4 Energy Stocks to Benefit from Rising Oil Prices
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
Oil markets are nervous, crude oil futures are trading at 9 months highs near 106 USD due in good part to news that Iran has decided to halt exports to Britain and France in another chapter of an international conflict that doesn´t seem to have an easy way out.
The international community is trying to corner Iran with the threat of measures that could affect the country´s oil dependent economy, like banning oil imports and even freezing some financial assets. And Iran says it´s opened to negotiations, but doesn´t seem to be really willing to comply with international requirements about its nuclear enrichment program.
Time is a sensitive issue here; many suspect that Iran is just trying to buy some time via endless negotiations in order to keep developing dangerous nuclear weapons. Words are starting to turn into concrete commercial measures, and a military conflict in the not so distant future cannot be ruled out at all.
Hedge Funds and other large speculators in the derivatives markets have been increasing their long position in oil recently. Even if the recent decision by Iran doesn’t have a big effect on world supply, financial markets can be a powerful driver of commodities prices, particularly when they start pricing uncertainties in such a strategic commodity like oil.
An interesting possibility to benefit from rising oil prices could be to invest in big international energy stocks. These companies have the resources to translate higher commodity prices into growing earnings and cash flows, and in many cases they pay a healthy dividend to compensate investors for the wait and provide some stability.
ExxonMobil Corp (NYSE: XOM) is probably the company with the highest quality in the sector. This integrated energy giant has increased dividends for the last 29 years and currently pays a 2.2% dividend yield. The company is reasonably valued at a forward P/E around 9.6, so it still has upside potential in case of rising oil prices.
Other bets with higher dividend yields and fairly good quality are Chevron (NYSE: CVX) and ConocoPhillips (NYSE: COP). Chevron pays a 3% dividend yield and trades at a forward P/E of 8.2, and ConocoPhillips yields a 3.6% in dividends and is also inexpensive at a forward P/E of 8.4.
These companies don´t have the stellar track record that Exxon can show, but they reward investors with higher dividends and more upside potential. Chevron and ConocoPhillips are big companies that can benefit from big money inflows in case the positive trend for oil prices continues being a tailwind.
Total (NYSE: TOT) is another big energy company that stands to benefit from rising crude prices. The company is based in France, so it is probably cheaper than other companies in the sector due to investors’ reluctance to invest in anything related to Europe lately. Total yields a juicy 4.5% in dividends and trades at a forward P/E of 7.9.
But the company has truly global operations in many different businesses and is in a solid financial shape to capitalize growth opportunities. Total´s exposure to Europe shouldn´t be a reason to discard such a cheap company with solid fundamentals. Particularly if you believe oil prices could continue on their way up in the middle term.
Strong fundamentals, reasonable valuations and dividend yields make these 4 candidates worth considering in a rising oil scenario.
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