If you think now is a bad time to consider adding oil stocks to your portfolio, think again. Sure, oil is currently in a downswing. Crude had surged back to life over the past few years as the global economy reopened from the pandemic, and the war in Ukraine took a lot of supply out of the market. Oil topped $125/barrel for a brief moment in 2022.
However, oil slid under $100/barrel last year and has struggled to stay above $80 in 2023. Over the last month, the price has slumped to below $70/barrel as traders start to worry about demand destruction amid a slowing economy and potential recession.
Nonetheless, investors shouldn’t give up on oil stocks. After years of cost cutting and discipline, many oil companies have lean operations and can make plenty of money regardless of whether the price of oil is $70 or $100 per barrel going forward. These three oil stocks to buy in particular offer compelling value at today’s prices.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) is one of the world’s most powerful energy companies. It has operations spanning nearly all parts of the globe, and it has a robust integrated business covering oil and gas production, refining, chemicals, distribution, and even renewables.
XOM stock has slipped to near its 52-week lows recently. This comes amid the slump in the price of oil. Additionally, Exxon Mobil has a large oil field in offshore Guyana. This is now at risk, as neighboring Venezuela is making territorial claims over Guyana and is attempting to exploit that nation’s oil resources. However, Brazil and other regional powers have rejected Venezuela’s claims and are likely to keep Guyana’s oil fields secure.
In any case, traders shouldn’t fret too much. Exxon has a global scope and remains exceptionally profitable. Even with the decline in oil and gas prices, XOM stock is still going for less than 11 times forward earnings and offers a nearly 4% dividend yield.
Suncor (NYSE:SU) is a leading integrated Canadian energy company. It has a large position in the Alberta oil sands. It also operates refining capacity for oil along with ancillary assets such as a large network of gas stations.
The oil sands are a great asset for the current oil environment. Oil sand production is more akin to hard rock mining rather than an oil well. This means that oil sands have a long production life with minimal production declines, as opposed to shale where production rates drop-off virtually overnight.
In a world where political regulations and environmentalists have made it more difficult to open new oil fields, Suncor’s existing long-lived assets are the place to be. That’s especially true with its low costs. Suncor is projecting cash costs in the low 30 CAD per barrel range for 2024. And Suncor’s built-in refining capacity insulates it from the price swings of gasoline and other refined goods.
While oil prices have disappointed, Suncor is making tremendous operational progress. It has paid down mountains of debt over the past two years and is now stepping up the size of its dividend and share repurchase programs.
It’s been a rough 15 years for BP (NYSE:BP). Shares have dramatically underperformed many other global energy peers.
The first cause of that was the Deepwater Horizon accident, which ruined BP’s credibility and left it with billions of dollars in remediation costs and legal expenses. Adding to that, BP invested heavily in renewable energy projects which failed to achieve anticipated levels of profitability. And in personal scandal, BP’s prior CEO Bernard Looney resigned in September after reports of inappropriate relationships with colleagues surfaced.
However, BP stock is arguably mispriced due to these historical missteps. The company has trimmed its green investments and is redoubling its focus on the more profitable oil and gas business. It is returning large amounts of capital to shareholders via a 5.0% dividend yield plus a hefty share repurchase program. Shares also go for less than seven times forward earnings.
On the date of publication, Ian Bezek held a long position in XOM, BP, and SU stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.