Energy giant Exxon Mobil (NYSE:XOM) is topping $100 today on one of its largest single-session gains of the year.
The 4% rally came following an upgrade from Evercore ISI analyst Stephen Richardson. As is often the case when an industry leader launches higher, the entire energy sector is riding its coattails. Today I’ll share four oil stocks to buy to capitalize on continued strength.
Oil-related plays have been the one bright spot in an otherwise dim market. The raging bull market in crude prices is a powerful tailwind, as is persistent inflation throughout the economy. The energy sector has a long history of exhibiting relative strength during inflationary times, and this episode is proving no different. The Evercore upgrade is simply the latest in a long line of bullish catalysts for oil stocks.
Here are four of the best trades in the energy sector right now.
|XLE||Energy Sector ETF||$92.11|
Oil Stocks: Exxon Mobil (XOM)
YTD Gain: 68%
Sometimes analysts upgrade a stock while barely lifting their price target. Fortunately, Evercore ISI’s upgrade didn’t follow this path. Instead, Mr. Richardson raised the firm’s aim from $88 to $120, marking a 36% boost. Though XOM stock is vaulting past $100 today, there’s still plenty of room for further gains if the new price target proves prescient.
Exxon boasts many bullish fundamental catalysts fueling its rise, including booming profits and record profit margins. But, honestly, the chart tells you everything you need to know. It’s in a powerful uptrend above all major moving averages and just breached the psychologically significant century mark.
Here’s an options trade that will enhance your returns if Exxon climbs near $120 by year-end.
The Trade: Buy the December $105/$120 bull call spread for $4.90.
Conoco Phillips (COP)
YTD Gain: 69%
Conoco Phillips (NYSE:COP) shares echo Exxon’s both today and so far this year. Unlike its fellow energy giant, COP stock has already blasted well past its old peak and has been carving out a string of new record highs in 2022. And yet, despite its meteoric rise, Conoco Phillips still offers a dividend nearly double the S&P 500’s at 2.27%.
The price trend is as robust as you’d expect, with all major moving averages pointing higher. After today’s rally, the stock is extended from a low-risk buy point, but any weakness will be a gift. To differentiate from the aggressive directional trade chosen for XOM stock, let’s go with a higher probability cash flow play that still profits even if COP stock retreat over the coming month.
The Trade: Sell the July $110/$100 bull put spread for $1.45.
Consider this a bet that COP is above $110 in a month.
Oil Stocks: Marathon Oil (MRO)
YTD Gain: 96%
If you want a higher octane bet that could pack more punch, then consider Marathon Oil (NYSE:MRO). The Houston-based exploration and production company has seen its value balloon nearly 100% this year, and we still have six months to go. Its lower share price makes it more accessible to small-dollar traders.
On the technical analysis front, its ascent has created multiple low-risk entry points. Breakouts and retracement litter the landscape, and the cleanliness of its trend structure make MRO stock a favorite among active traders.
Over the past week, a high base pattern has emerged to digest the overbought conditions. While some backing and filling may be needed, the next resistance breach will be a buying opportunity. While long calls are viable, I find the premiums available in put options too juicy to pass up.
The Trade: Sell the July $26 naked put for 43 cents.
Energy Sector (XLE)
YTD Gain: 66%
The final and perhaps most obvious route to play oil stocks is with the Energy Sector ETF (NYSEARCA:XLE). It’s heavily weighted toward the behemoths in the space, but that hasn’t necessarily been a bad thing this year. Exxon and Chevron (NYSE:CVX) currently account for more than 40% of the fund.
The high degree of correlation between oil stocks means the trend of XLE mirrors what we’ve seen so far. Using the sector fund, you acquire the diversification that a single stock play lacks. At the same time, you’re insulated from earnings announcements with their accompanying gaps. Today’s push past $90 has XLE setting its sights on $100.
The Trade: Buy the September $90/$100 bull call spread for $4.25.
On the date of publication, Tyler Craig 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.