I Want To Buy Stock In Oil
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While it's far too soon to bail out on the energy trade (opens in new tab), it's probably fair to say that the easiest of money has already been made. With that in mind, it seemed like a good time to see which S&P 500 exploration and production oil stocks get the highest recommendations from industry analysts.
A quick note on S&P Global Market Intelligence's ratings system: S&P surveys analysts' stock recommendations and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score equal to or below 2.5 means that analysts, on average, rate the stock at Buy. The closer a score gets to 1.0, the stronger the consensus Buy recommendation.
Below please find Wall Street's three highest rated oil stocks to buy now. (Stocks are listed in reverse order of analysts' consensus recommendations, from lowest to highest conviction. Ratings and market data are as of Nov. 28.)
That's because FANG is actually a sector laggard. The S&P 500's energy sector is sitting on a YTD price gain of more than 60%. But analysts say FANG's relative underperformance just sets it up for more outsized gains ahead. With an average target price of $181.40, the Street gives the stock implied price upside of 26% in the next year or so.
Of 30 analysts issuing opinions on FANG, 15 rate it at Strong Buy, 11 say Buy, two call it a Hold and two say sell. That sort of conviction solidifies Diamondback Energy's status as one of the best oil stocks to buy now.
Selesky and other COP bulls emphasize the company's size, scale and combination of "both long-cycle and unconventional short-cycle projects." ConocoPhillips' record of "disciplined investment, strong free cash flow and consistent returns of cash to shareholders through dividends and stock buybacks" also supports the Buy case for long-term investors.
And, like many of the best oil stocks to buy now, COP shares still look relatively cheap. Uncertainty regarding the future course of oil prices has COP stock changing hands at just 9.2 times analysts' 2023 earnings per share (EPS) estimate. That's quite a bargain when compared against the stock's five-year average of 21.2 times projected EPS, per Refinitiv Stock Report Plus.
Of the 29 analysts covering EOG tracked by S&P Global Market Intelligence, 18 have it at Strong Buy, seven say Buy, three call it a Hold and one rates it at Sell. Their average price target of $156.67 gives this oil stock implied upside of about 15% in the next 12 months or so. Add in the dividend yield, and the implied total return is closer to 18%.
Stock prices have also been falling recently, and these moves have generally followed the course of oil prices, a development much commented on by the financial press (for example, see here and here). On the surface, the tendency for stocks to fall along with oil prices is surprising. The usual presumption is that a decline in oil prices is good news for the economy, at least for net oil importers like the United States and China. 
In this post we first confirm the positive correlation between stocks and oil prices, noting that it is not just a recent phenomenon. We then investigate the hypothesis that underlying changes in aggregate demand explain the oil-stocks relationship. We find that an underlying demand factor does account for much of the positive relationship, and that if, in addition, we account for shifts in market risk preferences, we can explain still more. However, even with these two factors included, a significant part of the oil-stocks correlation remains unexplained.
The impression from Figure 2 is that the relationship between stocks and oil is itself volatile, with the correlation between the returns to stocks and to oil swinging between positive and negative values. In other words, sometimes the prices of stocks and oil move in the same direction, sometimes in opposite directions. On average, however, the correlation is positive (stocks and oil move in the same direction). Interestingly, although the correlation has ticked up in the past few months, it has not been unusually high recently, compared to the rest of the five-year sample.
Using this breakdown, we can also re-examine the correlations of changes in stock prices with changes in oil prices. This time we break the changes in oil prices into the part associated with demand (according to this method) and the residual portion (which presumably includes most supply factors). The correlations of stocks and demand-related changes in oil prices are shown in Figure 4, and the correlations of stocks and the residual are shown in Figure 5.
On the other hand, since even the residual component of oil prices is positively correlated (on average) with stock prices movements, we have to conclude that the demand explanation (at least, given our admittedly noisy measure of demand) is not the full story.
