and gas prices are low. Achieving positive free cash flow with oil at $ 40 or less has been Chevron’s core strategy. It is a prudent plan that allows it to get away with it even if oil and gas prices fall.
With oil at $ 60 for five years, a scenario that looks quite realistic, Chevron expects to generate around $ 25 billion in additional cash that it says will go largely to its shareholders in the form of dividends and of redemptions.
2 – Royal Dutch Shell
The company has a relatively large activity in natural gas and LNG, which will allow it to make significant gains in the current context of exceptionally high natural gas prices. On the other hand, Shell is a very robust company in terms of cash flow. In the first half of this year, Shell has already generated approximately $ 20 billion in operating cash flow and $ 12 billion in free cash flow.
Rising oil prices, growing gasoline demand and increasing refinery utilization will significantly increase this figure for the second half of the year, even before the recent tailwinds on natural gas.
3 – Exxon Mobil
Exxon Mobil is trading at 13 times expected net earnings this year, but those estimates could be too low as analysts probably haven’t updated all of their models to account for the recent surge in oil prices. Exxon Mobil is offering a 5.6% dividend yield which should be pretty safe in today’s oil price environment – after all, Exxon Mobil hasn’t even cut its payout in 2020 in the face of the pandemic, unlike d ‘other oil companies.