In this article, we discuss the 5 oil stocks to sell before the recession begins. If you want to read our analysis of the outlook on the oil prices, go directly to the 10 Oil Stocks to Sell Before Recession Begins.
5. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 67
Stock Price as of July 7: $84.64
ConocoPhillips (NYSE:COP) is a Houston, Texas-based oil and gas E&P entity.
Crude oil prices declining to $45 per barrel could be disastrous for the company. The price will be in touching distance of the $40 per barrel breakeven required by ConocoPhillips (NYSE:COP) to generate $7.5 billion for maintaining production and securing dividends. ConocoPhillips (NYSE:COP) can generate $3 billion in excess cash only if crude oil prices remain above the $50 per barrel level.
In May, it was also reported that Timothy Leach, the Director & Advisor at ConocoPhillips (NYSE:COP), sold a stake worth $4.2 million in the company at a price of $102 per share. The decline of 5.7% in Leach’s holding resulted in the investors being concerned over the future outlook on ConocoPhillips (NYSE:COP). The company has seen substantial inside selling in the last three months.
ConocoPhillips (NYSE:COP) was mentioned in the Q1 2022 investor letter of ClearBridge Investments. Here’s what was said about the company prior to the decline in oil prices:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holdings ConocoPhillips (NYSE:COP) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
ConocoPhillips (NYSE:COP) was held by 67 hedge funds at the end of Q1 2022.
4. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 53
Stock Price as of July 7: $142.66
Chevron Corporation (NYSE:CVX) is a San Ramon, California-based integrated oil company. The company is in the process of shifting its headquarters to a new location in California to fulfill the requirements of the employees situated in the headquarter. Chevron Corporation (NYSE:CVX) will also cover the shifting costs for employees who select the Houston facility in Texas, where the upstream segment is based.
Crude oil prices falling to $45 per barrel by the end of 2023 could cause Chevron Corporation (NYSE:CVX) to record a loss. The company needs a $50 per barrel crude oil price to break even. In a note issued on July 1, Jason Gabelman at Cowen lowered the price target on Chevron Corporation (NYSE:CVX) from $179 to $160. This has restricted the potential upside from 25.4% to 12.1% only. The analyst slashed the target price in anticipation of underwhelming Q2 2022 results. Although Gabelman expects the company’s earnings per share (EPS) to be in line with consensus estimates, he thinks Chevron Corporation’s (NYSE:CVX) free cash flow results will miss estimates for the second quarter.
Here’s what Carillon Tower Advisers said about Chevron Corporation (NYSE:CVX) in its Q1 2022 investor letter:
“Along with the spike in oil prices, energy stocks performed best during the quarter, followed by more defensive and countercyclical sectors like utilities and consumer staples. Chevron (NYSE:CVX) traded higher with global energy prices. The war in Ukraine prompted fears over a shortage in supply, resulting in higher commodity prices.”
Chevron Corporation (NYSE:CVX) was held by 53 hedge funds at the end of Q1 2022.
3. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 43
Stock Price as of July 7: $21.13
Marathon Oil Corporation (NYSE:MRO) is a Houston, Texas-based crude oil and natural gas E&P company.
On June 24, Scott Gruber at Citi downgraded Marathon Oil Corporation (NYSE:MRO) stock from a Buy to a Neutral rating and slashed the target price from $31 to $24. The revised target has restricted the potential upside from 46.7% to 13.5% only. The analyst has downgraded Marathon Oil Corporation (NYSE:MRO) stock because he does not anticipate a rally in stock price associated with a rally in crude oil prices. Crude oil prices are expected to remain range-bound or even fall due to a possible risk of a global recession. The analyst recommends investors take a more selective approach toward the E&P industry stocks and highlights that the valuations always appear “cheap at the peak.”
Two Sigma Advisors and D E Shaw reduced their holding in Marathon Oil Corporation (NYSE:MRO) by 29% and 38%, respectively, during the first quarter of the year.
Here’s what Carillon Tower Advisers said about Marathon Oil Corporation (NYSE:MRO) in its Q1 2022 investor letter:
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Marathon Oil (NYSE:MRO) increased its quarterly dividend and executed an impressive share buyback that blew by the target it originally announced.”
As of Q1 2022, 43 funds held a stake in Marathon Oil Corporation (NYSE:MRO).
2. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 67
Stock Price as of July 7: $59.11
Occidental Petroleum Corporation (NYSE:OXY) is a Houston, Texas-based oil and gas E&P company.
Although Occidental Petroleum Corporation (NYSE:OXY) has been receiving great attention from Warren Buffet’s Berkshire Hathaway Inc., the consensus forecast is that the company will see an 11.6% decline in revenue growth in FY23. This will be followed by a further 7.6% decline in FY24. JR Research predicts Occidental Petroleum Corporation (NYSE:OXY) to underperform the market over the next four years.
On June 7, Stephen Richardson at Evercore ISI downgraded Occidental Petroleum Corporation (NYSE:OXY) stock from an Outperform to an In-Line rating with a price target of $74. The analyst highlighted that the tailwinds of the stock have already been priced in, and there is limited room for differentiation.
In its Q3 2021 investor letter, Smead Capital Management discussed its outlook on Occidental Petroleum Corporation (NYSE:OXY). Here’s what the firm said:
“Oil stocks dominated our winners for the quarter. We showed that we have unlimited ability to tempt fate by buying into Occidental Petroleum (OXY) this year after it was our biggest loser of 2020. It gained 16.64% during the third quarter.”
At the end of Q1 2022, Occidental Petroleum Corporation (NYSE:OXY) was held by 67 hedge funds.
1. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 83
Stock Price as of July 7: $84.81
Exxon Mobil Corporation (NYSE:XOM) is one of the biggest publicly listed energy companies in the world.
The Irving, Texas-based company anticipates a financial charge of $100 million to $200 million during Q2 2022 to reflect the impact of production loss from Russia. Furthermore, oil companies with a profit margin of more than 10% could be imposed a federal super-tax under a plan formulated by Ron Wyden, a Democrat from Oregon who leads the House Finance Committee. This would mean that Exxon Mobil Corporation (NYSE:XOM) would have to pay 21% more in taxes to the US government in addition to the 21% US corporate tax. Exxon Mobil Corporation (NYSE:XOM) has invested $118 billion in the oil and gas sector in the last five years but has only generated $55 billion of net income during that period.
Saturna Capital shared its stance on Exxon Mobil Corporation (NYSE:XOM) in its Q4 2021 investor letter. Here’s what the firm said:
“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon, which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”
Exxon Mobil Corporation (NYSE:XOM) was held by 83 hedge funds as of Q1 2022.
You can also take a peek at The 10 Best Stocks to Buy Now According to Billionaire Paul Tudor Jones and Billionaire Nelson Peltz’s Top 7 Stock Picks.
