SPECIAL REPORT The Top 7 Stocks for 2024

3 Oil Stocks That Are Well-Positioned to Survive a Recession

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  • Jittery investors could go contrarian with these oil stocks for a recession.
  • Chevron (CVX): Stable choice during a recession with integrated energy operations supporting ongoing demand for transportation and in-person activities.
  • Kinder Morgan (KMI): Key midstream energy player, offering a de-risked opportunity with strong growth potential in vital infrastructure.
  • Phillips 66 (PSX): Positioned for growth in recession, Phillips 66, focusing on retail and marketing, may benefit from social normalization dynamics.
oil stocks - 3 Oil Stocks That Are Well-Positioned to Survive a Recession

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At first glance, the idea of oil stocks for a recession might seem counterintuitive. True, the world still runs on hydrocarbons, irrespective of what electric-vehicle evangelists say. Nevertheless, if an economic downturn materializes, such an event implies reduced mobility. Still, there might be a reason to go contrarian here.

First, multiple companies – particularly the major enterprises – are getting aggressive about their return-to-office (RTO) policies. Of course, the topic arouses intense controversy among affected workers. However, when push comes to shove, the employers will likely win the battle. With mass layoffs occurring at storied institutions, it’s foolish to play chicken with the companies signing your paychecks.

Second, even under recessionary conditions, people will need to get stuff done. That might translate to fewer delivery services and more individual households driving to brick-and-mortar retailers to save money. Collectively, this enhanced kinesis could lift certain oil stocks to buy.

Of course, you’ll want to exercise discretion since no market idea is without risks. Still, for a contrarian angle, these may be the top oil stocks for a recession.

Chevron (CVX)

Chevron (CVX) logo on gas station sign with "diesel" and "food mart" written underneath
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As an integrated oil giant, Chevron (NYSE:CVX) offers relevance across the entire value chain of the energy industry. In other words, it features businesses in the three main categories: upstream (exploration and production), midstream (transportation and storage) and downstream (refining and marketing). Because of its mature and established business, you’re probably not going to get rich off CVX.

However, it makes a strong case for oil stocks for a recession. For one thing, people will still need to get around for chores and other endeavors. Even under an economic downturn, worker bees will likely interview in person. After all, a company probably won’t hire someone sight unseen and trust them with corporate secrets and access.

In addition, geopolitical tensions have artificially reduced supplies of hydrocarbons. Therefore, the upstream business has become even more critical. Analysts agree that it’s one of the oil stocks to buy, forecasting that shares will hit $183.29. That implies over 29% upside potential.

Kinder Morgan (KMI)

Kinder Morgan logo on a sign outside the company headquarters in Houston.
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Specializing in the midstream component of the energy value chain, Kinder Morgan (NYSE:KMI) represents a vital cog in U.S. infrastructure. Per its website, Kinder Morgan features an interest in or operates approximately 82,000 miles of pipelines and 140 terminals. Also, it’s responsible for the flow of various energy commodities, such as natural gas, gasoline and crude oil.

Fundamentally, what’s attractive here is the broader relevance. Irrespective of market and economic conditions (assuming within a range of normal scenarios), people and enterprises will need to move themselves and various products around. That can’t happen without a robust midstream infrastructure. To be fair, KMI has underwhelmed in terms of market performance. Still, this could signal a de-risked opportunity.

While its financials could use some work, it features a strong net margin of 15.54%. Also, it’s been profitable every year during the past decade.

Lastly, analysts peg KMI as a moderate buy with a $20.60 target, projecting 27% growth.

Phillips 66 (PSX)

Phillips 66 gas station in the daytime
Source: Jonathan Weiss / Shutterstock.com

A downstream specialist, Phillips 66 (NYSE:PSX) may represent an enticing idea for oil stocks for a recession. Focusing predominantly on the retail and marketing aspects of the value chain, the company has its pulse on the economy. On paper, that might not seem a pleasant concept. After all, reduced economic output might translate to reduced mobility.

However, people can’t just lie around and do nothing. Eventually, financial realities will force mobility as workers file applications and attend job interviews. Also, it’s possible that the revenge travel concept may trade down initially, transiting from flights to domestic road trips. If so, that could provide a big boost for Phillips 66’s top line.

Interestingly, since the start of the year, PSX moved up just under 10%. I believe it still has some legs remaining. Currently, shares trade at only 6.67x trailing-year earnings, below the sector median 9.06x. Finally, analysts rate PSX a moderate buy with a $132.46 price target, implying 20% upside.

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. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2023/11/3-oil-stocks-that-are-well-positioned-to-survive-a-recession/.

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