4 Oil And Gas Stocks To Buy Now For Gains In 2013

Includes: BP, COP, CVX, FF, XOM
by: Cris Frangold

The integrated oil and gas company, Chevron (NYSE:CVX), has had its share of concerns over the past quarter, but this stable, long-lived company appears to have a bright future. Chevron beat the expected earnings per share for the first quarter, and EPS is expected to increase another $.04 next quarter to $3.31. However, over the past three months, Chevron stock price is down about 12 percent, currently sitting near $96 per share. I believe Chevron will overcome any further setbacks and will see an eventual increase in stock price.

The most recent concerns for Chevron management is the shareholder displeasure over the use of hydraulic fracturing and the ongoing litigation with Ecuador over environmental issues. While Chevron intended to focus on the planned expansion of oil and gas production, shareholders seemed interested in the matters that dealt largely with environmental safety.

Hydraulic fracturing, or "fracking", is a drilling technique where chemicals, water, and sand are drilled at a high pressure into underground wells to extract natural gas. This process has allowed for an unprecedented growth in oil and gas production in the United States for both Chevron and the rest of the energy sector. However, shareholders have raised concerns on the impact fracking has on the environment and public health.

This debate on fracking techniques could become a large setback for Chevron, especially if fracking is found to have notable side effects on public health and the environment. However, Chevron CEO John Watson has taken a firm, impressive stance on the topic. Watson has supported an expanded disclosure of the chemicals used in drilling for natural gas, and noted Chevron discloses such chemicals online. Watson has also made sure to confirm some of the main challenges in the oil and gas industry are to ensure all companies use the necessary practices to prevent environment damage and to inform the public about what to expect when fracking techniques are used near by.

While Watson has admitted these concerns over environmental and public healths are legitimate, he has also, at the very least, positioned Chevron in a way to successfully handle any fallout if fracking is indeed proved dangerous to society.

Another concern held by some Chevron shareholders has to do with the settlement of two-decade long pollution litigation. The litigation started in 1993 when residents of Ecuador filed a lawsuit against Texaco, which has since been acquired by Chevron, for contaminating the Amazon rainforest. Just last year, an Ecuadorian court ordered Chevron to pay about $18 billion for damages in the largest environment judgment ever.

Furthermore, the plaintiffs opened a new suit in the Canadian court system, in hopes of the same judgment being enforced. Chevron has since declared they do not believe the Ecuadorian ruling will be enforced in "any court that observes the rule of law."

Ecuadorian shareholders, along with shareholders from various other countries, spoke at Chevron's annual meeting and shared their expectations that Chevron would live up to its responsibilities in Ecuador. Furthermore, Thomas P. DiNapoli led a shareholder group in sharing their beliefs that Chevron's reputation is being damaged, and also urged Chevron to settle the legal battle with Ecuador.

I am of the belief that Chevron will take the necessary steps to avoid any excessively bad publicity. If courts do indeed side with Chevron, it will make the company look like a victim of Ecuadorian fraud - clearing most bad press Chevron receives. If the courts begin to side with the plaintiffs, Chevron will quickly settle the legal battle, as thus avoiding any other bad publicity that may occur otherwise. Either way, Chevron's value should not drop too far due to this topic - good news for investors.

Looking elsewhere in the gas and oil industry, it seems like a good time to invest in the other major companies as well. One exception, however, is BP (NYSE:BP). Recently, BP has learned about the possibility of a federal investigation on whether company officials lied to the government about the size of the oil spill that took place in May 2010. BP has already endured two years of damage to the company name and stock price from the spill in the Gulf of Mexico, and at this point I question whether the company can regain value and increase its stock price to pre-spill levels.

On the other hand, Exxon Mobil (NYSE:XOM), the leader in the integrated oil industry, is a good company to invest in. Exxon has good cash flow numbers, and has seemingly strong growth potential. A partnership with Russian-based Rosneft will allow Exxon to explore and extract huge amounts of oil and natural gas from the arctic north of Russia. This partnership is expected to grow revenue for Exxon, which will lead to a higher stock price.

FutureFuel (NYSE:FF), a leading company in the alternative energy sector, operates a biofuels and biobased chemicals facility. Unlike some alternative energy companies, FutureFuel has high amounts of available cash, which allows for close to a 4 percent dividend. This dividend, at about double the average dividend for a company on the S&P 500, makes FutureFuel a promising, but slightly risky, investment. The question is how the company will use its cash, and if this move will pose any further competition to Chevron and the like.

Another good investment option is ConocoPhillips (NYSE:COP). This oil and gas company is expanding exploration in areas with known reserves. The company is also selling assets that are not bringing in profitable business. The selling of assets in Nigeria is expected to raise $2.5 billion. The gains from sold assets will be invested in future gains, which should result in higher value for investors.

While Chevron has a number of solid competitors, I do not believe any of them will drastically hurt the investment opportunity that is Chevron. I think Chevron's management is positioning the company for future success, even through the environmental issues that may continue to hinder the company, and therefore I can recommend investing in this stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.