Although many market experts expected the hydrocarbon industry sector to soar – thus sending oil stocks to buy higher – in reality, the segment has been conspicuously deflated. Still, according to a recent CNBC article, the plunge in fossil fuel prices may bottom out soon. Further, a more significant pickup may materialize in subsequent quarters. Let’s be real – the hydrocarbon sector disappointed speculators with a series of red-splattered sessions. However, circumstances might finally change for the better for sector bulls. “Now it definitely feels like they’re at the bottom — there are multiple signs of that,” said Citi’s Global Head of Commodities Research Ed Morse. With a higher demand season on the horizon combined with geopolitical rumblings, the optimism carries credibility.
If so, you might want to consider getting into “black gold” before the bullish wave. Below are seven oil stocks to buy based on their positioning in the energy value chain.
Oil Stocks to Buy: Shell (SHEL)
A British multinational oil and gas giant, Shell (NYSE:SHEL) ranks among the supermajors of oil stocks to buy. An integrated hydrocarbon player – meaning that it operates within all three segments of the industry’s value chain – Shell provides balanced exposure for those anticipating a sector-wide resurgence. Since the beginning of this year, SHEL gained nearly 8% of its equity value.
On the financials, the company enjoys several decent (though not remarkable) stats. For example, its three-year revenue growth rate comes in at 9.2%, ranking better than 53% of sector rivals. More impressively, its book growth rate during the same period comes out to 8.8%, above 71.24% of industry rivals.
Also, SHEL might be undervalued. Currently, the market prices SHEL at 4.83 times free cash flow (FCF). As a discount to the underlying metric, Shell ranks better than 65.53% of its peers. Finally, Wall Street analysts peg SHEL as a unanimous strong buy. Overall, their average price target is $71.74, implying nearly 19% upside potential.
Oil Stocks to Buy: TotalEnergies (TTE)
A French multinational integrated energy and petroleum stalwart, TotalEnergies (NYSE:TTE) also ranks among the supermajors. Right now, the company carries a market capitalization of just over $150 billion. Since the start of this year, TTE slipped nearly 2%. However, in the past 365 days, it gained almost 13% of its equity value. Should hydrocarbons rise again, TTE could be one of the best oil stocks to buy.
On paper, what might appeal to speculators is that TotalEnergies may be undervalued. At the moment, the market prices TTE at a forward multiple of 5.63. As a discount to projected earnings, the company ranks better than 65.93% of entities listed in the oil and gas space. Also, shares trade at 5.22 times FCF. In contrast, the sector median stat is 6.67 times. Operationally, TotalEnergies gets the job done with a three-year revenue growth rate of 16.8%, above 67.3% of rivals. Also, its EBITDA growth rate during the same period comes out to 20.7%. Lastly, covering analysts peg TTE as a consensus moderate buy. Their average price target lands at $76, implying over 26% upside potential.
Oil Stocks to Buy: ConocoPhillips (COP)
Based in Houston, Texas, ConocoPhillips (NYSE:COP) also ranks among the supermajors of oil stocks to buy. However, the company primarily specializes in hydrocarbon exploration and production, otherwise known as the upstream segment. Presently, ConocoPhillips carries a market cap of over $120 billion. Since the start of the year, COP lost a bit over 12% of its equity value. In the trailing year, it’s down over 3%.
Still, those looking for decent value in their oil stocks may have found their ticket. According to Gurufocus, COP’s price-earnings-growth ratio pings at 0.32. In contrast, the sector median stat comes in at 0.74. Also, its enterprise-value-to-FCF ratio is 6.87. For comparison, the sector median stat is a loftier 9.5 times. Operationally, ConocoPhillips’ three-year revenue growth rate stands at 28.4%, above 83.26% of its peers. Also, its FCF growth rate during the same period is 52.9%, above 83.46% of sector rivals. In closing, analysts peg COP as a consensus strong buy. Their average price target comes out to $135, implying nearly 36% upside potential.
