Top Oil Stocks to Add to Your Portfolio This Year

In the previous article, Why You Should Be Investing in Oil Now, we detailed that oil stocks can be an excellent way to add the exposure of the industry to your portfolio. The outlook was looking pretty bleak for many independent oil and gas exploration and production companies at the end of 2018. Oil prices had been sliding heavily from October-December. However, for 2019 so far, it has been a completely different story.

Oil Can B a Lucrative Investment

The energy sector is one of the most lucrative industries when breaking down the stock market. Oil has been dominating the energy sector for years as the demand for ‘black gold’ within its crude form continues to rise. There are several businesses and industries that are heavily reliant on transportation, which of course requires fuel. It does also serve as a critical building block for petrochemicals.

In general, the industry has been on one wild ride for the past few years; we have witnessed oil prices crashing, stabilizing, rebounding, crashing again, and so forth. Given the erratic behavior of the market, it has made some investors very cautious about getting involved in the oil industry. Despite the high industry volatility, there are still some excellent values.

2018 was very much a roller coaster, including a decent rally of some 30% seen, before then dropping a chunky 45%. The gains were given back plus much more on large concerns of market oversupply. At the time there was some blame on the U.S. supply driving the sell-off. The United States did emerge as the world’s biggest crude producer, thanks to the success of its shale industry. At the back-end of 2018, the country was reportedly pumping 11.6 million barrels per day of crude, putting it ahead of Saudi Arabia and Russia.

Before we jump into stock picks, let’s look at some vital points about the outlook that support further upside for the oil market this year. It is crucial to be aware of the underlying fundamentals, as these will no doubt be influencing your oil-based investments.

Will Oil Prices Continue Higher?

The implemented OPEC-plus deal has no doubt been one of the key drivers behind the uptick in oil prices. OPEC and Russia-led oil exporters made a joint decision to take action and cut crude oil supplies by 1.2 million barrels per day (bpd). It was put into place at the beginning of January 2019 and has successfully aided in the stabilization of oil prices.

Additionally, U.S. sanctions against Venezuela and Iran have also resulted in a tightening of oil’s fundamentals. Shipments to the United States was worth around 75% of the cash received by Venezuela for their crude shipments. Venezuela’s output of crude is likely to decline from 1.3 million bpd in 2018 down to 750,000 bpd in 2019; this was according to the International Energy Agency (IEA).

Furthermore, within the IEA’s recent report, they are predicting that crude demand will rise to 7.2 million bpd through 2024. The worldwide oil demand in 2019 will be 100.5 million bpd, up 1.2% year over year.

In summary, with the dynamics currently observed across the market, there is room for continued oil supply balance heading in the right direction. The prices are well-supported to the upside, with all touched upon above.

Now let’s finally look at some appealing oil-based stocks worth exploring.

Exxon Mobil (US: XOM)

Exxon weekly share price view.

Exxon is an energy giant, with a market capitalization of $339 billion. It is one of the world’s largest integrated energy companies. Its stock price has remained very much stable over the years. The value lies within the dividend payment, which should give any investor confidence given the volatility of the last few years. Over that period, Exxon has enjoyed a steadily growing dividend. The stock now yields just over 4%; this is around two-thirds of earnings paid out as a dividend. The energy industry will remain a large part of the economy for decades to come, and ExxonMobil will play a significant role in the foreseeable future.

Chevron Corporation (US: CVX)

Chevron weekly share price view.

Chevron has the status as one of the world’s largest multinational oil and gas companies, with operations in about 200 countries. The company has a huge market cap of $237 billion. It has been profitable for investors, proving is stability to a portfolio and paying high dividends with a dividend yield rate of 3.81%. The outlook remains firm for the organization.

Royal Dutch Shell (UK: RDSA LN)

Royal Dutch Shell weekly share price view.

Royal Dutch Shell plc, a British-Dutch oil and gas company, is one of the six oil and gas “supermajors” and the fifth-largest company in the world measured by 2018. The company’s financials seen within their earnings report for Q4 2018 were impressive. Shell’s revenue was seen up 18.7% year over year. Net earnings were reported at 46.7% year over year, with operating cash flow jumping a big 202.2% year-over-year. On top of that, the company offers are a healthy dividend, yielding around 5.9%.

In Summary

As you would have gathered throughout this article, there appears to be much supporting the oil market at present. After experiencing such a hard hit at the back-end of 2018, it has presented a substantial opportunity for incoming investors to partake in the current upside and further moves north to come. There are several ways to have exposure to this current recovering oil market as detailed in the prior article.

However, here I have picked out oil stocks that have proven their stability and reliance over the years of higher volatility for the oil market. The stable financial outlook for the above respective companies was also a crucial part in them being selected. Furthermore, attractive and sustainable dividend payments were a vital factor in this selection process.

Finally, to round off, as with any investment comes risk, as no investment is risk-proof. Diversifying your portfolio is always the best practice. Spreading your risk to limit any potential downside in a respective market is the best approach for any investor.

Featured image courtesy of Shutterstock. 

Author:
Ken has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.