As Crude Prices Rise, These Three Companies Should Offer Fast Profits

Frenemies. 

The word is defined as “an oxymoron and a portmanteau of ‘friend’ and ‘enemy’ that refers to ‘a person with whom one is friendly, despite a fundamental dislike or rivalry’ or ‘a person who combines the characteristics of a friend and an enemy.’”

I can’t think of a better way to describe the members of OPEC.

But like I predicted last Friday, this team of geopolitical rivals got it together and found a way to keep everyone in the world’s largest cartel happy. At least for the time being. 

Here’s the quick rundown. 

On Wednesday, OPEC officials agreed to slowly increase oil output beginning next year. This will start with a 500,000-barrel-per-day increase in January. From there the group will decide monthly on whether to increase, decrease, or maintain production at current levels. 

Wednesday’s resolution is the perfect win-win. The result of this newfound cooperation?

Crude prices rose across the board on Thursday and are in the green by roughly a quarter-percent leading into today’s open. But this is just the beginning of a much larger run-up.

These are the three companies I believe will offer us some great gains in the first half of 2021.

Three Ways to Play $60 Oil

You would be surprised how profitable it can be with the right moves and good timing. 

And right now is one of those times to seize the opportunity. 

Company No. 1: Chevron Corporation (NYSE: CVX)

Unlike most names in big oil, Chevron is one of the few operations with a positive EBITDA. Diving further into the financials, the company is in relatively strong shape.

A rise in oil prices would certainly bode well for the company’s bottom line, especially when coupled with the billions in spending cuts the company announced Thursday.

Normally, spending cuts would concern me, but I think in this case this is good asset management. The company still plans on increasing spending in more profitable drilling regions like the Permian. Moreover, I doubt the company will let its newest acquisition Noble Energy and its assets sit idle.

Looking at the one-year chart, the 50-day moving average (MA) is now a few hairs off its 200-day MA. If the 50-day crosses the 200-day MA in the coming weeks, that is a strong bullish signal for 1Q 2021.  

Source: https://stockcharts.com

Now onto my second company. 

Company No. 2: Valero Energy Corporation (NYSE: VLO)

Typically you don’t equate higher oil prices with a rise in oil refinery stocks. But $60 oil is right in the sweet spot where refiners can still profit. Moreover, leading up to the pandemic, refiners in general were in a relatively strong financial position.

No doubt Valero has dealt with some serious headwinds this year, but as we round the corner on the pandemic, the company is in a good position to see some sizable gains. Looking deeper into Valero’s October earnings report, I see the company is sitting on a lot of liquidable inventory. This means through 4Q 2020 and 1Q 2021, Valero should be able to cut production costs significantly — it actually already began — and still sell its petroleum products at fair value. 

I expect this to help Valero’s profit margins nicely over the next six months.

The stock is still sitting roughly $35 off its prepandemic price and I think now is a great time to consider a stake in VLO. 

Source: https://stockcharts.com

You’ll also earn a 6.75% dividend while you’re at it.

Now for my last company to consider ahead of oil’s rise to $60.

Company No. 3: Baker Hughes Company (NYSE: BKR)

Higher demand for oil and gas products may take a little longer to impact share values in the gas and equipment sector as companies further down the supply chain offload inventory first. 

But as demand for oil and gas spikes, again tied to the pending economic rebound, I expect these companies will rise, and rise quickly.

I think the best player in the game here that offers a relatively low-risk, high-reward investment is Baker Hughes. The company has some of the stronger financials in the gas and equipment sector, and I like trading into strength.

Source: https://stockcharts.com

There’s a strong indication demand is on the rise for gas and oil equipment based on the fact that in Baker Hughes’ most recent rig report, the company notes a strong uptick in the amount of rigs engaged in exploration and production, rising by 10 units from last week’s count to 320. 

And 320 is a far cry from last year’s count of over 800 active rigs, which tells me two things: 

1. With momentum heading in the right direction for oil demand and prices, gas and oil drillers are likely to continue to add rigs. 
2. Since last year’s active rig count at this same time was over 800 active units, there’s a lot of runway ahead for Baker Hughes.

Shares are relatively inexpensive at $21.33 this morning with a dividend of 3.66%.

Have a great weekend.

To your wealth,

Sean McCloskey
Editor, Energy and Capital

@TheRL_McCloskey on Twitter

After spending 10 years in the consumer tech reporting and educational publishing industries, Sean has since redevoted himself to one of his original passions: identifying and cashing in on the most lucrative opportunities the market has to offer. As the former managing editor of multiple investment newsletters, he's covered virtually every sector of the market, ranging from energy and tech to gold and cannabis. Over the years, Sean has offered his followers the chance to score numerous triple-digit gains, and today he continues his mission to deliver followers the best chance to score big wins on Wall Street and beyond as an editor for Energy and Capital.