A number of factors have recently converged and pushed down the price of oil. Word is out that the Obama Administration has been considering a release of oil from the SPR (Strategic Petroleum Reserves), fears of the European debt crisis have been worsening, and a weak jobs report in March all contributed to the recent decline in oil. However, there is a good chance the dip in oil will be only short-term in nature. A release of oil from the SPR is a drop in the bucket and would probably only have an impact for a few days at best. Furthermore, there is a good chance that Europe will muddle through the debt crisis without sparking a systemic collapse, and the weaker than expected jobs report in March might just be a seasonal and limited to that month. Oil prices are likely to rebound soon since the trend for job growth and improving economic data remains intact. Furthermore, the summer driving season begins to ramp up in May and that is likely to greatly increase demand for oil in the coming weeks. Finally, the price of oil is poised to remain supported by the various geopolitical issues, not the least of which is the tensions over Iran's nuclear program. A number of analysts and even Boone Pickens believes that oil is headed higher as we move further into 2012. Here are a few oversold oil stocks that are poised to rebound:
ConocoPhillips (COP) is a great way to invest in the oil sector and get paid a yield that will beat many other investments and bonds. This company is a global leader in exploration, production, refining, and transportation of petroleum products. ConocoPhillips is planning to spin-off the refining division into a separate publicly-traded company called "Phillips 66". The spin-off is expected to be completed in the next couple of months. Some investors believe this will unlock hidden value in the shares. While waiting for the stock price to push higher, investors are paid an above-average dividend, which yields almost 4%. Even better is the fact that dividend payments from ConocoPhillips have a history of rising. In 2005, the quarterly dividend was just 31 cents per share, but thanks to steady increases, it has more than doubled to 66 cents per share today. This stock was trading around $78 per share recently, but it has pulled back with the price of oil. It looks cheap enough to start buying now. However, if the markets see a correction, it might be possible to buy this stock around $70, which is where it appears to have strong support.
Here are some key points for COP:
- Current share price: $74.40
- The 52 week range is $58.65 to $81.50
- Earnings estimates for 2012: $8.87 per share
- Earnings estimates for 2013: $9.36 per share
- Annual dividend: $2.64 per share which yields 3.6%
Marathon Oil Corporation (MRO) is engaged in oil exploration and production. After a recent selloff, this stock is undervalued in many ways. It trades for just about 8 times earnings, it offers an above-average dividend yield, and it trades for a small premium to book value, which is $24.36. Marathon also has a solid balance sheet. This stock was trading at just around $24 per share late last year but is has been climbing and it reached about $35 recently. The recent drop in oil and market pullback have punished this stock and the stock is looking cheap once again. It makes sense to average into this stock just in case things get worse before they get better.
Here are some key points for MRO:
- Current share price: $30.32
- The 52 week range is $19.13 to $54.33.
- Earnings estimates for 2012: $3.74 per share
- Earnings estimates for 2013: $4.43 per share
- Annual dividend: 68 cents per share which yields 2.3%
Exxon (XOM) is one of the largest companies in the world, and it is the largest oil company. Exxon's scale and global presence makes it a must-own oil stock for many fund managers and investors. This company offers investors a solid hedge against future inflation, a strong balance sheet, and a dividend that has a history of rising. For example, Exxon's quarterly dividend was 32 cents per share in 2007, but thanks to regular increases, it is now 47 cents per share. Plus, with earnings estimates coming in at around $9 per share, there is plenty of room for the company to keep raising the dividend in the future. Exxon shares were trading around $78, but have pulled back to about $83. Now is a good time to start accumulating shares for the long-term, and even more so if the stock goes to $80, which is where it appears to have strong support.
Here are some key points for XOM:
- Current share price: $83.60
- The 52 week range is $67.03 to $88.13
- Earnings estimates for 2012: $8.32 per share
- Earnings estimates for 2013: $8.91 per share
- Annual dividend: about $1.88 per share which yields about 2.3%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
