Crude oil has been one of the best-performing assets in 2021 with a 61.9% gain. The major factor in this rise has been that demand has bounced back much faster than anticipated, and it never declined as much as expected during the pandemic and shutdowns. According to the IEA, global oil demand fell to an average of 91.5 million barrels per day in 2020 from 100.3 million barrels per day in 2019.
On the other hand, oil production was drastically cut during 2020 and has been slower to come back to pre-pandemic levels. 2019 saw production of 95 million barrels per day, while it declined to 88.4 million barrels per day. In 2021, we are expected to average around 92 million barrels per day with this figure expected to reach 100 million barrels per day over the next couple of years.
Lately, oil has pulled back and is now down more than 10% from its recent high above $85. Over the past year, such pullbacks have proven to be great entry points. 3 oil and gas stocks that investors should consider buying on this correction are Continental Resources (CLR), Occidental Petroleum (OXY), and Suncor Energy (SU).
Continental Resources (CLR)
CLR is a crude oil and natural gas company with properties primarily in the north, south, and east regions of the United States. The Oklahoma City, Okla.-based concern sells its crude oil and natural gas production to refiners, utilities, and natural gas gathering and processing companies.
Over the last month, CLR is down by about 20%. While there could certainly be some more pain in the short term, this should prove to be a good buying opportunity in the longer term. One reason is the company’s strong earnings report.
In Q3, CLR reported $1.20 in EPS which was a significant improvement from its loss of $0.16 per share last year. Revenue was up more than 100% from last year’s $692 million. The company also increased its dividend to $0.20 per share from $0.15 per share. It also plans to buy more than $600 million of stock. It also forecasts $2.6 billion in free cash flow generation for 2021.
These earnings indicate that CLR is one of the highest-quality producers with a cost of production under $50 per barrel. CLR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy. B-rated stocks have posted an average annual performance of 19.7% which compares favorably to the S&P 500’s annual performance of 7.1%.
The stock has an A grade for Momentum and Quality. Click here to see the complete ratings for CLR.
Occidental Petroleum (OXY)
OXY is an independent oil and gas exploration company that operates primarily in the United States, the Middle East, Africa, and Latin America. The company operates through three segments: Oil & Gas; Chemical and Marketing; and Midstream. In addition to oil, the company also produces basic chemicals, petrochemicals, and specialty chemicals. About 50% of its reserves are oil with the other 50% being natural gas.
OXY recently delivered a blowout quarter. Not surprising as oil prices and natural gas prices are almost 100% higher over the past year, and the company is pumping more oil. Thus, OXY topped analysts’ expectations at $0.87 per share which was a sharp turnaround from its $0.84 per share loss last year. Revenue was also 107% higher.
The company has been using its cash flow to pay off some of its debt rather than investing in new capacity or production. This has been rewarded by shareholders, and many expect that share buybacks could be next especially if oil prices stay elevated.
OXY’s POWR Ratings reflect this positive outlook. The company has an overall grade of B, translating into a Buy rating in our POWR Ratings system. OXY’s Momentum Grade of A is consistent with the stock’s status as one of the leading energy stocks in the market even after its recent pullback. Click here to see complete POWR Ratings for OXY.
Suncor Energy (SU)
SU is a Canadian energy company that is primarily focused on developing petroleum resource basins in Canada’s oil sands. The company operates through four segments—Oil Sands; Exploration and Production; Refining and Marketing; and Corporate and Eliminations. It sells crude oil, natural gas, byproducts, refined products, and power.
SU is down about 10% over the past month along with crude oil. Even with this pullback, it remains one of the best-performing stocks with a 56% YTD and 67% gain over the past year. Despite these gains, it remains attractively valued with a forward P/E of 12.8 which is substantially cheaper than the S&P 500’s P/E of 21.
It posted very strong Q3 results with the highlight being the doubling of its dividend. The company reported earnings per share of $0.56 which was a substantial improvement from last year’s $0.15 per share profit. Revenue came in at $8.1 billion, a substantial improvement from last year’s $4.5 billion.
The POWR Ratings are also bullish on SU as it’s rated a B which equates to a Buy. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality. This isn’t surprising considering it’s a high-quality operator that managed to stay profitable in 2020 even when many of its peers were posting big losses. Click here to see the complete POWR ratings for SU.
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CLR shares were trading at $46.43 per share on Monday afternoon, up $1.33 (+2.95%). Year-to-date, CLR has gained 188.35%, versus a 27.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...
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