4 Oil Companies to See Large Gains in the Near Future

 |  Includes: COP, CVX, SU, XOM
by: Brian Nichols

Crude oil is now trading at its lowest level since September 2010, under $80. However I doubt that anyone would suggest that crude oil will remain near $80 for the remainder of the year. This commodity is perhaps sure to rise in an economy full of questions.

The last time crude oil was priced under $85 was on February 15, when oil was $84.32. From that point crude oil saw massive gains until reaching $105.44 on March 7. The commodity saw its peak nearly two months later on April 29, with a price of $113.93. During this time, companies that were part of the energy sector experienced the same gains as the commodity, with some energy stocks more than doubling.

With an assurance that crude oil will rise it is time to purchase companies that are directly related to the price of crude oil. Below is a list of 4 large companies that experienced large gains during February to April, when crude oil saw its largest leap. These companies have since traded lower but are sure to increase with the price of oil. In a rough economy full of uncertainty the following energy stocks may be your best bet to capitalize on large immediate returns.

Each of the four companies; Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), Conoco Phillips (NYSE:COP), and Suncor Energy (NYSE:SU) has experienced similar price action with strong fundamentals. Each company has lost more than 11% of its value over the last month with more than 8% lost during the last 5 days. Each company is trading with a P/E under 15, has seen increased revenue and EPS year over year, and has a low amount of debt compared with assets and net income. These companies are as fundamentally sound as any company within the industry and each pays a quarterly dividend that has increased over a five-year period.

These companies are very similar on both technical and fundamental aspects. If you look at all four companies compared on a one-year chart, each trades with similar trends. All companies with the exception of Suncor Energy are trading with 52-week gains between 13% and 19%. Suncor has seen a loss greater than the 3 companies during this downtrend, which I believe gives the company the greatest chance to outperform when oil increases in price. Below are graphs of the four companies and their price action as it relates to crude oil.

Chevron Corporation

Feb 15 $96.34 $84.34
April 8 $109.66 $112.79
July 21 $109.43 $99.13
Aug 9 $93.40 $79.30
Click to enlarge

Chevron Corporation began trending upward on the day that crude oil began its initial uptrend. The company is a large corporation with a market cap over $185 billion; therefore it is not completely dependent on the price of oil. Yet this chart shows the company trends with the price of crude oil. Both crude oil and Chevron hit 52-week highs at the same time suggesting a direct correlation.

Exxon Mobil
Date stock oil
Feb 15 $82.97 $84.32
Feb 23 $87.07 $98.1
July 21 $85.21 $99.13
Aug 9 $71.64 $79.30
Click to enlarge

Exxon Mobil shows a perfect example of the stock moving with the price of crude oil. What is not shown on this graph is April 29, the date when crude oil reached its peak and the same day that Exxon closed at $87.98. The current price of $71.64 is much lower that the price on February 15, which means there could be potential for the stock to see significantly more gains when crude oil begins to rise.

Date Stock Oil
Feb 15 $73.50 $84.34
March 4 $79.98 $104.42
July 21 $75.81 $99.13
Aug 9 $64.56 $79.30
Click to enlarge

ConocoPhillips has seen consistent price action when crude oil sees large gains. The stock reached a high of $80.79 on April 8, the same day that crude oil reached $112.79, which shows the stock rising with oil once again. The stock is now priced much lower than on Feb. 15, which leads me to believe the price will increase even more once the uptrend of oil begins.

Suncor Energy

Date Stock Oil
Feb 15 $42.35 $84.32
March 4 $48.53 $104.42
July 21 $41.50 $99.13
Aug 9 $31.59 $79.30
Click to enlarge

Suncor Energy has lost more than 22% in one month, which makes it very attractive at the possibility of an uptrend in crude oil. I believe the loss the stock has experienced despite strong earnings makes this company a strong buy at the current price.

All four companies are strong fundamentally and have noticeable trends with the price of crude oil. With such big gains in the market on Tuesday, each company saw a significant increase in price despite oil's decline. These actions are common. Each company trades against the price of oil on a regular basis, but I am not speaking of a 1% gain or loss. I am speaking of moving with the price of oil when it sees gains in excess of 3%. With crude oil at $79.30 and each company priced so low, a time will come when each company will see very large gains and investors will be rewarded for their patience.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SU, XOM, COP, CVX over the next 72 hours.