Interestingly, interest rates are higher in the United States since the economy is much stronger than analysts’ and economists’ forecasts. Furthermore, unemployment is below 4%, the S&P 500 grew roughly 20% this year, and economists surveyed by the Philadelphia Fed stated that GDP is projected to grow by 1.6% in Q3 2023. The rise in interest rates has led to the emergence of the best oil stocks to buy.
The consensus among analysts is still headed toward the fact that the economy will end up in a soft landing rather than a recession. Further data from the study resulted in the projections for the annual average level of nonfarm payroll employment to gain at a monthly rate of 288,600 in 2023 and 94,800 in 2024.
The recent growth in the economy has brought a wave of optimism for investors, and with the economy gaining momentum, the surge in oil stocks has caught the attention of many. Notably, there are three specific stocks that show strong potential to outperform the market.
So here are the best oil stocks to buy at the end of August.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) is an American petroleum corporation that manufactures petroleum and explores hydrocarbons in the U.S. and the Middle East.
OXY stock is up 4.95% YTD. Analysts have issued 36 “buy” ratings since May, with a median 12-month price target of $66.50 and a range of $57 to $80.
The oil and gas industry was valued at $7,330.80 billion in 2023 and is forecasted to grow by over 6% CAGR by 2030. The U.S. Energy Information Administration (EIA) forecasts that oil demand will grow from 55.1 to 56.5 million barrels per day in 2024, and as interest rates are falling, oil prices will rise. This helps make it one of those best oil stocks to buy.
Financials for Occidental are well, with 2022 revenue of $36.63 billion up 41.14% YoY. EPS was $0.63, which declined by 81.84% YoY, but a P/E ratio of 10.75 indicates a cheap stock. A gross profit margin of 60.69% signals sustainable profitability and a strong competitive advantage over the long term.
Occidental is the top producer in the Permian Basin, one of the world’s most abundant reservoirs in the U.S., and has markets including Oman, Canada, and Chile. Furthermore, the company’s exceptional products generated over $50 billion in revenue in the U.S. alone, setting the stage for long-term growth in the construction, healthcare, and automobile industries. Occidental has further achieved remarkable growth under the impressive leadership of CEO Vicki Hollub, owing to strategic alliances forged with countries such as Colombia and the Middle East.
Occidental is a ‘buy’ for any investor bullish on the oil market due to its economies of scale, and exceptional products that have alliances with the Middle East and Colombia.
Pioneer Natural Resources Company (PXD)
Pioneer Natural Resources Company (NYSE:PXD) is an oil and gas exploration and production firm that provides energy to communities around the globe. Its leading presence in the resource-heavy Permian Basin makes it an unmatched competitive advantage as it is the area’s largest acreage holder. This abundance allows for lucrative low production costs, which generates strong free cash flow.
PXD stock is up 7.74% YTD, and the latest quarter’s earnings are impressive. Revenue of $4.06 billion outperformed expectations by $23.04 million, and EPS of $4.49 beat projections by $0.25. Further, Pioneer’s latest cost of goods sold (COGS) of $2,129 million decreased 25.56% YoY to a higher profit margin. Yahoo! Finance additionally reports 27 analysts holding an average one-year price target of $256.00, with the low being $219.00 and the high being $332.00.
In its recent press release, management announced an operations update with promising applications for future profitability. The company plans to up its number of 15,000-foot lateral wells, or wells drilled at a horizontal angle to provide more effective drainage and productivity. This enhancement in “well type” will act as a catalyst for growth as management states it will yield more “capital savings on a per foot basis” and create an “internal rate of return (IRR) that is on average 35% higher” than the current type of well they most commonly use. Moreover, improvement efforts as such signal that management sees potential for Pioneer to grow even further. This helps to make it one of those best oil stocks to buy.
The still-growing oil and gas industry is additionally a tailwind for PXD stock amid such operations developments. The market was valued at $664.69 billion in 2022 and is forecasted to grow at a 6.35% CAGR to $1,230.25 by 2032.
Diamondback Energy (FANG)
Diamondback Energy (NASDAQ:FANG) is an energy company that focuses on oil production in the Permian Basin. While oil is generally not considered ethical, Diamondback’s ESG pulse is 0.98 out of 1, as it drills in less environmentally important areas and has adequate working conditions.
FANG stock is up 12.68% YTD. Yahoo! Finance reports 27 analysts having a mean 12-month price target of $170.96, with the range spanning from a low of $140.00 to a high of $222.00.
The oil industry was valued at $6.99 trillion in 2022 and is expected to grow at a 4.3% CAGR to $8.67 trillion in 2027. However, while the industry is growing in the short term, it is important to remember that the world is moving away from oil in the long term.
Earnings were down due to a decrease in oil prices. Revenue decreased by 32%, net income decreased by 61%, but net change in cash increased by 70%. While these earnings may look insufficient, this is the norm in this industry as earnings increase and decrease alongside oil prices.
Diamondback is positioned especially well for growth, as it recently acquired Firebird and Lario. It is estimated that these acquisitions can increase cash flow by $570 million. Additionally, because these two companies are also based in the Permian Basin of West Texas, merging operations will equate to a greater economy of scale. Because Diamondback is proving that it is centered around drilling in the Permian Basin, it will not face the same level of protest or regulation as projects like Willow in Alaska. The public relations side of this will become especially critical as Biden seeks to encourage more oil production while damaging the environment as little as possible ahead of the 2024 elections.
Given Diamondback’s increasing profitability through profitable acquisitions and its positioning in the face of favorable oil prices, FANG stock emerges as an undervalued buy recommendation for investors.
On the date of publication, Michael Que did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
