Four Oil Stocks to Buy Amid the Market’s Pullback

Four oil stocks to buy amid the market’s pullback allow investors to purchase shares at discounted prices.

All four oil stocks to buy amid the market dip also pay dividends to reward investors for staying patient while the industry faces risk from reduced demand in China due to a slowing economy in the world’s most populous nation. These oil stocks tend to perform well in various economic conditions due to their unique niches.

For investors seeking a proven performer, consider a stock that I have owned for a number of years due to its consistent dividend payments and share price appreciation. I first learned about the stock from Mark Skousen, PhD, the head of the Forecasts & Strategies investment newsletter who also leads the Five Star Trader advisory service.

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Four Oil Stocks to Buy Amid the Market’s Pullback: Enterprise Products Partners (EPD)

Dividend payouts are a definite sweetener for investors to own shares in EPD. With a current dividend yield of 7.5%, EPD can help keep long-term investors like me calm even when the market drops as it did Monday, Aug. 5.

The Dow Jones Industrial Average fell that day more than 1,000 points, or 2.6%, while the S&P plunged 3% and the technology-heavy NASDAQ slid 3.4%. Nonetheless, the markets covered some of that ground on Tuesday, Aug. 5.

Goldman Sachs analysts opined that investors have built up “significant cash piles” that can be used to purchase shares of stock that become can’t-resist opportunities for bargain hunters. EPD could be one of those stocks for investors who do not mind that it is a master limited partnership (MLP) that comes with a K-1 at tax time. A K-1 form requires additional time and effort for me and others to navigate each year.

Ben Franklin scion Mark Skousen, head of Five Star Trader and Forecasts & Strategies, talks to Paul Dykewicz.

Citigroup placed a $33 target price and a buy rating on EPD, based on a net present value (NPV) that implies roughly an enterprise value (EV)/earnings before interest, taxes, depreciation and amortization (EBITDA) multiple of 9.75x, per the investment firm’s 2025 estimates.

Of course, risks exist to reaching that price target, Citigroup wrote. They include weaker-than-anticipated Permian production growth global recession risk amid a petrochemical downcycle and ongoing regulatory risk, which may hinder future growth projects.

Chart courtesy of www.stockcharts.com

Four Oil Stocks to Buy Amid the Market’s Pullback: Phillips 66 (PSX)

Houston, Texas-based Phillips 66 (NYSE: PSX) is another oil industry buy recommendation. The company reported second-quarter adjusted earnings per share (EPS) of $2.31, exceeding Citigroup’s estimates of $1.97. Improved midstream business performance drove the good results, along with record volumes, reduced costs and about $30 million in one-time benefits.

Refining utilization reached 98%, the company’s highest in five years, leading to heightened throughput. But refining adjusted earnings before, interest and taxes (EBIT) still declined quarter over quarter. PSX returned $1.325 billion to shareholders in 2Q, roughly in line with consensus of $1.342 billion. Total return of cash now stands at $11.2 billion since July 2022 (versus a $13 billion-$15 billion target by year-end), Citigroup wrote in a research note.

Phillips 66’s Rodeo facility in the San Francisco Bay Area increased rates to approximately 50,000 BPD (800 million gallons per year), reaching the company’s goal of achieving full capacity by the second quarter of 2024. The June 26 announcement marked a significant step in Phillips 66’s commitment to play a meaningful role in the energy transition and provide customers with reduced-carbon solutions.

Rodeo is now listed as a separate line item, as expected. The full conversion of the Rodeo Renewable Energy Complex expands PSX’s commercial-scale production and positions Phillips 66 as a leader in renewable fuels.

Chart courtesy of www.stockcharts.com

Four Oil Stocks to Buy Amid the Market’s Pullback: Northern Oil and Gas (NOG)

Northern Oil & Gas Inc. (NYSE: NOG), based near Minneapolis, Minnesota, is a “very cheap” energy stock with a price-to-earnings ratio (P/E) of just 4.9335 and surprising growth in its oil and gas properties, wrote Skousen to his Five Star Trader subscribers. With less than 40 employees, NOG operates largely under the radar, he added.

The company’s unique business model avoids drilling wells and operating rigs, but instead takes partial positions in more than 10,000 operating wells in the Williston Basin, the Appalachian Basin and the Permian Basin in the United States. Northern Oil & Gas has one of the highest profit margins Skousen recalls ever seeing in an energy stock.

Northern Oil’s Chief Technical Officer James Evans said earlier this year that the company’s business model features capital discipline, cost control and downside protection through diversification and a “diligent hedging policy.” NOG also aligns executive compensation to the company’s performance.

A buy recommendation also is placed on the stock by Citigroup. The investment firm wrote that Northern Oil’s performance was driven by production topping expectations, as oil was in line while natural gas outperformed and lease operating expenses (LOE) beat estimates.

Northern Oil’s capital spending fell below estimates and natural gas pricing surprised to the upside. The company’s focus remains on growth and its efficiency-oriented strategy with near-term digestion of recent acquisitions likely to remain the priority, Citigroup wrote. The investment actually raised its target price on NOG to $52 per share due to the company’s solid growth trajectory and prudent operational strategy buoyed by a relatively low-risk business model balanced against a volatile commodity pricing environment.

Chart courtesy of www.stockcharts.com

Four Oil Stocks to Buy Amid the Market’s Pullback: Kimbell Royalty (KRP)

Kimbell Royalty Partners LP (NYSE: KRP), a Fort Worth, Texas-based owner of minerals and royalties nationwide, has a portfolio that includes approximately 17 million gross acres in 28 states and in every major onshore basin in the continental United States. That includes ownership in more than 129,000 gross wells with 50,000-plus wells in the Permian Basin of West Texas.

The company went public in February 2017 and maintains a buy recommendation from Citigroup. The partnership’s production in the second quarter dipped slightly below expectations as oil slipped on light results from the Permian Basin and some ancillary operational volatility, Citigroup wrote. However, the investment firm did not expect it to be a trend given that KRP’s oil-weighted basins currently compose about 59.1% of the company’s net well inventory.

That points to a marginal reversion in the coming quarters, Citigroup wrote. KRP’s performance was buoyed by stronger-than-expected pricing as a counterweight. Plus, the investment firm projected KRP would continue to execute its inorganic growth strategy and remain active in the mergers and acquisitions markets in the coming quarters.

“We continue to favor their broad geographic diversification and low-risk business model with additional comfort gained from the line-of-sight embedded in their net well inventory; consequently, we retain our Buy / High Risk rating and $20/share target price,” Citigroup wrote.

Chart courtesy of www.stockcharts.com

These four oil stocks to buy offer investors an opportunity to tap richly flowing cash flows. They also offer dividend payouts that may further sweeten the profits from share price appreciation generated by these oil-oriented companies and their shareholders.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Special Sale for Graduation Season! Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for reduced pricing on multiple-book purchases.