When considering oil stock predictions for 2023, the arguably logical choice is that valuations for the sector will rise. Fundamentally, skyrocketing inflation this year imposed substantial burdens on consumers. Moreover, with oil-producing nations deciding to cut production, you have a case of more money chasing after fewer goods. That’s the classic definition of inflation.
At the same time, oil stock predictions for 2023 represent a fluid variable. For instance, the Federal Reserve recently reaffirmed its commitment to tackling soaring prices. What’s more, the central bank augmented words with action. Therefore, it’s not impossible for hydrocarbon energy prices to decline. That’s especially true if the Fed acts too aggressively with interest rate hikes, thereby leading to a recession.
Still, Russia imposes a wildcard on oil stock predictions for 2023. With the country cutting off critical energy outflows to Europe, it controls a vital component of supply. At the same time, the Fed may influence demand.
With no one offering the authoritative answer, I will provide two scenarios regarding the below oil stock predictions for 2023: one assumes a bullish catalyst for hydrocarbons while the other assumes bearish dynamics. That way, you can decide what you want to do.
Exxon Mobil (XOM)
One of the major powers in the hydrocarbon space, Exxon Mobil (NYSE:XOM) presently features a market capitalization of $432.5 billion. On a year-to-date basis, XOM gained over 63%, representing one of the few places for growth this year. It features a forward yield of 3.4% with a payout ratio of 32.3%.
In terms of oil stock predictions for 2023, I am biased toward the upside. Currently, Gurufocus labels XOM as “fairly valued.” Financially, Exxon features a well-balanced business, enjoying stability in the balance sheet while also expanding its business based on free cash flows. Further, it’s a quality business, anchored by an above-sector-average return on equity of 23%.
Based on present growth and profitability projections, a move of 10% higher isn’t out of the question in 2023. Still, investors must be cognizant of the other side of the equation.
Against a longer-term trajectory, revenue growth is somewhat disappointing. And its recent net income surge may not be sustainable. Therefore, a return to pre-pandemic levels of around $70 may be possible.
An international hydrocarbon powerhouse, Shell (NYSE:SHEL) enjoys a market cap of $185.6 billion. Since the start of the year, SHEL gained 16%. While a strong figure compared to broader equity indices, it conspicuously lags names like Exxon Mobil. Presently, Shell offers a forward yield of 3.8% with a payout ratio of 19.5%.
Still, Shell brings plenty of positives to the table. Per Gurufocus, SHEL rates as a “modestly undervalued” investment. Core to its strength is its profitability metrics. For instance, Shell features above-sector-average metrics for operating and net margins. Additionally, it features a return on equity of 21.6%, reflecting a quality business.
Based on its current earnings trajectory, SHEL could easily gain 10% from here. Again, it underperforms other big energy peers so 2023 could be Shell’s year.
Nevertheless, on the negative side of oil stock predictions, Shell’s longer-term revenue trajectory isn’t impressive. Should a global recession hit, SHEL could slip to technical support lying at $40.
Kinder Morgan (KMI)
A midstream specialist, Kinder Morgan (NYSE:KMI) focuses on the infrastructural side of the hydrocarbon industry. This segment includes services such as storage and transportation of critical commodities. Presently, Kinder Morgan features a market cap of $39.1 billion. KMI commands an attractive forward yield of 6.4% though its payout ratio of 90.8% is high.
On paper, Kinder Morgan features a “modestly undervalued” business. Its main highlights focus on the profitability section of the income statement. Gross, operating and net margins ping conspicuously above sector averages. As well, the company enjoys a 10-year track record of consecutive profitability. Such an established business profile may command a premium during these uncertain times.
KMI is up 5% YTD. For oil stock predictions, KMI might be a bit of a slow gainer. However, it can gradually move toward $18, its price point just before the pandemic.
On the other hand, an aggressive Fed may spark a recession, which would reduce hydrocarbon demand. In that case, a decline to $16 where technical support lies will be a logical downside target.
