“The electric automobile will quickly and easily take precedence over all other” vehicle categories. That’s according to the Los Angeles Times, which posited that betting on the right battery technology could yield early investors a hefty fortune. It sounds like your typical rah-rah story about electric vehicles (EVs), except for one small detail: the article hit newsstands in 1901. How’s that for a segue into oil stocks to buy?
Per Texas-based author, journalist, film producer and podcaster Robert Bryce, a 1911 article by the New York Times revealed that the EV “has long been recognized as the ideal solution” because of its underlying cleaner and quieter profile, along with being much more economical.
Nevertheless, as Bryce points out, more than a century after EVs were hailed as the next big thing, they only account for 2% of new car sales in the U.S.
You can scream, you can cry. You can even write an angry email. But the reality of the combination of economics, infrastructure and science may mean that oil stocks are more relevant than many folks might care to believe.
Additionally, another major factor here is geopolitics. With White House national security adviser Jake Sullivan warning recently that a Russian invasion of Ukraine could be imminent, the implications for oil stocks are obvious. Whether Europe likes it or not, it’s probably going to be dragged into the conflict, posing serious supply constraints.
With that in mind, the U.S. has very little choice but to do something of substance — not little slaps on the wrist like before. As I’ve been stating, the key reason is China. Not surprisingly, Russian President Vladimir Putin visited China and his counterpart, President Xi Jinping. In turn, China expressed support for Russia, urging NATO to avoid expanding eastward. Surely, this will have serious implications for several oil stocks to buy, like these.
- Exxon Mobil (NYSE:XOM)
- Chevron (NYSE:CVX)
- Shell (NYSE:SHEL)
- BP (NYSE:BP)
- Phillips 66 (NYSE:PSX)
- Valero Energy (NYSE:VLO)
- Marathon Oil (NYSE:MRO)
As we move into the middle of the first quarter of 2022, chaos seems to be the order of the day. With benchmark indices still down for the year due to concerns about the Federal Reserve’s monetary tightening policy — a reversal from prior years — oil stocks are not necessarily guaranteed to rise. Still, it’s a sector to keep your eye on if you have the stomach for speculation.
Oil Stocks to Buy: Exxon Mobil (XOM)
During the spring of 2020, Exxon Mobil was on life support. With the novel coronavirus pandemic cratering demand as people were not leaving their homes, XOM stock unsurprisingly fell into the abyss. To be fair, it was an identical situation to all other oil stocks since vehicle miles traveled dipped to the lowest point on record.
However, Exxon Mobil is enjoying a role reversal. While most sectors are struggling to gain traction — as evidenced by the S&P 500 index’s 4% year-to-date (YTD) loss — oil stocks are absolutely killing it. For XOM stock specifically, however, it’s up a staggering 28%, with little evidence to show that momentum is about to decline.
Primarily, the worsening tension in eastern Europe provides a cynical upside catalyst for XOM stock and other oil stocks. Unfortunately, global supply chains have been too dependent on countries with adversarial or at least questionable foreign policy interests. Longer term, work should be done to decouple oil supply chains from politically vulnerable sources.
However, that’s going to take time. In the meantime, though, you may want to consider a position in XOM stock.
Out of the major oil stocks, Chevron has been lagging a bit. Don’t get me wrong — being up nearly 18% YTD is nothing to scoff at, especially so early into the year. However, at a time when the major indices are all in the red, up almost 18% is a real blessing.
Still, Chevron contributed to underperformance relative to its sector due to an earnings miss for the fourth quarter of 2021. Heading into the disclosure, covering analysts had a consensus target on earnings per share (EPS) of $3.13 on revenue of $45.3 billion. Instead, the oil giant delivered an EPS of $2.56 and top-line sales of $48.1 billion.
Following the report, CVX stock was down 3% in the next session’s pre-market trading.
Still, optimism is strong for oil stocks, with Chevron being no exception. For one thing, Chevron CFO Pierre Breber explained the miss as coming down to some noncash charges that are difficult for analysts to forecast. On the flip side, company chair and CEO Mike Wirth explained that CVX “delivered record free cash flow.”
With all of that in mind, expect the upside to continue if implications over global energy supply chains remain pressured.
Oil Stocks to Buy: Shell (SHEL)
While oil stocks generate their income via their namesake asset, it’s important for the industry to consider the future. Multiple studies have demonstrated that millennials and Generation Z are more sustainability oriented. Sociologically, it’s almost for certain that the next generation will be even more awakened to the realities of climate change.
Look at it this way: the baby boomers were the product of the World War II generation, the so-called “greatest generation.” They gave rise to Gen X, who are more progressive. Next, you have millennials, who have climbed the progressive ladder even higher, and so on. You don’t really see a broader trend to conservativism.
