Is it time to invest in energy stocks? Oil prices have been volatile, and there is tremendous excitement in the energy space.
The question has always been will oil continue to climb higher, or will the price momentum fade? Maybe the commodity will crash, or maybe it will just keep moving up. No one knows what will happen next, and with many energy stocks are dependent on oil prices, investors are unsure of where they can safely buy in the space.
Believe it or not, not all oil company stocks are dependent on the price of crude. I have identified five stocks that should continue to climb higher regardless of what happens to oil prices.
A History Of Volatility
Oil is among the most volatile commodities on earth. Just three years ago, it was trading for over $100 per barrel. Next time it hit the headlines, it had plunged to around $30 per barrel in early 2016.
Prices have since climbed back up to around $53.00 per barrel. The volatility is custom made for active futures traders. This hyperactive subset of the investor population can change from long to short instantaneously and profit no matter which way the commodity goes.
However, most long-term stock investors do not have the desire or time to engage in active futures trading. The secret to success in energy company stocks is to invest in shares that are undervalued and should outperform regardless of volatile prices.
The Best Energy Stocks Of 2017
These uniquely positioned stocks stand to profit from innovation. Here are the five companies you need to know.
1. EOG Resources (NYSE: EOG)
This truly international energy company is headquartered in Houston, Texas and boasts a market cap of nearly $56 billion.
EOG's operations are conducted in the fruitful basins of the United States, with a focus on crude and, to a lesser extent, natural gas extraction. The company is geographically diversified, with operations off the shore of Trinidad, in the United Kingdom's East Irish Sea, China's Sichuan Basin, and in Canada.
What makes EOG a winning stock is the company's application of big data to drilling technology. Their strategy of learning from and disseminating real-time data to workers in the field provides an unparalleled edge.
2. Pioneer Natural Resources (NYSE: PXD)
This is another energy company boasting a data and technological advantage in the sector. Focused on the Permian Basin, Pioneer is expecting production growth of 15-17% in 2017. The company plans on high-grading its Permian acreage by selling off 5600 acres for $63 million, and it plans on selling off another 20,500 acres for $266 million.
At the same time, cash flow is forecasted to grow at a compounded rate greater than 20% annually. This production expansion should counteract a drop in oil prices.
3. Diamondback Energy (Nasdaq: FANG)
This fast growing, low-relative debt company is one of the fastest growing producers in the Permian Basin.
With its recent purchase of Brigham Resources, Diamondback substantially increased its reserves to enable steady production increases in the face of volatile energy prices.
Analysts project that the company will be able to create 60% in returns while operating just eight rigs. As it expands production, shares should continue to move higher.
4. Cabot Oil (NYSE: COG)
Cabot Oil is an independent oil and gas company focused on areas with known hydrocarbon reserves which are conducive to multi-well, repeatable drilling programs. The Marcellus Shale in northeast Pennsylvania and the Eagle Ford Shale in South Texas are the company's primary sources.
Cabot has forecasted 15% oil production growth in 2017. But the reason why I included Cabot on the list is because oil only accounts for 4% of total output and just over 10% of revenue for the company.
This means that the company is much more dependent on natural gas prices than oil for profits.
5. Continental Resources (NYSE: CLR)
60% to 65% of Continental's production is from its oil field. However, the company is well positioned to withstand lower oil prices and will thrive should prices continue to climb.
The company posted net cash from operating activities for fourth-quarter 2016 of $262.0 million, amounting to $1.13 billion for full-year 2016. EBITDAX (EBITDA minus exploration expenses) for fourth-quarter 2016 was $652.4 million, contributing to full-year 2016 EBITDAX of $1.9 billion.
"I am very proud of our accomplishments in 2016. In another year of volatile commodity markets, Continental's performance really stood out," said Harold Hamm, Chairman, and Chief Executive Officer. "Among our most important achievements, we expanded the extent of the over-pressured oil window in STACK and are now beginning density development in this premier Oklahoma play. Also, using the latest enhanced completion designs, we set new Company early production records for wells in STACK, SCOOP and the Bakken."
In other words, production is ramping higher that should continue to support the stock price despite volatile oil prices.
Risks To Consider: Any commodity-based investment comes with inherent risk. While the above stocks are well suited to withstand volatility, anything can happen in the market. Always position size correctly and use stop loss orders when investing.
Action To Take: Now is an ideal time to purchase any of the five stocks above. Their resilience to oil prices makes them some of the energy sector's best stocks of 2017.
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