To be a longer-term oil investor is to know a thing or two about pain. It’s been a terribly challenging market for the commodity and other fossil fuels the past several years. But 2020 has taken the proverbial cake.
Production wars, a global pandemic wrecking further havoc on weakening demand trends and Wall Street’s optimistic knack to price in an alternative energy future utopia have crushed oil stocks. One need look no further than the spring’s sub-zero futures pricing for a product once known as black gold.
Tesla (NASDAQ:TSLA). Plug Power (NASDAQ:PLUG). Enphase Energy (NASDAQ:ENPH). In oil’s place, these stocks and many others within the broader alternatives market have flourished. Some like Tesla have even rightfully become household names. And it could always get worse for fossil fuels and oil stocks, but extinction?
Despite increasingly possible and more competitive greener alternatives, even with wider consumer approval of a carbon free energy market, the reality is oil, even in a pandemic, is still everywhere. Petroleum-based products drive more than just our cars, it’s in all sorts of household goods, including our toothpaste.
The arguments against oil investment are well known. But when it comes to the fossil fuel industry right now, off and on the price charts, hedged spread strategies look like a solid opportunity for today’s investors entering 2021.
Here are 3 big oil stocks to bull trade today:
I wouldn’t say it’s time to back up the truck in oil stocks. But given Pfizer’s (NYSE:PFE) and Eli Lilly’s (NYSE:LLY) very promising Covid-19 drugs, tomorrow may be a bit more like yesterday, in a good way. And along with encouraging price charts and a partisan Congress intent to stop any packaged Green New Deal dead in its tracks, hedged contrarian positions in the following three oil stocks looks like a good cause bullish investors can get behind.
Oil Stocks to Buy: Chevron (CVX)
Source: Charts by TradingView
The first of our oil stocks to buy is Chevron. The blue-chip is now the only Dow Jones component with exposure to the energy sector following an August decision by index administrators to reduce industry exposure and replace Exxon Mobil (NYSE:XOM) with software giant Salesforce (NYSE:CRM).
The Dow decision was in large part based on XOM’s lower stock price as the index’s construction is price-weighted. But it’s also common knowledge CVX stock has slightly superior fundamentals. CVX has also helped its shareholders by making a smart decision this year to reduce its dividend and move more aggressively to cut costs.
Technically, Chevron’s advantages are now being complimented by a price chart demonstrating sure signs of bottoming. After a somewhat iffy undercut double bottom which broke trend support in March, shares of this oil stock have formed a well-supported higher-low pattern. Coupled with a monthly candlestick price confirmation this month and bullish stochastics setup, CVX is an oil stock to buy today.
Favored Strategy: January $72.50 / $90 collar
Total SE (TOT)
Source: Charts by TradingView
The next stock of our oil stocks to buy is Total SE. U.S. investors may not be familiar with Total; unlike Chevron, you won’t find this French-based, ‘supermajor’ oil company’s gas stations in your neighborhood. But if investors are interested in parking some capital in the energy space, it may prove a big mistake to exclude TOT stock.
Aside from a fairly strong balance sheet and well-supported dividend like Chevron, Total has shown a genuine commitment to making renewables part of its energy business. Notably, the company wants to generate 15% of its energy sales vis-à-vis “electrons” rather than fossil fuels by 2030. It also maintains a long-term interest as the largest investor in U.S. solar outfit SunPower (NASDAQ:SPWR).
In lieu of Total’s greener ambitions, TOT offers a modest hedge away from the fossil fuel market and maybe even larger exposure towards renewables for investors buying this particular oil stock today. Technically, Total is fairly interchangeable with what’s transpired in CVX this year. And again, that price action is looking bullish for investors with an eye on the road ahead.
Favored Strategy: Long February $35 / $45 collar
Source: Charts by TradingView
The last of our oil stocks to buy are shares of Enbridge. ENB is another international outfit, and a less familiar but very influential player in the industry. Based in Canada, this company is one of the largest midstream outfits in North America. And by the looks of last week’s stronger-than-expected Q3 results, in spite of the challenging environment, Enbridge is doing a lot of things right, which has both analysts and investors paying attention.
Technically, shares of ENB have weathered a battered fossil fuel market better than most and performed decidedly stronger than CVX and TOT the past few years. It hasn’t always been pretty of course and as with its peers, March was particularly ruthless for shareholders. But this oil stock has formed a more commanding bullish high-level double bottom base on the price chart since peaking in late 2014 alongside the top in the oil market.
One minor cause for concern right now is how Enbridge’s stochastics have turned lower in oversold territory. Price action has also pulled back inside a monthly pullback pattern that was confirmed this month. However, given the larger pattern’s bullish tendencies, a slightly shorter-term collar, which can be restructured to offset some of today’s technical uncertainty, looks like a good way to approach this oil stock.
Favored Strategy: December $27.50 / $30 collar
Stocks Owned: On the date of publication, Chris Tyler holds, directly or indirectly, positions in Plug Power (PLUG) and its derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.