Oil is coming back slowly but surely, and Reddit stocks are beginning to reflect the trend. Consumers, institutions and producers are all sending signals that lead to a similar conclusion: As the economy opens up, oil is rising again.
We are emerging from the pandemic and heading into the height of summer. That means gas demand is spiking. According to AAA, gas prices are moving up with the average price today at $3.137 per gallon. A week ago that price was $3.118 and $3.053 only a month earlier. A year ago, in the depths of the pandemic, that price had declined to $2.18. Consumer demand is rising, and with it, prices.
Investors can look at institutional signals for more evidence that the oil rebound is here. The iShares U.S. Oil & Gas Exploration & Production ETF (BATS:IEO) has risen steadily throughout 2021 on the back of the vaccine rollout and increasing demand. Any number of other energy ETFs have shown a similar pattern.
And on the production side, there are clear positive signals for oil. West Texas Intermediate continues to climb and could reach prices not seen since 2014.
All of this should lead to quickly strengthening oil stocks which, believe it or not, the Reddit crowd does discuss. Here are seven that look like clear buys under current circumstances.
- Phillips 66 (NYSE:PSX)
- Diamondback Energy (NASDAQ:FANG)
- Crescent Point Energy (NYSE:CPG)
- Halliburton (NYSE:HAL)
- ConocoPhillips (NYSE:COP)
- Baker Hughes (NYSE:BKR)
- Royal Dutch Shell (NYSE:RDS-A)
Reddit Stocks: Phillips 66 (PSX)
Investors won’t know about Phillips 66’s Q2 results until Aug. 3. But what investors do know is that the company has rebounded well in 2021. The Houston company’s stock has risen 19% year-to-date, climbing from $69.88 to $83.41.
As we regain some sense of normalcy, traditional financial signals will regain some of their former importance. That means Wall Street opinions will figure more strongly into a given stock’s prospects.
That should prove fortunate for Phillips 66, as it bears an overweight rating and an average price target 18% above current prices. And although we won’t know how Phillips 66 has fared in Q2 until early August, we can gain insight from its May investor update presentation. A cursory understanding of the operations of Phillips 66 sheds light on its scale and ability to prosper from the rebound. Most of us, as consumers, likely recognize Phillips 66 for its 7,590 branded U.S. outlets.
The company has another 1,700 branded outlets internationally and 28 global manufacturing facilities. The company possesses the capacity to refine 2.2 million barrels of oil per day and controls 22,000 miles of U.S. pipeline through which to distribute it. Investors who didn’t buy into PSX stock at the market bottom still have every reason to expect profits at today’s prices.
Diamondback Energy (FANG)
Diamondback Energy is a smaller name in exploration and development of oil and natural gas with fewer than 1,000 employees. The company employs an executive team with 24 years of average experience. Much of that experience is in the Permian basin, where, along with the Midland and Delaware basins, the company has operations.
The company is an assembly of experienced operators who are seeking to maximize oil recovery in an area they know well. It is perhaps because of this that FANG stock is as highly regarded as it is.
To give readers an idea of its operational scale, the company expects to drill between 200 and 215 vertical wells in 2021. It also expects to complete between 275 and 285 horizontal wells in that time frame. The company currently possesses 6,900 horizontal drilling locations in the Midland Basin and 4,200 in the Delaware Basin.
As prices rise the company brings more of its drilling locations online. At $60 per barrel prices, it operates all of them. That means production should be maxed out at current prices. The company is noted for its experienced management team and relatively small operating footprint. It is clear that the company can pivot quickly and take advantage of pricing shifts. That leads to a clear bullish thesis for it right now, and positive effects should be evident in subsequent earnings releases.
Reddit Stocks: Crescent Point Energy (CPG)
Crescent Point Energy is the least expensive stock on this list. In fact, it is technically a penny stock with its current $4.24 price. That probably means the exploration and development company is a bit more volatile than other names on this list. However, it shouldn’t make potential investors shy away because the stock has lots of potential.
In fact, Crescent Point Energy did much better in the first quarter of 2021 than it did in the first quarter of 2020. The Alberta-based company posted $95.1 million in revenues and $21.7 million of net income in Q1 2021. A year earlier, it posted a $2.32 billion loss on $48.7 million in revenues.
