Key Points
- Oil is set to go on a new cycle comeback as Wall Street is now broadcasting its views for potentially $100 a barrel.
- Driven by Federal Reserve interest rate cuts this year, Goldman expects a new breakout across oil-dependent industries.
- Three stocks stand out to bring you enhanced return potential outside of the rise in oil prices.
- 5 stocks we like better than The Goldman Sachs Group
Oil has seen little to no attention in the past 12 to 24 months. Most of the market's focus has gone into technology stocks, with names like NVIDIA NASDAQ: NVDA breaking past its all-time high multiple times on explosive financials and hype surrounding artificial intelligence as it is being adopted by more and more industries today.
After falling by as much as 37% from its 2022 high of roughly $120 a barrel, oil now sits in a tight range of $70 to $80 a barrel. It's having difficulty breaking out and finding a definite direction. However, that may all change quickly due to a bullish commodity cycle. The reasons for the possible breakout are known, and Wall Street analysts are already laying out their expectations for where oil could go.
Before getting into the weeds of the upcoming swing, direct your focus to names like Hess NYSE: HES, Occidental Petroleum NYSE: OXY, and even Marathon Oil NYSE: MRO as the likely stocks to come out as winners in the next leg of the cycle. Here is why the energy stocks industry is going to heat up soon.
Cogs in a Machine
The Federal Reserve (the Fed) is looking to cut interest rates later this year, which, according to the FedWatch tool at the CME Group Inc. NASDAQ: CME, could come as soon as May of this year. With that in mind, Wall Street analysts are beginning to feel much more comfortable laying out their projections.
A range of $70 to $100 a barrel is the prediction from The Goldman Sachs Group Inc. NYSE: GS. You can find the firm's thorough research here. Considering that the market is now trading at the bottom of that range, investors could quickly become optimistic about some stocks in the sector.
More than that, in another report, Goldman analysts lay out their views for the United States manufacturing sector, which is an oil-adjacent industry. Because of potential interest rate cuts, manufacturing activity in the economy may suddenly surge.
Unless they still operate on industrial revolution technology, factories today depend on oil to fuel their activities. Also, most U.S. exports also depend on oil for their production. Hence, a breakout in manufacturing activity directly translates into a breakout in oil demand.
It is no wonder how some traders have brought oil futures into a state known as contango. According to the CME Group, oil futures now show a curve that reflects higher prices expected in the coming months. Who these traders are is up to speculation, but what matters is that they are already looking into the space.
Knowing what you know now and how current developments can quickly turn the picture for the better in oil stocks, it is time to make the best potential selection for your portfolio. These are the best stocks to play the rising oil prices.
Golden Selection
Following analyst projections for earnings per share and their selected price targets can lead you closer to the stocks that are getting ready to take off. Speaking the market's language is critical in your analysis, and this is where the message starts.
All three of these stocks have seen favorable price action in the past twelve months, which cannot be said about the rest of the industry as taken from the Energy Select Sector SPDR Fund NYSEARCA: XLE as it underperformed the broader S&P 500 by as much as 27% during this period.
Trading at 91% of its 52-week high price, Occidental Petroleum (one of Warren Buffett's stocks) leads the pack in price action, and analysts give it further support from here. With a 29% growth expected in EPS, analysts are pushing for a $70 a share price target in the stock, showing a 14% upside from today.
Second in the pack comes Hess, trading at 88% of its 52-week high and getting the same love from Wall Street. Analysts expect to see 28% growth in EPS for the next twelve months, and a $174 a share price targets give it a net 18% upside from where it trades today.
Lastly, Marathon Oil trades at 83% of its 52-week high, making it the third name of these industry-beating stocks. With a price target set at $31 a share, this stock is poised to rally by 27% if analysts are correct in their evaluation.
These targets could be driven by an equally attractive 18% jump in EPS projected for the next twelve months. So, while oil may rise by high single-digits in the coming months, these stocks potentially give you a much better bang for your investment buck.
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