Collectively, oil stocks completely levered to fossil fuels might court headwinds in the future. For its part, Shell is researching and developing alternative fuels, such as hydrogen electrolyzers that produce so-called green hydrogen. It gets the name because it’s the only fuel that’s fully decarbonized and renewable.
Furthermore, diversifying into other subsegments hasn’t hurt SHEL stock one bit, with shares up more than 23% YTD.
As an observer with no dog in the fight between proponents of EVs and oil stocks, it’s difficult to assess which side has the better argument. On the basis of ethical principles and societal momentum, it seems EVs are the way to go. But in terms of reality, it’s hard to argue against fossil fuels.
Sure, various organizations can throw projections on PowerPoint slides, with numbers and pie charts and arrows pointing to places. But while many consumers find EVs popular, the integration is disjointed. According to Pew Research Center, there’s fast growth in certain European markets and China, but flattish to modest growth in the U.S. I’m sorry but if EVs are going to replace combustion cars, they can’t just be popular in two regions.
Nonetheless, for those that can’t decide which way to go, BP may provide the perfect hedge. True, it’s one of the biggest oil stocks in the world. However, it’s also diversifying into EV charging. According to a recent Reuters report:
“EV charging has for years been a loss-making business as a whole for BP and rivals as they invest heavily in its expansion. The division is not expected to turn profitable before 2025 but on a margin basis, BP’s fast battery charging points, which can replenish a battery within minutes, are nearing levels they see from filling up with petrol.”
Additionally, any doubters can also look at its performance, with BP stock up almost 26% YTD.
Oil Stocks to Buy: Phillips 66 (PSX)
As one of the trickier oil stocks to consider — on paper — Phillips 66 is chugging right along with the broader fossil-fuel industry. On a YTD basis, for example, shares of PSX stock are up 25%. In turn, this suggests growing momentum as people rush out of the home to reclaim their daily lives.
Still, that 25% performance compared to PSX stock’s trailing-year return immediately implies that its longer-term price action has been labored, but without much in the way of results. Indeed, over the trailing five years, PSX stock has only gained a just under 14%, which isn’t the most confidence-inspiring stat. However, could this time be different?
If you take the view of McKinsey & Company, you might want to sit out on Phillips 66 and oil stocks altogether. In September last year, the research and consultation firm projected that by 2030, “EV sales would make up about 53 percent of all passenger-car sales by 2030.”
However, McKinsey also acknowledged that “gas-powered vehicles will continue to be by far the most common car on the road through 2030.” Personally, the forecast could be wrong if the economy slips into recession — not an entirely impossible scenario. Thus, PSX stock could be a surprising player among oil stocks.
Valero Energy (VLO)
An international manufacturer and marketer of transportation fuels and other petrochemical products, Valero Energy has enjoyed a resurgence of demand. In fact, VLO stock shares up more than 20% YTD.
As I’ve touched on, with tensions rising in eastern Europe, global supply chains are at significant risk of disruption. But even without such a catastrophic action occurring, oil stocks enjoy a significant fundamental catalyst.
As the aforementioned author Robert Bryce pointed out, “EVs are coming down in price, but they are mostly being purchased by the Benz and Beemer crowd. The average household income for EV buyers is about $140,000.” That’s more than twice the U.S. average.
Furthermore, Bryce states in a rather damning argument, “low- and middle-income Americans are facing significant electric rate increases for grid upgrades to accommodate EVs. Proof of that can be seen by looking, again, at California. Last month, the California Energy Commission estimated the state will need 1.3 million new public EV chargers by 2030. Likely cost to ratepayers: about $13 billion.”
So, Valero’s petroleum-refining business should be fine for the intermediate term. In addition, the company is also hard at work on renewable solutions such as “green” diesel.
Oil Stocks to Buy: Marathon Oil (MRO)
One of the high-flying oil stocks, Marathon Oil stock is up nearly 34% YTD. More impressively, over the trailing-year basis, shares of MRO stock have skyrocketed almost 150% — a reflection of societal normalization.
Though the early days of the pandemic inspired many to stay at home, the desire to resume standard activities is too strong for millions of Americans to indefinitely suppress.
As such, more people are likely to hit the road in 2022, putting a greater demand for petroleum-based products at a time when supply chains may be threatened. But will the eventual rollout of EVs threaten to derail MRO stock?
Anything is possible. And certainly, neither MRO stock nor any other oil firm is guaranteed to sustain its momentum. However, the wholesale transition to EVs is also not guaranteed due to another geopolitical conundrum. As Bryce stated, “EVs will also make the U.S. more dependent on China.”
He continued, noting that “Electrifying just half of our auto fleet will require, in rough terms, about nine times current global cobalt production, three times global lithium output, and about two times current copper production.” With China dominating production in these metals, maybe it’s time to rethink this narrative?
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.