For a consistently cynical take, it’s difficult to ignore the viability of oil stocks to watch. In particular, the hydrocarbon sector cooled off, only to spike back up as tensions in the Middle East flared again.
It’s becoming macabre clockwork. According to a Bloomberg report, oil benchmarks popped higher following an attack on a Greek-managed bulk carrier in the Red Sea. Additionally, Israel is advancing in southern Gaza in its campaign to eradicate the terrorist group Hamas. However, the efforts have not gone without controversy.
If that wasn’t enough, Bloomberg also noted that a clash with Israeli troops at a Gaza border led to a killing of an Egyptian soldier. Further, an Israeli air strike killed approximately 45 Palestinians sheltered in a camp for displaced individuals. These events threaten the possibility of a sharp response, potentially leading to oil supply chain disruptions.
It’s an ugly situation. About the only “winners” here are hydrocarbon-related enterprises. Here are oil stocks to watch.
BP (BP)
Based in the U.K., BP (NYSE:BP) ranks among the supermajors or the biggest hydrocarbon enterprises in the world. It’s an integrated company, meaning that BP conducts operations in every facet of the value chain: upstream (exploration and production), midstream (storage and transportation) and downstream (refining and marketing). Given the tensions in the Middle East, BP is one of the oil stocks to watch.
Financially, BP has incurred a sizable ebb and flow, leading to choppiness in the charts. Between the second quarter of 2023 to Q1 2024, the company’s average earnings surprise came out to 10.9% below breakeven. That’s problematic but here’s the thing: analysts are overall optimistic on BP stock, rating shares a consensus moderate buy. The high-side price target lands at $47, implying decent upside potential.
For fiscal 2024, analysts anticipate earnings per share of $4.44 on sales of $217.08. That’s disappointing compared to last year’s results of earnings of $4.78 per share on revenue of $213.03 billion. However, the blue-sky targets call for $5.33 EPS with a top line of $251.66 billion.
TotalEnergies (TTE)
Originating in France, TotalEnergies (NYSE:TTE) represents another one of the supermajors. It’s an integrated oil and gas giant, covering all areas of the hydrocarbon value chain. Per the public profile, Total is also a multi-energy enterprise, producing and marketing biofuels, natural gas, green gases, renewables and electricity. With tensions flaring and the risk of supply disruptions boosting speculation, TTE is one of the oil stocks to watch.
Financially, Total also incurred a wild ebb and flow, leading to some choppiness. However, shares have performed better than BP. In the past four quarters trailing Q1 2024, the average earnings surprise landed at about 2% below breakeven. In the trailing 12 months (TTM), Total posted net income of $21.55 billion on sales of $212.59 billion.
For fiscal 2024, covering experts believe the energy giant will post earnings of $9.29 per share on sales of $244.24 billion. Again, that’s a bit disappointing compared to last year’s results of $9.40 EPS with a top line of $237.13 billion. However, the high-side targets call for EPS of $10.81 on revenue of $293.11 billion.
Williams Companies (WMB)
Headquartered in Tulsa, Oklahoma, Williams Companies (NYSE:WMB) focuses on the midstream component of the hydrocarbon value chain. With its subsidiaries, Williams operates as an energy infrastructure company, mainly in the U.S. Its primary business comprises of natural gas pipelines and related gas storage facilities. It also deals with crude oil production handling and transportation.
One of the advantages of midstream entities is that they’re tied to the pulse (i.e. movement) of the economy. So, Williams should benefit from financial predictability over the long run. Notably, in the past four quarters since Q1, the midstream specialist’s average positive earnings surprise came out to 14.08%. In the TTM period, Williams generated net income of $2.98 billion on sales of $10.16 billion.
For fiscal 2024, analysts believe EPS will land at $1.80 on revenue of $10.26 billion. That’s a bit soft compared to last year’s EPS of $1.97 with a top line of $9.95 billion. However, the most optimistic targets call for EPS of $1.97 on revenue of $10.89 billion.
Plus, Williams offers a forward dividend yield of 4.73%. It’s one of the oil stocks to watch.
