Slick Picks: 3 Oil Stocks to Grease Your Portfolio’s Gears

Investors aiming for diversification can capitalize on the energy sector’s potential by adding oil stocks to their portfolios.

In early June, the Organization of the Petroleum Exporting Countries (OPEC) and its allies agreed to extend a voluntary production cut of 2.2 million barrels of crude oil a day into 2025. Despite the OPEC+ cuts and heightened Middle East tensions, global oil prices have declined nearly 10% since hitting a five-month high in early April. This was driven by record U.S. oil output and concerns about weak demand in China and other major economies.

As the global economy rebounds and energy demand surges, the oil industry is poised for a significant upswing. The sector can benefit from higher prices amid geopolitical tensions and supply constraints. This upswing presents a golden opportunity for investors to capitalize on the robust performance and strategic initiatives of leading oil companies.

So let’s explore three top-tier oil stocks that are well-positioned to generate lucrative returns in 2024. These gems offer a blend of stability and growth potential that can enhance any investment portfolio.

Chevron (CVX)

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Chevron (NYSE:CVX) has a strong presence in both upstream and downstream segments. Its integrated business model enables the company to generate value across the entire energy value chain. So, it yields a diversified revenue stream and minimizes exposure to market fluctuations.

In late April, Chevron disclosed first quarter fiscal 2024 earnings. Despite a 12% year-over-year (YOY) increase in global production, revenues were $48.7 billion, down 4% from the prior-year quarter. Adjusted earnings per share (EPS) at $2.93 marked an 18% decline, primarily due to lower commodity prices.

Thanks to its scale and high-quality assets, the company is well-positioned to benefit from potential increases in oil prices with some of the most competitive breakeven costs in the sector. Analysts highlight that every $1 increase in oil price could boost Chevron’s EPS by more than 30 cents. Meanwhile, Chevron has been actively high-grading its portfolio. Through strategic divestments, CVX focuses on core assets that offer the highest returns.

Year-to-date (YTD), the company has gained 3.5% and offers a steady income stream with a 4.2% dividend yield. Shares are reasonably priced at 12.2 times forward earnings and 1.5 times sales. Meanwhile, Wall Street’s 12-month price forecast suggests a 14% upside potential from current levels.

ConocoPhillips (COP)

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The world’s largest independent exploration and production (E&P) company is ConocoPhillips (NYSE:COP). It boasts a diversified portfolio of assets across North America, Europe, Asia and Australia.

In addition, ConocoPhillips has come under the spotlight with its acquisition of Marathon Oil (NYSE:MRO) for $22.5 billion. This deal is expected to enhance the company’s production capabilities and generate significant cost synergies. As a result, ConocoPhillips should become the sixth largest Western oil company by output. The deal will boost the company’s oil and gas production by a quarter and increase the U.S. share of the output to 72%.

In Q1 of 2024, ConocoPhillips reported mixed financial performance, generating $5.1 billion cash from operations. Revenue declined 7% from the year-ago period to $14.5 billion. Meanwhile, adjusted EPS dropped 15% YOY to $2.03, primarily due to impacts from lower prices and higher costs. ConocoPhillips produced 1,902,000 barrels of oil equivalent per day, marking a 2% YOY growth.

Investors are excited that the oil giant will likely increase its base dividend by an impressive 34% to 78 cents per share, beginning in Q4. Moreover, it aims to buy back $7 billion worth of shares in the first year after the closing of the Marathon Oil acquisition.

Since January, COP stock has declined around 2% but currently offers a generous 3.5% dividend yield. Shares are trading at a forward price-to-earnings (P/E) ratio of 12.6x and a price-to-sales (P/S) ratio of 2.5x. Analysts’ 12-month price targets imply an upside potential of 29% from current levels.

ExxonMobil (XOM)

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One of the largest publicly traded oil and gas companies in the world is ExxonMobil (NYSE:XOM). The oil giant reported first quarter fiscal 2024 results in late April. Revenue exceeded expectations, yet declined 4% YOY to $83 billion due to lower commodity prices. Adjusted EPS of $2.06 was down 27% YOY. Management attributed the earnings disappointment to lower commodity prices, inventory and non-cash tax adjustments.

Also, ExxonMobil generated free cash flow of $10.1 billion during the period, underscoring its ability to generate strong cash flow in a challenging market environment. Over the past year, management has achieved significant structural cost savings, with improved profitability prospects in the long term.

Meanwhile, ExxonMobil has made significant progress in its offshore developments in Guyana. Management anticipates steady production growth going into 2027. Also, it expects to grow its earnings potential by an additional $12 billion from 2023 to 2027.

So far in 2024, XOM stock has gained almost 12%. Currently, shares offer a 3.4% dividend yield and remain moderately valued, at a forward P/E ratio of 12.4x and a P/S ratio of 1.4x. Finally, the average 12-month price target of $132.40 suggests a potential 19% upside from current levels.