Oil prices fell to a historic low below zero at the onset of the pandemic. The economic shutdown created massive supply chain issues through the industry and dropped gas pumps to the lowest prices many saw in their lifetimes.
As the economy recovers, oil is being used more. This is driving oil prices up, and that has investors seeking the oil stocks that will go up with them.
Electric vehicle investments took center stage in 2020, as Tesla (NASDAQ:TSLA) entered the S&P 500 and became the largest car company in the world. This caused a wave of money being poured into related stocks, like battery manufacturers and startup EV companies with no sales to back their valuations.
This kept oil stocks depressed throughout the year and presents a potential buying opportunity for savvy investors willing to capitalize. While EVs are a great future to look forward to, there’s still plenty of need for oil in our economy.
Oil is a finite resource that could rise in price even with the shift to electric. These five companies are well-placed to take advantage to create big returns for investors through the 2020s.
ExxonMobil Could Be Worth Much More
Exxon Mobil Corporation (NYSE:XOM) has a fair market value of almost $55 per share according to a discounted cash flow forecast analysis but Warren Buffett has shown interest in the company recently, and that has some investors wondering if it’s actually worth a lot more than the paper calculation.
The company slashed a third off its oil reserves to lower operational spending and prepare its budget for the long haul. Exxon no longer holds U.K. assets in the North Sea.
Rising oil prices are crucial to the company’s growth strategy, and the barrel price rising over $50.00 enabled the company to continue paying dividends. The annual dividend of $3.48 gives it a yield of 6.4 percent.
On top of this, the company announced it’ll invest $3 billion in lower-emission energy projects through 2025. This means it’s preparing to profit off any type of fueled future, regardless of whether fossil fuels are involved.
Chevron Pays A Pretty Dividend To Patient Investors
Chevron Corporation (NYSE:CVX) CEO and Chairman Mike Wirth launched a new energy fund in February 2021. The Future Energy Fund II is seeking innovative energy companies working toward a cleaner future. This positions it like Exxon to profit no matter which direction society turns for energy.
Chevron has the best debt ratio in the oil industry at 0.26 times equity. This compares to 0.39 at Exxon, its closest competitor.
And while Exxon sells its oil reserves, Chevron bought Noble Drilling for about $13 billion. This provided a deal since the entire oil sector was reeling from the pandemic at the time.
Chevron is also notoriously modest about how it spends money. For example, it only spent $13 billion during the pandemic, compared to $21 billion at Exxon. Although it’s facing a rough market, the annual dividend yield of 5.16 percent is enough to keep investors holding out.
Royal Dutch Shell Has Its Eyes Set On A Green Future
Royal Dutch Shell (NYSE:RDS.A) reached peak carbon emissions and oil production during 2020. Moving forward, it expects oil production to fall by 1 to 2 percent each year, meanwhile it plans to push toward electric car charging and energy storage solutions.
Investments in carbon fuels will stay at around $2 to $3 billion a year while it cuts oil production by 40 percent. This sets it up to spend about $5 billion each year on low-carbon projects.
The company is positioning itself as a clean energy company seeking to deliver value for both shareholders and society in general.
Despite these measures, the company still struggles to eclipse former trading levels of around $60 per share. Its stock price plummeted to a 52-week low of $21.26 during the crash and barely breached $40.00 by Q1 2021. It could represent a buying opportunity for investors who believe in the new direction.
BP Strategy To Embrace Low Carbon Future
BP plc (NYSE:BP) is another company shifting toward a low-carbon future. The company reported a 96 percent year-over-year profit drop in the fourth quarter of 2020. This gave BP its first annual loss in over a decade and kept prices depressed through the year.
By 2021, shares were trading at around $25, a far cry from former heights of around $40 per share.
Still, it’s in the midst of a Palantir-partnered digital transformation. The company has a multi-billion-dollar deal with Palantir for the next five years. This commitment gives it powerful data analytics tools that could disrupt its position in the oil industry.
On top of hydrocarbons, it’s also exploring electric charging networks, solar, and other sustainable energy alternatives. The company continued dividend payments during a tumultuous period and has a 5.08 percent annual yield.
Total Is A Critical Node In The Supply Chain
Total SE (NYSE:TOT) is a French oil refinery company with operations throughout Texas. Not only was it affected by the pandemic, but February 2021 winter storms ravaged its Port Arthur facility.
The damage will be expensive to repair, but the company still operates in a necessary part of the oil supply chain.
It refines crude oil into lubricants and fuels, but it’s also invested in chemical manufacturing, renewable energy, and more. In fact, it’s a vertically integrated company that can provide whatever its customers need.
In 2020, its stock price was depressed, and March 2021 trading prices are just under $50.00 per share. This puts it just below old price levels and provides a discount opportunity for dividend investors. It has a handsome 8.13 percent annual dividend yield
Each of these oil companies struggled through the pandemic and is working toward recovery. As the economy returns to normal, they could see a spike in profitability.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.