Two Oil Stocks to Soothe Your Debt Ceiling Anxiety

by Richard Band | July 27, 2011 1:00 pm

Our “leaders” in Washington sure are treating us to a great show, aren’t they? With an official default looming on the federal government’s debt just six days hence, Congress and the president have yet to seal a deal. Small wonder the Dow skidded 91 points yesterday and is sliding again today. Gold prices[1] continue to hit record highs.

As long as the gridlock continues, the financial markets will remain unsettled. It’s as simple as that. Corporate earnings look good, for the most part, and there’s plenty of sidelined cash ready to move into stocks once the nation’s decision-makers bring themselves to a decision.

However, the next few sessions represent a wild card. The CBOE Volatility Index (CBOE:VIX[2]), a handy measure of speculators’ anxiety, has risen sharply this week. If the debt-ceiling talks grind on without any visible progress, fear could temporarily gain the upper hand on Wall Street–and a fresh burst of selling could drive the S&P 500 index back to 1300 or slightly below.

Despite the uncertainty surrounding the debt-ceiling talks, one thing I’m still keen on is oils. They’ve rallied off the June lows, of course, but share prices for a number of the majors don’t yet reflect the likelihood that crude will revisit its April high ($115 a barrel) as global economic growth picks up in the months ahead.

Best buy today: Occidental Petroleum (NYSE:OXY[3]). OXY reported Q2 earnings yesterday, and they were quite satisfactory at $2.23 per share, versus the analyst consensus of $2.12.

Yet a few observers carped that OXY’s California output came in a bit lighter than expectations. (The culprit: Delays in environmental permitting.) So the stock dropped $2.50 in yesterday’s trading.

This is the type of short-term quibble that creates value for patient, long-term investors like me. Within a few days, I predict, the Street will have completely forgotten about California–and the stock will be trading on earnings again.

Buy OXY at $105 or less. From here, I’m projecting a 15%-20% total return in the coming year, with substantially less risk than the average NYSE stock.

Canadian Oil Sands (OTC:COSWF[4]) hasn’t yet dipped into my buy range. I’ll give it a little more time. COSWF is a good deal more volatile than OXY, so I want to be sure we buy as low as possible in order to build in an adequate margin of safety. Buy this Niche selection on a pullback to $27.50 or less.

  1. Gold prices:
  2. VIX:
  3. OXY:
  4. COSWF:

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