7 Strong Oil Stocks to Buy on Increasing Demand

Stocks to buy

As the economy opens up again, one sector that stands to benefit in a real way is oil stocks. People begin to consume more, and they’re also leaving their houses to travel, whether for business or pleasure. And while daily commutes aren’t in the cards for many yet, some office time is coming back online.

On the corporate side, companies need more energy to produce goods and deliver them to distribution hubs. That’s certainly a boost to energy demand.

And the most recent statistics show that first-time unemployment claims hit a pandemic low, below 500,000. That’s still not great, but it shows more people are getting back into the economy.

Also, the weaker dollar means higher prices for energy (it takes more dollars to buy oil or natural gas) and that’s good for energy businesses.

These seven oil stocks are smaller choices that have more growth potential in a rising market. They’re worth a look now.

  • Centennial Resource Development (NASDAQ:CDEV)
  • Cimarex Energy (NYSE:XEC)
  • Western Midstream Partners (NYSE:WES)
  • SM Energy (NYSE:SM)
  • Matador Resources (NYSE:MTDR)
  • Flex LNG (NYSE:FLNG)
  • Callon Petroleum (NYSE:CPE)

Centennial Resource Development (CDEV)

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The Permian Basin in West Texas and Southeast New Mexico is one of the most productive shale deposits in the U.S. And it’s also one of the busiest.

CDEV is one of the oil stocks that focuses its entire operation on the Permian. It’s an exploration and production (E&P) firm, which are also called upstream oil companies. They focus on, as the name implies, finding oil and natural gas and drilling for them.

The company has only been around since 2015 and as with all E&P companies, the road can be rocky depending upon the economy. Last year, CDEV was struggling, but its recent first-quarter earnings report showed it was back. And it should continue to shine as the economy thaws. The stock is up 206% year to date.

It rates a B in my Portfolio Grader.

Cimarex Energy (XEC)

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This is another E&P oil stock with operations in the Permian as well as Oklahoma and the Mid-Continent Basin. It’s been around for nearly two decades, so it’s a bit more seasoned than CDEV, and about six times the size, by market cap.

Having been in the business so long, XEC has been through bull and bear markets and, having survived the decimation in 2014, is stronger and more efficient for it. Because it’s bigger and delivers a 1.6% dividend, it doesn’t move as quickly but it’s a reliable player — relatively speaking — in this volatile sector.

The stock is up 83% year to date, which reflects the sector’s comeback. And there’s plenty of upside left.

It rates a B in my Portfolio Grader.

Western Midstream Partners (WES)

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If you’re looking for a stock that will benefit from increased production and demand, yet also offers a generous dividend, then WES is right up your alley.

WES is a midstream company, which means it runs pipelines that move oil and natural gas from the fields to tank farms and refineries. And unlike most upstream oil stocks, midstream companies are usually structured as master limited partnerships for tax purposes, like real estate investment trusts.

What that means is, stockholders are considered partners in the company and receive a cut of net profits in the form of dividends. That’s why WES has a 6%-plus dividend.

What’s more, pipeline companies are demand-based, not price-based. That means the company’s fortunes are driven by demand for energy, not the price of it. WES contracts most of its work for a big oil company, so it has a steady business, which is also a plus. The stock is up 52% year to date.

It rates a B in my Portfolio Grader.

SM Energy (SM)

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Founded in 1908, this Denver, Colorado-based E&P firm has most of its operations in the Eagle Ford and Permian Basins in Texas. Until 2010, it was known as the St. Mary Land & Exploration Company.

Usually oil stocks that have been around for more a century are well known. But most older oil companies have become diversified oil stocks that expand internationally. SM has stuck to its knitting and sports a $2 billion market cap.

As its former name implies, it tends to own properties in various strategic locations and then either sells them to other E&Ps or diversified oils, or it develops them. The stock is getting a lot of attention these days; it’s up 174% year to date.

It rates a B in my Portfolio Grader.

Matador Resources (MTDR)

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Unlike most smaller oil stocks – MTDR has a market cap around $3.2 billion – it has two businesses in the oil patch. It’s primarily an E&P company with operations in the Permian and Eagle Ford shale fields as well as operations that stretch over to Louisiana. But it also has a joint venture midstream business as well.

The reason the diversification matters is the E&P business is all about price and the midstream business is all about volume. They can help balance each other out to create more reliable revenues.

For investment purposes, consider this oil stock an upstream stock with a midstream kicker. It has a small dividend but the reason to buy is continued growth. The stock is up 130% year to date.

It rates a B in my Portfolio Grader.


Source: Shutterstock

By 2030, it’s estimated that natural gas will pass coal to become the second most popular form of fossil fuel. Also, it’s important to note that the U.S., with its newfound shale oil fields, has also tapped into massive amounts of natural gas.

You see, natural gas generally occurs where oil resides. In the old days, upstream firms would burn off the gas as it came of the well. But now, liquified natural gas (LNG) can be shipped around the world and the costs to produce it are small compared to prices on the open market. That means huge margins. And makes FLNG one of the more unique ways to play oil stocks.

But LNG tankers are specialized and there are limited export ports in the U.S. But that is changing rapidly and FLNG is an LNG shipping company with 13 state-of-the-art ships to move LNG around the world.

The stock is up 38% year to date. Shipping can be seasonal, but LNG demand is growing faster than fleets can deliver it.

It rates a B in my Portfolio Grader.

Callon Petroleum (CPE)

Source: Pavel Kapysh / Shutterstock.com

CPE is another smaller ($1.8 billion market cap) upstream play in the Permian Basin. It’s a Texas-based company that has been around since the 1950s, so it knows the territory and the markets.

There are a lot of players in the Permian but it’s one of the most active areas in the country because it’s accessible and productive. And right now, rigs are starting back up to anticipate the growing demand in the U.S. and abroad.

Also remember, West Texas Intermediate (WTI) crude is an easy refining fuel so it carries a bit of higher price tag in energy markets. That means bigger margins for the upstream companies as demand increases since there’s a fixed cost on extracting the black gold but rising sales prices.

The stock is up 191% year to date, but Q1 earnings and revenue show that good times are here.

It rates a B in my Portfolio Grader.

On the date of publication, Louis Navellier has a position in XEC in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. 

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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