In the tumultuous volatilities and uncertainties of the last six months, if there was a stock category that soared amidst the record-level inflations, it had been the oil industry. Sky-high demand and supply complications have led to oil prices surging. Oil producers have seen their profit margins expand proportionately against prevailing inflation levels. The notorious oil stock category sees itself in the spotlight, once again. Investors have increasingly been adding a wide range of oil stocks in US to their investment portfolios. Investors have also been favoring oil stocks that provide long-term value, despite prevailing market conditions. With this article, we plan to offer an insight as to how one could enhance their portfolio with this underlying strategy. We present the five most stellar oil stocks, that are sure to bring in steady long-term gains for anyone holding them in their portfolio.
Marathon Petroleum Corporation
We begin our list with the US oil company Marathon Petroleum Corporation (MPC). They’re quite a few reasons why we’re so confident that this specific stock would do your portfolio well. First of all, its performance in the last six months speaks for itself, with MPC climbing an incredible 28.7%, whereas the S&P 500 continues to plummet beyond a loss of 20%, within the same time.It places MPC among the best oil stocks in US.
Secondly, the company operates at a significantly large scale, even for the oil refinery sector, and is valued at $46 billion. With a daily crude oil refining capacity of almost 3 million barrels, it stands as the largest US oil refinery operator. Capacity at such significant levels is crucial, especially in the present context where demand continues to sky-rocket despite limited supply. Marathon Petroleum could see record-high profitability given these conditions, which puts it on a path towards enhanced sustainability, well into the long-term. If you really want to set your sights long-term, your best bet would be a company like MPC with massive operations, that has achieved substantial gains through economies of scale.
Moreover, in the oil industry, larger companies with robust balance sheets are far more capable of enhancing their share value through financing new oil well discoveries across the globe. As of December 2021, Marathon reported cash equivalents worth $5.3 billion, demonstrating its capability to expand its operations when presented with the opportunity. In addition to this all, the cherry on top for investors with MPC is its forward annual dividend yield of 2.75%
The second stock on our list is the fully integrated supermajor, Exxon Mobil (XOM). The company is one that needs no introduction and is the leading name in the realm of energy stocks. The primary reason why we chose to include XOM on our list, in addition to its attractive scale of operations, and structural cost savings, is how it is strategically using the present condition in order to boost its financial sustainability. With higher oil and gas prices, coupled with Exxon’s core focus on cost reduction, its profit margins are set to be a gamechanger for the company.
Exxon Mobil’s record operating income would allow it to massively bring down its debt to far more manageable levels. Analysts point out how in 2022 alone, the company expects to reduce its total debt from $63 billion in 2020 to only $13 billion by 2024.
From a long-term standpoint, if you want to invest in oil stocks in US, this is incredibly crucial for the company’s investors. By lowering its net leverage ratio by such an incredible magnitude, XOM would be extremely well-cushioned against possible oil crashes in the future. It is for this reason that any investor thinking long-term should seriously consider this opportunity in Exxon Mobil.
Up next, we present Targa Resources Corp (TRGP). It must be noted that Targa is not as large-scale as some of the biggest oil stocks in US, mentioned on this list, holding a market capitalization of $13.9 billion. Employing less than 2500 individuals on its staff, this mid-sized oil and gas company does hold significant promise.
The company’s performance and earnings indicate substantial growth which typically is not the case in more established industrial giants. For instance, in its recent most earnings, its adjusted EBITDA of $626 million surpassed analyst expectations. This impressive figure reflected a growth rate of 10% against the prior quarter. This was 20% higher than the figure of the prior year’s comparable quarter.
However, it isn’t this emerging oil player’s financial growth that has caught out attention, but rather the brilliance of its management. Specifically, its capital allocation really boosts the forward-looking sustainability of the company. A series of strategic decisions in 2022 has significantly enhanced the value offering to TRGP shareholders. Firstly, it’s the decision to repurchase its interests in its development company joint ventures. By exercising its repurchase option, the company upped its ownership in various ventures. Subsequently, it had then sold out a 25% stake in Gulf Coast Express for almost $900 million. This covered almost 95% of its acquisition cost, and had paid off the debt undertaken to complete the move.
Similar debt maneuvers and bolt-on acquisitions were undertaken throughout the first half of 2022. Furthermore, a share repurchase worth $50 million in March 2022, further enhanced the per-share value for its investors. All of this points to the long-term vision of this emerging company, which would be tremendously valuable to investors in the future.
The fourth stock on this list is Chesapeake Energy Corporation (CHK). We here at Stocks Telegraph feel that CHK is perhaps one of the most underrated oil stocks. This is especially justified in terms of its long-term growth potential.
The company saw an epic comeback from a bankruptcy filing in the last year. Since then, the stock has established itself as a dividend king in the list of oil stocks in US. Furthermore, its management expects its free cash flow to almost double during the financial year 2022.
Moreover, as a result of the company’s post-bankruptcy financial performance, its coverage remains highly strong. A further testament to the strength of its balance sheet is the dividend payments it has released, worth $1 billion. The result is a dividend yield at a staggering 8%.
CHK stands to win big looking forward. This is due to each of the factors discussed above, as well as the external oil price opportunities. Currently trading at $82, analysts have set its target price at above $130. This stock is trading at a significant discount, and should not be ignored.
The final stock on our list, but certainly not the least, is the mega-sized energy and petrochemical company SHELL plc. (SHEL). Multinational giants such as Shell are typically perceived as being in a mature phase of their lifecycle. This is where further growth prospects remain relatively low. However, the recent financial performance of shell proves otherwise.
In the year’s first quarter, the company reported a revenue figure of $84 billion. This was an impressive climb from the prior year’s sales figure of $55 billion. This in large part has been due to enhanced profit margins, coming in this inflationary context. Shell has all the markings of a great long-term stock to hold. It is of the largest oil stock names in the market, and demonstrates stellar financial performance. It also has a robust balance sheet, with cash equivalents worth nearly $40 billion, as per March 2022.
These fundamentals make Shell a great long-term stock to hold, whilst profiting from the boom and bust strategy. Its earnings per ADS in the first quarter of 2022 stood at $2.40. This reflected a huge jump from the prior year figure of 80 cents. This contributes to a highly stable dividend program by the company with a yield presently standing at 3.75% making it one of the finest oil stocks in US.
In the prevailing conditions, crude oil faces record-high demand, coupled with supply complications. As a result, the price of the crucial energy commodity has sky-rocketed. Oil producers face highly favorable profit margins, given the prices charged. In these conditions, investors would be well to assess which of these players in the oil industry are capable of delivering long-term financial sustainability. Each of the stocks mentioned above are ideal fits to ensure you stand exposed to the gains that the oil industry has been enjoying, whilst ensuring sustainable growth.