A multinational pipeline company, Enbridge (NYSE:ENB) enjoys an attractive case for midstream companies to buy. Per its corporate profile, Enbridge’s pipeline system is the longest in North America. Currently, the company offers a forward yield of 7.1%, an attractive figure for inflation-hit consumers. However, with a payout ratio of 115%, sustainability questions arise regarding this passive income source.
Nevertheless, because of Enbridge’s relevancies, ENB might get a pass from arguably most investors. Per Gurufocus, Enbridge is a “fairly valued” business. If I’m being honest, nothing truly spectacular pops out, though the company enjoys above-sector-average operating and net margins. Importantly, though, Enbridge has a long history of consecutive years of profitability, which provides immense credibility.
Despite relevancies, ENB is down 5% YTD. Moving forward, I think a return to $47 presents a reasonable target for oil stock predictions for 2023.
On the other side of the fence, midstream players remain tethered to economic stability. If the Fed or some other geopolitical circumstance goes awry, look for ENB to drop to the psychologically important level of $30.
Phillips 66 (PSX)
While upstream players (exploration and production) present excitement and midstream firms (storage and transportation) generate economic headlines, the downstream component (refining and marketing) really hits your wallet. When you go fill up at the pump, you’re helping downstream specialists like Phillips 66 (NYSE:PSX).
Right now, Phillips 66 features a market cap of $47 billion. It also features a forward yield of 3.9% and a payout ratio of 32.6%. Financially, Gurufocus labels PSX “fairly valued.” As with Enbridge above, Phillips 66 is geared more toward profitability metrics. For instance, the company enjoys a return on equity of nearly 27%, ranking higher than almost 79% of the industry.
PSX gained a stout 29% for the year. In terms of oil stock predictions for 2023, it can probably hit the $120 mark if supply-demand dynamics favor hydrocarbon players.
If not, the situation could get ugly, depending on the impact to the consumer economy. I would say watch technical support at $70 very closely during a bearish wave.
Murphy USA (MUSA)
Another downstream specialist, Murphy USA (NYSE:MUSA) represents a vital cog for the consumer economy, particularly those deeply impacted by soaring inflation. Fundamentally, Murphy USA enjoys a viable footprint because it positions its gasoline stations near discount-centric big-box retailers. Therefore, its (relatively) lower prices attract eyeballs.
Currently, the company commands a market cap of $6.45 billion. Since the start of the year, MUSA gained nearly 40%. Given the downstream player’s paltry forward yield of 0.46% — backed by a payout ratio of 7.9% — investors aren’t really looking to MUSA for its passive income.
Financially, Gurufocus labels shares “modestly overvalued.” On paper, it’s difficult to come away with any other assessment. For instance, the company features above-sector-average metrics for growth but lower-than-average metrics for profitability. Nevertheless, it is a high-quality business, featuring a return on equity of 69.5%.
In terms of oil price predictions, I can see MUSA hitting record highs of $320 a pop should inflation soar based on reduced supplies. On the flipside, if deflationary forces take over, I would look very closely at the $220 level as the first major support zone.
Kosmos Energy (KOS)
One of the more speculative but downright exciting companies in the hydrocarbon space, Kosmos Energy (NYSE:KOS) plies its trade in the upstream segment. Specifically, it focuses on deepwater exploration projects in proven offshore basins in offshore Ghana, Equatorial Guinea and the U.S. Gulf of Mexico.
Currently, Kosmos commands a market cap of $2.85 billion, gaining 66.6% YTD. What makes the company riskier than others is that it’s a purely growth-driven enterprise. The company features no dividends, so what you get in the market is what you’ll leave with.
Financially, Gurufocus labels KOS as “fairly valued.” Though it generally features middle-of the-road statistics, Kosmos unsurprisingly is geared toward growth. For instance, its three-year revenue expansion rate stands well above the industry median. It’s also a high-quality business, with a return on equity of 40.6%.
Regarding oil stock predictions, reduced hydrocarbon supplies (which should correspond with higher prices) will likely spark significant upside for KOS, perhaps above $8. However, a recession could drop shares to $3.50 where strong technical support lies.
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.