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Best Oil Stocks to Invest In after OPEC Decision

Energy stocks got good news when OPEC decided to cut production costs. Here are the best oil stocks to invest in if the cuts have the intended effect.

Energy stocks have taken it on the chin the last few years as oil prices have been slashed by as much as two-thirds. Now that the Organization of the Petroleum Exporting Countries (OPEC) has decided to cut production by 1.2 million barrels a day, oil prices could start creeping back toward 2014 levels. What are the best oil stocks to invest in should that happen?

Well, let’s start with the obvious choices.

Best Oil Stock to Invest In #1: Exxon Mobil (XOM)

Exxon is the largest oil producer in America and the fourth-largest in the world, producing 5.3 million barrels per day. Thus, it has been hit hard by declining global oil prices, with sales being cut nearly in half in the last two years and earnings per share by more than two-thirds. The stock has been dragged down with it, falling from 103 in June 2014 to as low as 72 last year. Now it’s back on the upswing, climbing more than 5% in November. Higher oil prices could mean a return to earnings growth for Exxon Mobil.

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Best Oil Stock to Invest In #2: Chevron (CVX)

Chevron is the other obvious choice among U.S. oil companies. It’s the ninth-largest oil producer in the world (and second-largest in the U.S.), producing 3.5 million barrels of oil a day. Its top and bottom lines have taken the same kind of beating Exxon’s have the last two years, and its stock fell even further. However, CVX stock has been on a steadier upswing in the last year, rising from as low as 75 to 114 as of this writing. Of the two big-oil stocks, CVX looks like the better performer.

Both are good choices when searching for the best oil stocks to invest in. But I’d prefer to go smaller with my oil stocks—and so would some of our other analysts.

Best Oil Stock to Invest In #3: Parsley Energy (PE)

Mike Cintolo, our growth investing expert, recently added Parsley Energy (PE) to his Cabot Growth Investor “Watch List.” It’s a driller with a modest market cap ($8.1 billion), plenty of acreage and an aggressive drilling plan in the stacked pay core of the Permian Basin, and the stock gapped up from 32 to 38 on big buying volume Wednesday after OPEC announced its production cuts. Now trading at new all-time highs, PE is definitely one of the best stocks to invest in right now.

Best Oil Stock to Invest In #4: Tesoro Corp. (TSO)

Crista Huff, editor of our Cabot Undervalued Stocks Advisor advisory, recently recommended Tesoro Corp. (TSO), a mid-cap petroleum refining and marketing company. It’s a value stock pick, trading at just 13 times forward earnings; it also offers a nice 2.7% dividend yield. With a projected earnings growth rate of 20.5% next year, TSO is a great bounce-back candidate after falling 24% in the last year—especially now that OPEC is actively trying to jumpstart oil prices.

Tesoro is but one of six energy stocks that currently meet Crista’s investment criteria—which tells you that the environment for those stocks is improving. After several down years, each of them is expected to grow earnings by double digits (and in one case triple digits) next year—and that was before OPEC’s decision to cap production. To see all of Crista’s energy-stock picks, click here.

In the meantime, keep an eye on oil prices. If they creep back up into the mid-$50s for the first time in more than a year—which may not happen until OPEC’s production cuts take effect in January—it could have a profound impact on oil companies’ profits.

Or, you could keep things even simpler and watch the charts of energy stocks. The best oil stocks to invest in will be the stocks that are already starting to push above their long- and intermediate-term moving averages.

Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week.