Moving onto the midstream component – which deals with services such as storage and transportation – Enbridge (NYSE:ENB) offers a fundamentally reliable investment among oil stocks to buy. Based in Canada, Enbridge commands a massive network of pipelines that cut across North America. As of this writing, the company carries a market cap of $77.9 billion. Since the Jan. opener, ENB lost very roughly 2%. In the trailing year, it’s down over 12%.
Now, financially, it must be said that Enbridge isn’t exactly the most confidence-inspiring of oil stocks. On paper, it seems overvalued. Further, on the sales front, it’s not exactly blowing the doors off the competition. At the same time, Enbridge enjoys consistent profitability. As a major midstream player, it’s vital to the broader stability of North America’s energy infrastructure. Turning to Wall Street, analysts peg ENB as a consensus moderate buy. On average, their price target lands at $45.36, implying 18% upside potential.
Headquartered in Tulsa, Oklahoma, Williams (NYSE:WMB) its core business centers on natural gas processing and transportation. Per its public profile, the company also features petroleum and electricity generation assets. Therefore, WMB ranks among the oil stocks on the periphery. Right now, the underlying enterprise carries a market cap of just under $36 billion. Since the January opener, WMB lost 9% of its equity value.
As with Enbridge above, Williams doesn’t exactly offer the most confidence-inspiring financials. Instead, the core of its investment proposition centers on the pertinence of its midstream operations. That said, it’s not totally bereft of tangible statistics. For instance, the company’s three-year revenue growth rate comes in at 9.9%, which ranks better than 54.38% of its peers. For profitability, its trailing-year net margin is 22.53%, above 74.9% of the competition.
Looking to the Street, analysts peg WMB as a consensus moderate buy. Overall, their average price target stands at $36.85, implying nearly 26% upside potential.
Valero Energy (VLO)
Hailing from San Antonio, Texas, Valero Energy (NYSE:VLO) specializes in the downstream component of the energy value chain. Basically, if you’re putting the product into your car, you’re dealing with a downstream enterprise. Specifically, Valero focuses on manufacturing and marketing transportation fuels, other petrochemical products, and power. Since the Jan. opener, VLO lost 8% of its equity value.
According to Gurufocus, Valero might be modestly undervalued, potentially attracting speculators of oil stocks to buy. Currently, the market prices VLO at a forward multiple of 5.03. As a discount to projected earnings, Valero ranks better than 72.24% of companies in the hydrocarbon space.
Operationally, Valero’s three-year revenue growth rate pings at 19.4%, above 72.81% of its peers. During the same period, its FCF growth rate came in at 47.7%, above 80.88%. Lastly, analysts peg VLO as a consensus strong buy. On average, their price target lands at $158.27, implying over 43% upside potential.
HF Sinclair (DINO)
A diversified energy firm, HF Sinclair (NYSE:DINO) manufactures and sells products such as gasoline, diesel fuel, jet fuel, renewable diesel, and specialty lubricant products, among others. Should higher energy prices hit the economy, HF Sinclair could cynically benefit from the captive audience framework. Presently, it features a market cap of $7.7 billion. It’s one of the riskiest oil stocks to buy, shedding over 19% since the Jan. opener.
Nevertheless, DINO could be intriguing for those seeking a discount. Right now, the market prices DINO at a forward multiple of 4.83. As a discount to projected earnings, HF Sinclair ranks better than 73.82% of the industry. Also, it trades at 0.22 times trailing sales. In contrast, the sector median stat is 0.89 times. Operationally, HF Sinclair’s three-year revenue growth rate comes in at 21.8%, above 76.29% of its peers. Also, its book growth rate during the same frame is 8.3%, above 70% of rivals.
On a final note, analysts peg DINO as a consensus moderate buy. Their average price target stands at $60.55, implying over 51% upside potential.
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.