A second possible reason for the positive stocks-oil correlation is based on the observation that recent market moves have been accompanied by elevated volatility. If investors retreat from commodities as well as stocks during periods of high uncertainty and risk aversion, then shocks to volatility may be another reason for the observed tendency of stocks and oil prices to move together. To test whether changes in risk can help explain the oil-stocks relationship, we augmented the Hamilton-style equation for oil prices with daily percentage changes in the VIX, which measures the volatility of stock indexes.  The VIX enters the estimated equation with the expected negative sign (oil prices tend to fall when volatility is high) and with high statistical significance (see Appendix 2 at end of post for details).
Figures 6 and 7 show the rolling correlations of stock prices with the predicted component of oil (the part associated with both demand and risk) and the residual component, respectively. The average correlation in Figure 6 is 0.68, compared to 0.05 in Figure 7. Accounting for risk does improve our ability to explain why oil prices and stocks tend to move together. However, the correlation of the residual component with stocks is not negative, as would be expected if it reflected only the beneficial effects of supply shocks.
Our bottom line: The tendency of stocks and oil prices to move together is not a new development; it goes back nearly five years (the limits of our sample) and probably more. Much of this positive correlation can be explained by the tendency of stocks and oil prices to react in the same direction to common factors, including changes in aggregate demand and in overall uncertainty and risk aversion. However, even accounting for these factors, the residual correlation is close to zero, not negative as we would expect if it were capturing only beneficial supply shocks. There are several other explanations that could be investigated: for example, the possibility that declines in oil prices, even if initially caused by higher supply, affect global financial conditions by damaging the creditworthiness of oil-producing companies or countries. This topic is one well worth revisiting.
 Energy-related stocks have a larger weight in broad stock indices than energy production does in the economy, which helps explain why stocks might respond adversely to oil price declines, even if those declines are on net good for the economy. However, as we have confirmed, even changes in the transportation subcomponent of the S&P 500, which one would think might especially benefit from cheaper oil, are positively correlated with changes in oil prices.
IEA member countries are required to ensure oil stock levels equivalent to no less than 90 days of net imports and to be ready to collectively respond to severe supply disruptions affecting the global oil market. Member countries have substantial flexibility in how they meet the stockholding obligation, which can include stocks held exclusively for emergencies and stocks held for commercial purposes (both in the form of crude oil and as refined products), as well as holding stocks in other countries under bilateral agreements. Each Member country is thus able to determine how to fully meet their IEA stockholding commitment in the manner most appropriate to their domestic circumstances.
The big picture of oil stocks is messy. In recent years, the advancements made by clean energy created long-term questions about the future of oil stocks. As of now, oil is still an essential resource for energy production.
ESG stands for environmental, social, and governance. Investors that opt for this strategy choose stocks that prioritize sound environmental practices. One of the ways investors prioritize the environment is by investing in clean energy technology instead of oil companies.
Throughout 2022, oil stocks have seen an upward trajectory. Many attributed these rising prices partly to the war between Russia and Ukraine. However, crude oil prices have dropped quite a bit from their high point earlier in the year.
Oil stocks might be the right fit for your portfolio goals. Nevertheless, the heightened volatility might mean you must keep a closer eye on industry changes to make the necessary portfolio adjustments.
Oil prices might not go up forever, but right now oil is the profitable stock market play with exceptional year-to-date returns. Here are some of the top oil stock picks that could continue to perform well for the rest of 2022.
Additionally, Shell is one of the oil stocks with the best value. It has a low P/E ratio of 4.64, as well as a 3.73% dividend yield. Cash on hand equates to $35.98 billion, a reasonably large sum for a stock valued at roughly $191 billion.
It has had a mixed performance in quarterly earnings reports over the last year, but the stock has seen continued momentum nonetheless. It has one of the highest levels of insider ownership from these picks at 75.95%, trades at a P/E multiple of 7.83 and has a dividend of 2.28%. However, the stock has an ex-dividend date of Dec. 1, meaning dividends will be paused on stocks purchased as of that date. 781b155fdc