5 Oil Stocks to Pump, 5 to Dump

Investors should focus on niche companies rather than traditional ones

Just because you got burned by a sector a few months ago, doesn’t mean you can’t profit from it today. Energy stocks are the perfect example.

In February, I took a look at oil stocks and came to the conclusion that the market was too volatile to invest in oil- and gas-related stocks. Well, times have changed, and today I’m quite bullish on the sector.

Oil and gas companies are reaping some windfall profits from the rising oil prices, and analysts are constantly upping their earnings estimates to keep up. The crisis in Libya and the overall uncertainty about the situation in the Middle East is causing investors to bid up the price of crude just in time for the summer driving season.

Today, I want to delve deeper into what’s happening in the oil industry and show you which energy stocks are going to rise and which are going to fall this earnings season. Not all oil and gas companies are going to turn the increased prices at the pump into the big profits that investors like to see, and only the ones with the biggest earnings surprises are going to surge.

Domestic Production Fuels Oil Stocks

The crisis in the Middle East has once again brought the issue of our nation’s oil supply into the headlines. Following last year’s disastrous oil spill in the Gulf of Mexico, many policymakers wanted to hold off on further exploration of our domestic oil supplies and, as result, we imported even more oil from abroad. Today, however, the violence in the Middle East is making everyone jittery about our reliance on foreign nations for our energy resources, and this is forcing some changes in our policies. In fact, it seems that “drill baby, drill” is coming back into style.

President Obama has called for an increase in domestic oil production, and now that the political climate is more favorable toward oil companies, businesses are starting to make the investments necessary to exploit this country’s oil reserves.

Back in February, I said that if I were ever going to recommend oil stocks in the future, it would be multinational companies. Until recently, the overwhelming sense in the United States was that it wasn’t worth the environmental risk to explore domestic resources. Now that the economy is starting to pick up and the situation in the Middle East is becoming rather tense, it is more politically feasible to support domestic drilling and more popular among the general public. That’s why I now recommend several oil stocks on Portfolio Grader.

Below you will find lists of the best and worst gas and oil stocks on the market currently. You’ll notice that a majority of the “best” stocks have a connection to the U.S. market and are also involved in “niche” industries or have specialized products. The United States is increasingly looking to non-traditional sources of oil, excluding deepwater deposits, and several of these plays that I’m recommending are involved in the very complicated process of extracting this oil.

Best Gas and Oil Stocks

The key to success for companies in the earnings season is posting a big earnings surprise. That’s why, around this time of year, the most important metric among the ones I follow is “earnings momentum.” You’ll see that the best oil and gas plays on the market currently are making stellar marks in the “earnings momentum” category.

Ticker Company Total
FTO Frontier Oil Corp. A A
HOC Holly Corp. A A
TCLP TC PipeLines L.P. A B
PTEN Patterson-UTI Energy Inc. A A
IO ION Geophysical Corp. A A

Worst Gas and Oil Stocks

The laggards in the oil and gas industry are the more traditional companies that haven’t been able to adapt to the changing world of oil exploration. These companies don’t go where the growth is and show no ingenuity in their exploration activities. You’ll see that, as a result, their earnings momentum is rather anemic.

Ticker Company Total
IOC InterOil Corp. D F
DRQ Dril-Quip Inc. C C
RIG Transocean Ltd. D F
DO Diamond Offshore Drilling Inc. D C

Gas and oil stocks are not to be feared this earnings season. In fact, you should embrace them! But make sure you are picking the ones that get the highest grades on Portfolio Grader. Key in on earnings momentum, and I think you’ll be pleasantly surprised.

Article printed from InvestorPlace Media, https://investorplace.com/2011/04/oil-stocks-to-buy-and-sell-hoc-tclp-pten-io-fto-ioc-drq-bp-rig-do/.

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