PE: 3 Best Oil Picks Because of Iran Escalation

(PE - Get Rating).

Let’s quickly dispense of the obvious part of this article. As expected, the conflict with Iran is escalating. And as expected oil prices are on the rise. And, as you SHOULD expect, this is not going to end any time soon.

Solution = Buy Oil Stocks!

But which oil stocks when there are hundreds to chose from?

That was my focus tonight which led me on a journey to select these 3 special oil companies: Parsley Energy (PE - Get Rating), WPX Energy (WPX), and W&T Offshore (WTI - Get Rating).

Here is the behind the scenes view of how I narrowed down to these 3 selections. Then I will share more insights on the what is specifically attractive about each one.

Oil and Gas exploration is the right industry because earnings and share price are more aligned with increases in oil prices than other aspects of the energy field.
Domestic producer as didn’t want to add in the risk of them having international projects that could be at greater risk of interruption if this the tit for tat with Iran escalates to something much more painful.
Saw positive estimate revisions for 2020 earnings even BEFORE the recent spike in oil prices. This is an important one because the healthier they were prior to this jump in oil price is a sign of superior management…and those are the companies you want in your portfolio.
Value stemming from Wall Street price targets nicely above current levels. Again, this is important because when the market is pushing all time highs, then there is less value to go around. So we want the extra benefit of being undervalued in our corner.
POWR Rating of A or B which means shares have been displaying attractive momentum and timeliness of late which increases the odds of future outperformance. (Learn more about the POWR Ratings here).

As you can see we have a lot of good stuff packed inside these 3 stocks. Now let’s quickly talk about the uniquely attractive qualities of each.

Parsley Energy (PE - Get Rating)

3 STOCKS TO DOUBLE THIS YEAR

Not only is PE the largest of the stocks on our list at $6.3 billion market cap, but it also has been on a big momentum run of late with a +22.5% gain in the past month alone. Analysts point to Parsley having some great acreage in the low cost production region of the Permian Basin. But also PE is getting serious kudos for a very attractive acquisition of Jagged Peak Energy which will add nicely to growth in years to come.

The average target for PE stands at just under $25. However, the top rated analyst at Cowen thinks that everyone is missing the bus as he is pounding the table that $29 is a more rightful destination for Parsley shares.

WPX Energy (WPX)

The earnings outlook for WPX shares exploded higher after the most recent earnings announcement. That is because bit by bit they have transitioned themselves from a natural gas focused play to more oil centric. Their purchase of Felix Energy, with great assets in the Delaware basin, are helping to solidify WPX’s “oiliness”.

Their transition is a big reason behind WPX shares enjoying a +32.8% rally the past month and +41.3% the past three months. The combination of their operational strength and the likely continued gains in energy prices should compel investors to pump some of these shares into their portfolio.

W&T Offshore (WTI - Get Rating).

This is the smallest of our 3 oil picks, but as they say, “good things come in small packages”. In this case you have the most impressive increase in earnings estimates for the year ahead at 450% (not a typo). This exponential improvement in WTI’s outlook is a big reason why shares have tacked on 43% the past few months.

Another big difference with W&T from the others is their focus on offshore exploration. Yes, that is more expensive than onshore…but that is also what makes their projects that much more cash flow positive when energy prices increase as they are now. That probably explains why the street high target on WTI stands at $11…nearly 100% above the current price. This one may be smaller, and riskier…but it also offers the most upside of these 3 impressive stocks.

Want more great stock picks? Then check out these additional resources:

POWR Rating A (Strong Buy) Stocks

Reitmeister Total Return portfolio

PE shares . Year-to-date, PE has gained 5.24%, versus a 0.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...