Oil Stocks Could Continue to Rise, So Buy Chevron

Crude oil prices jumped more than 18% on Monday after reports that Russia demanded a written assurance from the United States that the revival of the U.S.-Iran nuclear deal will not affect Russia-Iran trade relations. And oil stocks reacted.

Image of an oil wells with an orange-red sky at dusk

Source: Shutterstock

This was after Antony Blinken, U.S. Secretary of State, had confirmed that the U.S. and European allies were considering imposing sanctions on Russian crude oil imports despite the current tight global oil market.

Brent crude oil jumped above $130 a barrel before pulling back. Then, after U.S. President Joe Biden actually implemented such a ban Tuesday morning, prices soared again. Brent is over $132 now, and the U.S West Texas Intermediate crude oil rose to $128.30 a barrel and could go even higher..

Experts are now predicting that Russia’s demand could slow down the talks between Tehran and Washington. That, in turn, could lengthen the time expected before Iranian crude oil hits the global market.

This, they claim, would force crude oil to $200 a barrel as early as the end of March, especially knowing the Organization of Petroleum Exporting Countries (OPEC) and its allies — together known as OPEC plus — are still struggling to meet their targets.

According to Louise Dickson, a senior oil analyst at Rystad Energy, a ban on Russian crude oil could “remove as much as 4 million barrels a day from the market.” If the world’s two most populous nations — China and India — participate as well, we could see that number go up.

How to Profit from Rising Crude Oil Prices

The concept is simple — crude-oil-exposed stocks are directly impacted by happenings in the global oil market, with the severity of the impact depending on the degree of the exposure.

Therefore, to profit from the persistent increase in crude oil prices, check the markets for crude-oil-exposed companies with strong fundamental but that are grossly undervalued and buy them.

For instance, Oil States International (NYSE:OIS), a company that provides manufactured products and services to the oil and natural gas industry, gained 21% Monday. And that is a company with negative earnings.

My Pick Among Oil Stocks

However, if I am to recommend one among the top crude oil stocks, I will choose Chevron (NYSE:CVX) for many reasons.

The company’s growth in 2021 was broad-based. Chevron rebounded from the -$665 million in earnings recorded in the fourth quarter of 2020 to post $5.1 billion in earnings for the fourth quarter of 2021. Sales and other operating revenues in the fourth quarter of 2021 were $45 billion.

For the full year, the company reported $15.7 billion in earnings, up from -$5.5 billion filed in 2020. Earnings per share rose to $8.14 for a price earning ratio of 17.3. And the company increased its dividend in 2021, which is currently yielding 3.5%.

Also, while the company has overseas operations, it generates the majority of its revenue from the United States, both in the upstream and downstream sectors. Meaning disruptions due to the ongoing Russian invasion of Ukraine and other global uncertainties will have far less of an impact on its earnings.

Again, given its robust operating capital, Chevron should be able to withstand certain headwinds and sustain operations. The company looks solid. That’s what makes it my pick among the top oil stocks.

On the date of publication, Samed Olukoya 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.

Samed Olukoya is a financial markets analyst with over two decades of experience. He founded Investors King and has worked with top business platforms across the world.


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