Brent Crude surged past the $100 per barrel mark for the first time since 2014 on Thursday after news broke of Russia’s invasion of Ukraine. Given Russia’s role as one of the largest oil-producing nations and the second-largest natural gas producer, this attack might significantly impact energy markets.

According to analysts at Capital Economics, an already tight market and the armed conflict in Europe could lead to oil prices settling as high as $140 per barrel if energy flows are disrupted. Given this backdrop, the fundamentally strong oil and gas stocks Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) might be solid bets.

On the other hand, the conflict has created significant volatility in the oil market. The spiking of prices could lead the OPEC+ cartel to shore up supplies to bring about a supply-side relief. Therefore, the fundamentally weak stocks BP p.l.c. (BP) and Petróleo Brasileiro S.A. – Petrobras (PBR) might be best avoided in this situation.

Stocks to Buy:

Exxon Mobil Corporation (XOM)

XOM engages in the exploration and production of crude oil and natural gas in the United States and globally. The company operates through the broad segments of Upstream; Downstream; and Chemical. It also manufactures, trades, transports, and sells crude oil, natural gas, and petrochemicals.

On February 25, XOM announced that it had made a final investment decision for expanding carbon capture and storage at its LaBarge, Wyoming, facility. The expansion is expected to reduce emissions and help the company continue its large-scale capability.

The company also announced on February 25 that it had reached an agreement to sell its equity interest in Mobil Producing Nigeria Unlimited to Seplat Energy, a Nigerian independent oil and gas company, through its fully-owned subsidiary Seplat Energy Offshore Limited. This move is expected to enable XOM to prioritize competitively advantaged investments in its strategic assets.

XOM’s total revenues and other income increased 82.6% year-over-year to $84.97 billion for the fiscal fourth quarter of 2021. Earnings and earnings per common share, excluding identified items, rose 7,895.5% and 6,733.3% from the prior-year quarter to $8.80 billion and $2.05, respectively.

The consensus EPS estimate of $1.82 for the quarter ending March 2022 indicates a 180% year-over-year increase. Likewise, the consensus revenue estimate for the same quarter of $87.48 billion reflects an improvement of 60.2% from the prior-year period. Moreover, XOM has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.

The stock has gained 33.7% over the past year and 23.9% year-to-date to close yesterday’s trading session at $75.80.

XOM’s strong fundamentals are reflected in its POWR Ratings. The stock has a Momentum grade of A and a Growth and Quality grade of B. In the 82-stock Energy – Oil & Gas industry, it is ranked #51. The industry is rated A. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Click here to see the additional POWR Ratings for XOM (Value, Stability, and Sentiment).

Chevron Corporation (CVX)

CVX operates in integrated energy, chemicals, and petroleum operations worldwide. The company operates through the two broad segments of Upstream, involved in the exploration, development, and production of crude oil and natural gas; and Downstream, engaged in the refining and crude oil and petroleum products.

On February 24, CVX subsidiary Chevron U.S.A. Inc. and Iwatani Corporation of America (ICA), a wholly-owned subsidiary company of Iwatani Corporation, announced an agreement to co-develop and construct 30 hydrogen fueling sites in California by 2026. This might prove to be beneficial for the company.

On February 22, Chevron U.S.A. Inc. and Bunge North America, Inc., a subsidiary of Bunge Limited (BG), announced that they had signed definitive transaction agreements to create their joint venture. About this, Mark Nelson, Executive Vice President of Downstream & Chemicals for CVX, said, “By taking this first step in securing a predictable supply of renewable feedstocks in partnership with Bunge, we are positioning ourselves to meet that goal and supply our transportation customers with lower lifecycle carbon intensity fuels.”

For the fiscal fourth quarter ended December 31, CVX’s total revenues and other income increased 90.6% year-over-year to $48.13 billion. Total adjusted earnings and total adjusted EPS came in at $4.92 billion and $2.56, respectively, up 1,550% and 1,500% from the prior-year period.

Analysts expect CVX’s EPS to increase 214.4% year-over-year to $2.83 for the quarter ending March 2022, while Street expects revenue for the same quarter to rise 41.4% from the same period the prior year to $45.30 billion.

Over the past year, the stock has gained 30.5% to close yesterday’s trading session at $134.85. It has gained 37.8% over the past six months.

Under the POWR Ratings, CVX has an A grade for Momentum and a B grade for Growth and Quality. It is ranked #57 in the Energy – Oil & Gas industry.

To see the additional POWR Ratings for Value, Stability, and Sentiment for CVX, click here.

Stocks to Avoid:

BP p.l.c. (BP)

BP is an oil and gas company operating worldwide. The company operates through the segments – Gas & Low Carbon Energy; Oil Production & Operations; Customers & Products; and Rosneft. It is headquartered in London, England.

On October 12, Cognite, a global industrial SaaS company, announced that it had signed a multi-year contract with BP to provide a single consolidated data layer for BP’s well operations. However, the gains from this partnership might be stretched over an extended period.

For the fiscal fourth quarter of 2021, BP’s net cash provided by investing activities came in at a negative $1.33 billion, registering a decrease of 332.5% year-over-year. Net cash used in financing activities rose 51.3% from the prior-year quarter to $4.74 billion. The company’s cash and cash equivalent balance decreased 1.4% from the prior-year period to $30.68 billion.

The consensus EPS estimate for the fiscal year 2023 of $4.41 indicates a 7.4% year-over-year decline. Likewise, the consensus revenue estimate of $187 billion for the same year reflects a decrease of 2.9% from the prior year.

The stock has declined 2.7% over the past month and 8.2% over the past five days to close yesterday’s trading session at $29.17.

According to POWR Ratings, BP is ranked #28 in the 46-stock Foreign Oil & Gas industry. Click here to see more of BP’s component grades.

Petróleo Brasileiro S.A. – Petrobras (PBR)

PBR operates as an oil and gas seller. The company drills, refines, processes, and sells crude oil. The company also engages in transporting crude oil from on-shore and off-shore sites. It is headquartered in Rio De Janeiro, Brazil.

On December 9, TechnipFMC PLC (FTI) announced that it had been awarded three frame agreements by PBR for its drive to increase oil recovery in its brownfield developments, primarily in post-salt fields offshore Brazil. However, there might still be some time before PBR realizes substantial gains from this venture.

For the fiscal fourth quarter of 2021, PBR’s net income decreased 51.1% year-over-year to $5.68 billion. Net cash used in financing activities rose 33.5% from the prior-year period to $9.89 billion. The company’s cash and cash equivalent balance stood at $10.48 billion, down 10.6% from the same period the prior year.

Analysts expect PBR’s EPS to increase 2.6% year-over-year to $2.76 for the fiscal year 2022.

PBR’s shares have declined marginally over the past five days and 4.2% intraday to close yesterday’s trading session at $13.95.

PBR has a Growth grade of D. It is ranked #29 in the Foreign Oil & Gas industry.

XOM shares were trading at $77.97 per share on Friday afternoon, up $2.17 (+2.86%). Year-to-date, XOM has gained 28.84%, versus a -7.95% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

More Resources for the Stocks in this Article