WTI crude oil prices continue higher in 2019 and are now up almost 40% from their December lows.
While consumers are feeling the effects of near $60-per-barrel oil prices at the gas pump, the rally has created a huge opportunity for investors.
That’s why so many oil and gas stocks have earned top ratings from the Money Morning Stock VQScore™ this month.
Distortions in the market are clouding the true supply/demand price of crude.
Dollar manipulation by global central banks is the key contributor to the cloudiness.
Comparing today’s prices to early October’s prices (near $75), crude has fallen thanks to strength in the dollar.
Take that artificial strength away, and crude reverses course.
That’s already happened to a degree as the central bank has pivoted back to a more dovish stance on rates and monetary policy.
As a result, crude is sitting back near $60 per barrel again.
Money Morning Global Energy Strategist Dr. Kent Moors says crude prices are trading 18% lower than his proprietary algorithm shows.
Certainly, OPEC is having an impact on the market as well, as they are highly incentivized to keep crude prices higher.
The salvation perhaps may come from domestic production and/or a global slowdown, but even there increasing supply is not easy to do.
Things are even more interesting with respect to the global slowdown.
Both China and the European Union are flooding the market with liquidity in order to jump-start slowing economies.
Those actions would suggest global growth will return, especially if the United States manages to avoid a recession in the near term.
If so, Dr. Moors’ model suggests even higher crude oil prices.
And the VQScore system has just identified the three best oil stocks to own as prices continue higher…
Best Oil Stocks to Own Now, No. 3
The key to buying oil stocks in the current environment is focusing on the future.
That means buying an oil and gas exploration company like Devon Energy Corp. (NYSE: DVN).
To the extent oil prices increase, the value of Devon’s properties will increase.
It’s a remarkably simple formula that is protected on the downside by exploration that yields new finds. Shares of Devon have fallen since crude prices peaked last summer. At that time, Devon traded for $44 per share.
Today, the stock is trading for 30% less.
Analysts expect profits at Devon to grow by only 6% in 2019.
On the surface then, does it make any sense to pay 24 times 2018 earnings for the stock?
In this case, yes.
Looking forward, those same analysts see Devon profits growing by 67% from 2019 to 2020.
That is plenty of growth to justify the premium valuation today.
The growth is likely to be even better if oil prices rise as is expected, making Devon one of the best oil stocks to own today.
Best Oil Stocks to Own Now, No. 2
As oil prices rise, so too does the amount of investment in the industry.
That investment means buying equipment, making Tenaris SA (NYSE: TS) one of the best oil stocks to own as crude prices soar.
The company makes welded tubular steel products critical in the exploration and production of oil fields. The higher the price of oil, the more equipment Tenaris will likely sell.
Like Devon Energy, Tenaris’ share price is correlated to the price of crude.
Tenaris shares peaked last year in May at $40 per share, but now trade for exactly 30% less.
Looking backward, that makes sense, but not when you are forecasting a future with higher crude prices.
The valuation of Tenaris is reasonable today, with analysts forecasting 9% profit growth this year and the stock trading for 18 times 2018 earnings.
Looking at the year following, analysts have Tenaris profits jumping 25%.
Even if crude prices stay flat from here, Tenaris is one of the best oil stocks to own today.
Best Oil Stocks to Own Now, No. 1
If we’re going all in on oil prices rallying, owning an integrated giant oil company should pay off handsomely.
My choice for the best oil stock to own as crude prices continue soaring is Total SA (NYSE: TOT).
Interestingly, shares of this France-based, globally integrated oil company have risen nicely in 2019 despite significant weakness in the European economy.
That demonstrates the huge correlation to crude prices.
Because of the integrated nature and size of Total, volatility has not been as extreme as in other oil companies.
For example, the stock is down only 23% from levels reached in 2014 – a time when crude crossed $100 per barrel.
Lower volatility will translate to muted returns on the upside compared to the other two selections here, but the trade-off is less risk on the downside.
In addition, Total pays investors a solid dividend yield of more than 5% today.
Analysts expect Total to grow profits this year by a very modest 5%, but the stock only trades for 11 times 2018 earnings.
What’s most attractive about Total is the expectation for near 20% profit growth from 2019 to 2020.
It’s not often, especially in this market, that you can buy that kind of growth for such a low price. More importantly, you’ll get paid 5% to hold it.
— Jamie Dlugosch