Stocks to buy

Against the Tide: 3 Oil Stocks Set to Surge in the EV Market Shakeout

While oil stocks to buy may seem an anachronistic concept, it may very well be the future of investment. Wait, I thought electric vehicles were the future? Well, it turns out that this narrative may be getting a reality check.

Earlier this year, mainstream headlines noted that EV sales have been dropping. As well, momentum has been slipping, with consumers souring on the technology. To be sure, insiders are putting on a brave face, stating that now is the time to get into electric-powered transportation. Unfortunately, the directive might not be that simple.

For one thing, EVs remain more expensive than their combustion-powered counterparts. Consumers who have weathered the storm of high inflation and high borrowing costs are in no shape to pay up. Indeed, delinquency rates on consumer loans soaring since the fourth quarter of 2021 demonstrate that those who did make the transition are finding it difficult to keep pace.

Further, the extreme winter weather that left many EV drivers stranded has many folks questioning the proposition. On the flipside, the infrastructure already exists for the traditional combustion route. And that bodes very well for these oil stocks to buy.

Chevron (CVX)

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Frankly, Chevron (NYSE:CVX) doesn’t seem to be getting a whole lot of respect. Per Bloomberg, the integrated oil and gas giant beat earnings estimates and raised dividends after posting record hydrocarbon production. Still, the disclosure hasn’t really been enough to move the needle for CVX stock, which is down slightly below parity for the year.

At $148.88 following Monday’s close, CVX stock finds itself only above 6.6% off its 52-week low. On the other end, it’s down almost 14% from its 52-week high. Adding to the perplexing narrative, Chevron now pays a forward dividend yield of just over 4%. Also, the company posts a three-year revenue growth rate of 28.6%. So, what gives?

Analysts on average believe that the oil giant will post sales of $185.03 billion. That’s slightly less than 2023 results, explaining the lackluster performance of CVX stock. Still, the high-side estimate lands at $227 billion, which may be more accurate given the recent earnings disclosure.

Overall, Wall Street experts forecast Chevron to reach $176.63 per share. If so, it’s one of the top oil stocks to buy.

Enbridge (ENB)

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As a midstream energy operator, Enbridge (NYSE:ENB) is primarily involved in the “intermediary” service of storage and transportation. Per its public profile, the company’s crude oil system consists of 28,661 kilometers (about 17,809 miles) of pipelines. With EV demand slowing and possibly some customers returning to their electric cars, Enbridge should be one of the viable oil stocks to buy.

Unfortunately, that hasn’t exactly panned out. Since the start of the year, ENB lost more than 4% of equity value. In the trailing year, it’s down almost 11%. After Monday’s close, Enbridge shares finished the day at $34.72, 12% higher than its 52-week low but almost 14% lower than its 52-week high. Still, this underperformance might not last indefinitely.

First, ENB stock is looking more attractive. Trading at 16.63X trailing-year earnings, it’s not undervalued relative to other oil stocks to buy. However, this multiple has significantly dropped since the second quarter of 2023. Second, analysts expect 2024 revenue to reach $33.35 billion, about 4% higher than last year’s tally. With a generous forward yield of 7.81%, ENB stock should be on speculators’ radar.

Phillips 66 (PSX)

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As a downstream specialist, Phillips 66 (NYSE:PSX) should be one of the top cynical beneficiaries of the EV sector shakeout. After all, one of the core concerns from EV drivers this past winter was the ability to charge without getting stranded. With combustion cars, people don’t need to worry about such hassles during inclement conditions. Instead, they fill up and go home.

Plus, the entire process shouldn’t last more than five minutes. Sure enough, PSX has been one of the stronger candidates for oil stocks to buy. Since the start of the year, shares gained more than 7% of market value. Over the past year, PSX returned stakeholders almost 39%.

Part of the upside performance can be traced to Elliot Management urging Phillips’ board of directors to implement changes to unlock value. Even with the improved market performance, PSX stock offers a discount to speculators. In particular, shares trade at only 0.44X trailing-year revenue. In contrast, the sector’s median stat clocks in at 1.09X.

Looking ahead, analysts rate PSX a consensus moderate buy with a $147.60 average price target. That’s modest. However, the high-side target is $167, implying almost 16% growth potential.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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