Like many operators in the space, Crescent Point Energy was forced to reduce development and production because of the collapse in prices in 2020. It maintained a reduced production schedule through the first quarter of 2021, using hedging strategies to protect against commodity prices. In Q1, the company noted that it has 40% of its oils and liquids production hedged through 2021.
With demand picking up it is safe to assume that the company will bring more production back online. Prices should continue to rise as they have throughout 2021, making CPG stock a worthy choice.
Halliburton is an oil company with a large footprint and a diverse operator in the oil life cycle. The Houston-based company operates in 70 countries employing over 40,000 people. It also touts itself as a participant in every stage of the oilfield lifecycle. This essentially means that it operates in everything from exploration for oil all the way to the abandonment of production sites.
Its size and diversity means that it is a safer choice given its ability to mitigate risk by prioritizing certain strengths when appropriate. The company focuses on servicing existing operations and that may very well be to its benefit. Companies are more likely to bring existing infrastructure back online in the current environment than develop greenfield projects. Halliburton, as a service provider, is in prime position to take advantage.
There is strong consensus that Halliburton’s EPS (earnings per share) is set for growth through the end of 2022. Year-over-year EPS growth is pegged for 49% through 2021. That is a consequence of 2020 commodity prices, but growth should hold through 2022. EPS growth is scheduled to exceed 46% in that year compared to 2021.
All of this means that prices ought to be higher than their current $22 levels moving forward.
Reddit Stocks: ConocoPhillips (COP)
ConocoPhillips just revealed that it will increase its stock buyback program in 2021. The company is adding $1 billion to the program, which will bring the total shareholder distributions to $6 billion for the year. The company revealed a new 10-year plan that intends to return $65 billion to shareholders over the period. It has a goal of increasing cash flows by 40%, thus providing funding for the lofty goal.
The news has prices higher, although they have already steadily improved year-to-date. The average stock price target for COP stock sits at $73.78 currently. If that proves to be correct, there’s more than 23% upside to be had.
Those investors who carefully heed Wall Street’s advice will be happy to know that ConocoPhillips is rated an overwhelming buy right now.
Baker Hughes (BKR)
Baker Hughes operates through four segments: Oilfield Services, Oilfield Equipment, Turbomachinery Solutions and Digital Solutions. It is a large, diversified oil company employing 55,000 people.
Baker Hughes has been issuing a regular rig count as a service to the petroleum industry since 1944. It issues a running tally of U.S., Canadian and international rig count on a weekly basis. The rig count serves as a barometer for drilling operators and industry suppliers.
The most recent rig count, released on July 2, has provided positive news for suppliers, Baker Hughes included among them. All three regions continue to witness an increase in rig count. The U.S. is up to 475 from 470 a week prior.
The news clearly indicates that Baker Hughes should be moving upward into buy territory, where Wall Street already believes it to be. As a supplier, Baker Hughes sits in strong position to benefit from increased production. The idea is to establish a position now and reap the benefits, which should be reflected in later earnings releases this year.
Reddit Stocks: Royal Dutch Shell (RDS-A)
Although Royal Dutch Shell faces increased pressure vis-a-vis its North American competitors in terms of decarbonization efforts, there’s plenty of capacity for it to capitalize now. First, the bad. European investors themselves are more likely to demand increased decarbonization schedules. And in the case of Shell, the courts are getting involved. A Dutch court even ordered the company to cut its emissions faster than planned in early June.
The good news: It probably won’t soon affect Shell in its already strong ability to generate cash. The company boasted leading cash-flow generation for the fourth year in a row. The company does also hint that ESG (environmental, social and governance) and decarbonization will drive it forward stating, “cash flow … will become less exposed to oil and gas prices, with a stronger link to broader economic growth,” on its investor site.
The moderate view is that Shell is playing the green revolution prudently. For now, it remains among the strongest operators in oil. In the future it may be ahead of its peers in decarbonization, but investors who recognize what it is can capitalize now if oil demand continues to ramp up.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.