Western Midstream Partners (WES)
Based in The Woodlands, Texas, Western Midstream Partners (NYSE:WES) is another operator in the midstream segment. Together with its subsidiaries, Western focuses on the gathering, compressing, treating, processing and transporting of natural gas. It’s also involved in various midstream services for natural gas liquids (NGLs) and crude oil.
While Western is an interesting idea for oil stocks to watch, investors should realize that the company is structured as a master limited partnership (MLP). That means shareholders (or technically unitholders) must file Schedule K-1 forms as the partnership doesn’t pay income tax at the entity level. Rather, the profits and losses pass through to individual unitholders.
It can be a pain, let’s not kid ourselves here. However, there are big advantages with energy MLPs, in particular the high yield. In Western’s case, we’re talking about a forward dividend yield of 9.37%. Further, the payout ratio of 72.35% – while elevated – isn’t exactly horrific.
Lastly, analysts expect EPS to rise a stunning 51.1% in fiscal 2024 to hit $3.93. Also, revenue could jump 19.3% to reach $3.71 billion. It’s something to think about.
Sunoco (SUN)
While we’re on the subject of MLPs, we might as well discuss another one. Sunoco (NYSE:SUN) is a downstream specialist, focusing on refining and marketing. Headquartered in Dallas, Texas, Sunoco with its subsidiaries distributes and retails motors fuels in the U.S. In particular, the company features independently operated retail stores, which could be relevant.
Essentially, Sunoco – like other major oil players – represents a necessary evil. No matter what happens in the economy, in the foreseeable future, people must pump gasoline into their vehicles. In that sense, SUN stock offers a cynical investment. If you want to play, you’ve got to pay. And while Sunoco isn’t the most financially consistent enterprise, when it hits, it hits hard.
For example, in Q3 2023, its EPS of $2.95 represented an earnings surprise of 134.1%. For the current fiscal year, analysts anticipate 90.4% growth in EPS to $6.95. To be fair, sales are projected to fall almost 26% year-over-year. However, the high-side target calls for slight growth to $23.71 billion.
If you want to take the risk, this MLP offers a forward dividend yield of 7.01%. It’s one of the speculative oil stocks to watch.
Delek (DK)
Based in Brentwood, Tennessee, Delek (NYSE:DK) also falls under the downstream sector. Per its corporate profile, Delek operates business units focused on refining, logistics and retail. The refining component processes crude oil and other feedstock for the manufacture of various grades of gasoline and other petroleum products. As with Sunoco, Delek features several convenience stores that could see a demand lift.
Yes, electric vehicles may be the future of transportation. However, it’s also clear that consumers are voting with their wallets. Recently, hybrid vehicles have been flying out the door while EV sales growth flattened. That’s a huge positive for Delek and the downstream sector as it implies increased relevance. Moreover, these folks will likely keep their rides for many years, translating to predictable revenue streams.
With that in mind, the consensus view may need readjustment. In fiscal 2024, experts see EPS falling 73.5% to 79 cents while revenue drops 21.3% to $13.32 billion. However, the high-side target calls for $1.85 EPS and a top line of $16.25 billion.
Delek also offers a forward yield of 3.64%, making it one of the oil stocks to watch.
Magnolia Oil & Gas (MGY)
Headquartered in Houston, Texas, Magnolia Oil & Gas (NYSE:MGY) is an upstream specialist, focused on exploration and production. Per its public profile, Magnolia is an independent oil and natural gas firm engaged in the acquisition, development, exploration and production of oil, natural gas and NGL reserves in the U.S. With supply threatened, MGY could be one of the oil stocks to watch due to increased demand for upstream capacities.
Financially, Magnolia only posted a bum note in Q4 2023, posting EPS of 52 cents against a target of 53 cents. Other than that, it’s been beating its estimates quite soundly. In the past four quarters, the average positive earnings surprise comes out to just under 7%. In the TTM period, Magnolia generated net income of $372.6 million on sales of $1.24 billion.
For fiscal 2024, covering experts anticipate modest EPS growth of 4.8% to reach $2.20. On the top line, sales could rise 11.5% to hit $1.37 billion. In fiscal 2025, EPS could rise to $2.38 on sales of $1.44 billion. Combined with a forward yield of 1.97%, MGY is one of the oil stocks to watch.
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.