Oil prices have swung from over $100 per barrel to under $80 per barrel in a year. Indeed, some portfolios need to be optimally built to cushion such swings and what effects these have on the economy. Savvy investors would consider investing in the best-positioned companies in the sector to ease this volatility.
The key to riding the wave without falling off the board is to focus on where the tide is going rather than where it has come from. In the case of the oil industry, focusing on past price shocks will not be as productive as focusing on the companies that are best positioned to profit from these volatile periods.
Time savings and double-digit potential upside are what investors can find here today, where most of the work has been done to deliver the most promising stocks in the oil exploration niche.
Beginning with a good growth story, investors can hover over to Sitio Royalties (NYSE: STR), a company whose management wants to make a splash in earnings jumps. Analysts and markets are on board with the strategic value-adds this company is piling on, as rewards are being sent in bulk.
Expecting a 27.3% earnings per share jump for 2024, according to analyst projections, investors can get a sense of the momentum behind the business operations. These bullish viewpoints will trickle down directly into the expected consensus price target for this stock.
Sitio Royalties analyst ratings will show a consensus price target of $31.25, representing a total % upside potential of 29.4% from today's prices. The double-digit potential ceiling comes accompanied by a magical factor all investors look for in a business.
Within the second quarter 2023 earnings presentation, management updated investors on the recent $0.40 a share dividend payout, a boost from a year ago. Dividend income calculators will now show an additional dividend yield of 6.6% for those investors adding Sitio shares.
Congratulations are for both investors and management teams at Sitio since a bump in dividends can only mean that the company is having a better-than-expected period when it comes to financials.
Growth expectations may stem from the recent acquisitions made by Sitio, as detailed in their earnings press release. With new potential earnings from this new acquisition, the financial outlook for Sitio looks better than ever, and investors can feel better about exposing themselves to a likely rally in the stock.
There is an uncommon way to uncommon profits when it comes to Denbury (NYSE: DEN), where, as a standalone company, it promises much upside to common stock investors and, as a part of a giant machine, an even larger potential profit center.
Oil giant Exxon Mobil (NYSE: XOM) has sent a bit as recently as one month ago, which looked to acquire Denbury for a total price tag of $4.9 billion. Considering that the company's market capitalization today stands at $4.5 billion, investors stand to make an almost risk-free 8.8% premium to today's stock price.
Should this transaction go through as an all-stock transaction, Denbury shareholders will become the proud owners of new Exxon shares. The exposure switch would imply the exact positioning in Denbury's business model and the stability and dividend that come with Exxon's effort to consolidate.
As carbon emissions become the new foe of the energy industry, Denbury's CO2 capture technologies will become invaluable over the right amount of time, bringing the argument that management may reject Exxon's offer.
This importance can be seen in the company's second quarter 2023 earnings results, which reported operating solid income figures. However, considering management skipped guiding 2024 due to the pending merger with Exxon, investors can feel more confident that this deal will go through.
Denbury analyst ratings are landing on a consensus price target of $99.86 a share, which would provide an implied 12.8% upside potential from today's valuation, far above the stipulated premium provided by Exxon.
The original offer could become a secondary bid that more accurately reflects these targets, especially considering that EPS projections show a further 14% jump for next year, supporting the analyst upside case and adding more pressure for Exxon to increase its offer.
Black Stone Minerals
Switching things up a bit, here is a bit of a turnaround 'underdog' story: Black Stone Minerals (NYSE: BSM) has analysts in a bit of a contradicting pinch. However, markets are sure in their step by valuing the future of this one firm.
Black Stone analyst ratings agree that today's prices have a 15% upside potential despite an expected 20% decline for EPS in the next twelve months, as seen in projections. The trench is dug by market opinions regarding valuation, acting as the difference maker in this confusion.
Relative to a close competitor, Northern Oil & Gas (NYSE: NOG), markets are rewarding Black Stone's future earnings despite analyst expectations of a contraction.
Based on the forward price-to-earnings ratio, which looks to value the next twelve months of earnings, Black Stone's 10.8x multiple takes the cake. Significantly below, Northern Oil trades for a 5.2x multiple; here is why this matters for Black Stone.
A market willingness to pay a premium price for Black Stone over similar companies like Northern Oil can be taken as a sign of favoritism or a higher perceived 'quality' in the future potential earnings of the company. Investors should not ignore these trends.