There is no more beaten down group than the oil stocks.

And no bigger headline these days than plummeting oil prices.

Yet, something very peculiar is happening. Oil company shares are not falling further even as oil prices head lower. That’s probably because shares for the group are already down 65% from a year ago. And shockingly down 77% from 5 years ago. (based on movement of the S&P Oil & Gas Exploration & Production ETF (XOP).

So you could say the group has already taken a severe beating and now investors are starting to assume that it can’t get worse. Likely that is true as this industry is vital to the world economy and governments will help to shore up the industry with measures that likely have prices getting back to profitable levels. More importantly, demand should start to rise as the world economy emerges from its Covid-19 cocoon.

This is not a time to get fancy with your oil stock selection. You might as well go for the bluest of blue chip oil companies because this a time when the weak may not survive. That is why you should consider these 3 oil companies: Exxon Mobil (XOM), Marathon Oil (MRO), and BP (BP). Let’s explore the merits of each below.

Exxon Mobil (XOM)

Every oil stock list starts with Exxon Mobil (XOM) since it is the 800 pound gorilla of the industry. XOM does everything oil-related, from oil exploration to oil production, transportation, refining and marketing. XOM also procures and sells natural gas.

XOM is in a better shape to whether this storm given the diversified operations. And given that it has more than $3 billion in cash.  Investors should view this as an opportunity to scoop up a true industry leader at its trough, hold it for the long haul and eventually walk away with a substantial profit. Not to mention that XOM typically pays one of the highest dividend yields around. So the sum total of capital appreciation and income makes it an appealing time to drill into some XOM shares.

Marathon Oil (MRO)

Take a look at oil’s chart over the past few months and you will be dismayed by the 68% cratering of MRO shares. That is a bit rougher than the group as a whole…which may mean more upside opportunity.

Note that OPEC and Russia are starting to come to terms on oil reductions. The same will become true in the US as a lot of new drilling has stopped and unprofitable wells will be moth-balled for the time being.

This kind of cost cutting is already underway at Marathon (MRO) and many industry peers. The likely outcome is higher oil prices that will in time be met by higher demand, which eventually means more profits. That chain reaction will also be a boon to MRO share price and cash flow to pay handsome dividends.

BP (BP)

When it comes to investing in oil and gas companies, most investors favor stocks that have a reliable price “floor.”  BP appears to be one of those stocks.  Take a look at BP’s one-year chart and it is quite clear the stock bottoms out at $16, whereupon investors swoop in and scoop up the stock, ensuring it has solid footing for either stagnation or ascension.

Though BP lost 20% of its value during March’s coronavirus sell-off, its all-important dividend is likely to remain intact for the foreseeable future.  The bottom line is BP has the solid credit rating and financial flexibility necessary to strategically pivot as necessary during the oil industry crisis.  Look for global production of the “black gold” to reach a sustainable point in the near future as the global economy to return to a semblance of normal, ultimately helping BP gradually move upward as time progresses.

If buy low, sell high is still the right mantra for investing, then it’s hard to imagine a lower low than we are seeing for these 3 oil companies at this time. Patient investors should be handsomely rewarded when the dark cloud of the Covid-19 starts to blow away.

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XOM shares rose $0.72 (+1.76%) in premarket trading Wednesday. Year-to-date, XOM has declined -40.46%, versus a -14.67% 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...

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