Nov 16, 2022
The global oil market remains tight according to Saudi Aramco, the largest oil producer in the world. And that does not bode well for a world that still relies heavily on fossil fuels.
“Today there is spare capacity that is extremely low,” Saudi Aramco CEO Amin Nasser said at a conference in London in late 2022. “If China opens up, [the] economy starts improving or the aviation industry starts asking for more jet fuel, you will erode this spare capacity.”
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Rising gas prices made headlines throughout the past year, and Nasser warns that oil prices could quickly spike — again.
“When you erode that spare capacity the world should be worried. There will be no space for any hiccup — any interruption, any unforeseen events anywhere around the world.”
If you share Nasser’s view, here are three oil stocks to bet on. Wall Street also sees upside in this trio.
More: Biden to release 10 million more barrels of oil
Shell (SHEL)
Headquartered in London, Shell is a multinational energy giant with operations in more than 70 countries. It produces around 3.2 barrels of oil equivalent per day, has an interest in 10 refineries, and sold 64.2 million tons of liquefied natural gas last year.
It’s a staple for global investors, too. Shell is listed on the London Stock Exchange, Euronext Amsterdam, and the New York Stock Exchange.
The company’s NYSE-listed shares are up 26% year to date.
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Piper Sandler analyst Ryan Todd sees an opportunity in the oil and gas supermajor. Last week, the analyst reiterated an ‘overweight’ rating on Shell while raising his price target from $65 to $71.
Considering that Shell trades at around $56 per share today, Todd’s new price target implies a potential upside of 27%.
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Chevron (CVX)
Chevron is another oil and gas supermajor that’s benefiting from the commodity boom.
For Q3, the company reported earnings of $11.2 billion, which represented an 84% increase from the same period last year. Sales and other operating revenues totaled $64 billion for the quarter, up 49% year over year.
In January, Chevron’s board approved a 6% increase to the quarterly dividend rate to $1.42 per share. That gives the company an annual dividend yield of 3.0%.
The stock has enjoyed a nice rally too, climbing 57% in 2022.
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Morgan Stanley analyst Devin McDermott has an ‘equal weight’ rating on Chevron (not the most bullish rating) but raised the price target from $193 to $196 last month. That implies a potential upside of 4% from the current levels.
Exxon Mobil (XOM)
Commanding a market cap of over $460 billion, Exxon Mobil is bigger than Shell and Chevron.
The company also boasts the strongest stock price performance among the three in 2022 — Exxon shares are up 79% year to date.
It’s not hard to see why investors like the stock: the oil-producing giant gushes profits and cash flow in this commodity price environment. In the first nine months of 2022, Exxon earned $43.0 billion in profits, a huge increase from the $14.2 billion in the year-ago period. Free cash flow totaled $49.8 billion for the first nine months, compared to $22.9 billion in the same period last year.
Solid financials allow the company to return cash to investors. Exxon pays quarterly dividends of 91 cents per share, translating to an annual yield of 3.2%.
Jefferies analyst Lloyd Byrne has a ‘buy’ rating on Exxon and a price target of $133 — around 17% above where the stock sits today.
More: Why Warren Buffett keeps betting big on oil
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
