The oil sector is as volatile one there is. There are so many factors that come into play with oil stocks, like the economy, OPEC, taxes, green energy, and more that it is hard to gauge just how the energy sector will perform in a given year. Look at the past few years as a perfect example of this.
In 2014 and 2015, the sector was a loser, returning a negative 9% and 21% return in each year. During this time, they trailed all of the other sectors in the market. Then came 2016, when energy returned 28%, easily catapulting it to the best sector on Wall Street.
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What does 2017 hold in store? To be frank, the answer is uncertainty. Traders have been expecting looser regulation on drillers but at the same time, the potential for new taxes and tariffs on imports. Add to this the attempt by OPEC to limit supply and raise pricing, and we have no idea exactly where oil is headed.
So how do you invest oil stocks during times of uncertainty? You pick the best of the bunch and limit your downside losses. In this post, we will help you to identify the best oil stocks of the group to invest in. Your job will be to set up stops to avoid any major losses should any new policy have a negative effect on the market.
5 Oil Stocks You Should Buy
#1. Exxon Mobil Corporation (NYSE:XOM)
You have to start a list with the very best oil stocks and that is where Exxon Mobil Corporation (NYSE:XOM) comes into play. When other oil companies were losing money when oil prices dropped and had to cut dividends, Exxon didn’t blink an eye. They not only remained profitable, but continued to increase their dividend.
The reason Exxon Mobil Corporation (NYSE:XOM) remains successful while other companies falter with low oil prices is because Exxon is integrated in such a way that allows the company to thrive regardless of the price of oil.
Currently, Exxon Mobil Corporation (NYSE:XOM) plans to increase spending 16% year over year through 2020 and spent $25 billion annually on capital and exploration during this time as well. The future remains bright for Exxon as they continue to invest in projects that both provide short-term and long-term revenue streams.
As long as the price of oil stays steady or rises, Exxon stock should perform nicely for investors.
#2. EOG Resources Inc (NYSE:EOG)
When energy prices tumbled a few years ago, many oil companies were hit hard. Many lost income streams and a handful had to slash their dividend. EOG Resources Inc (NYSE:EOG) took note of the carnage and went to work. They devised a plan for how the company can remain profitable during times of low energy prices.
By putting all of their efforts into improving efficiency, innovating new processes and taking advantage of new technology, EOG has set the bar for remaining profitable when energy prices tumble. They tout that with oil at $40 per barrel, they can see an after-tax rate of return of 30%. As oil prices climb higher, so do profits.
The business of EOG Resources Inc (NYSE:EOG) is producing oil through its vast network of owned wells. And thanks to improving their business approach the last 2 years, they are expected to grow by 15% annually through 2020. This assumes oil holds steady at $50 a barrel.
Unfortunately, many investors have already got wind of EOG Resources Inc (NYSE:EOG). You best option is to look for a pullback as entry point and then ride along.