In the modern era of undeclared wars, the start of any military action is bound to be confusing. Russia’s “peace-keeping” military move into eastern Ukraine, following Russian President Vladimir Putin’s recognition of two regions that have declared independence, puts the world energy market in flux.
The stage was already set for higher oil prices with accelerating demand. Further supply uncertainty in the face of economic sanctions against Russia and a possible disruption of the flow of natural gas to western European countries from Russia added to it.
Here’s current coverage of events in Ukraine and in world energy markets:
Below is a screen of oil companies’ stocks, following the same methodology we used on Feb. 15. Much has changed in a week, with a combination of stock-price action and analysts’ target changes meaning the analysts see upside of at least 30% for nine heavily favored stocks, when a week earlier that could be said for only five stocks.
In order to take a broad look at oil stocks, we began with the holdings of these three exchange traded funds:
The Energy Select Sector SPDR ETF
holds the 21 stocks in the energy sector of the S&P 500
The sector has risen 21.8% this year through Feb. 18. All other sectors of the S&P 500 have fallen during 2022 except for the financial sector, which is up slightly. XLE has $35 billion in assets and annual expenses of 0.12% of assets. It is highly concentrated, with shares of Exxon Mobil Corp.
and Chevron Corp.
making up 43.5% of the portfolio.
The iShares Global Energy ETF
holds 46 stocks, including all the stocks held by XLE. It brings in large non-U.S. companies, such as Shell PLC
(For the three companies just listed, the first ticker is a European listing, the second is the American depositary receipt, or ADR. Many of the locally traded non-U.S. companies listed below also have ADRs.) IXC has $1.9 billion in assets, with an expense ratio of 0.43%. The fund’s largest two holdings are Exxon Mobil and Chevron, which together make up 25.3% of the portfolio
The iShares S&P/TSX Capped Energy Index ETF
holds 20 stocks of Canadian energy producers. It is also heavily concentrated, with the three largest holdings, Canadian Natural Resources Ltd
Suncor Energy Inc.
and Cenovus Energy Inc.
making up 62% of the portfolio. The ETF has 2 billion Canadian dollars in total assets, with an expense ratio of 0.63%.
Analysts’ favorite oil stocks
Together the three ETFs hold 64 stocks. Here are the 18 stocks from that group rated “buy” or the equivalent by at least 80% of analysts polled by FactSet, sorted by the 12-month upside potential implied by consensus price targets. Share prices and consensus price targets are in the currencies of the country where the stocks are listed.
|Company||Ticker||Country||Share “buy” ratings||Closing price – Feb. 18||Cons. price target||Implied 12-month upside potential||Held by|
|Advantage Energy Ltd||AAV-CA||Canada||85%||$6.00||9.52||59%||XEG|
|Birchcliff Energy Ltd.||CA:BIR||Canada||86%||6.28||9.73||55%||XEG|
|Parex Resources Inc.||CA:PXT||Canada||100%||26.68||37.45||40%||XEG|
|Tourmaline Oil Corp.||CA:TOU||Canada||100%||46.13||64.07||39%||XEG|
|Tamarack Valley Energy Ltd.||CA:TVE||Canada||92%||4.71||6.52||38%||XEG|
|ARC Resources Ltd.||CA:ARX||Canada||100%||14.40||19.87||38%||XEG|
|Secure Energy Services Inc.||CA:SES||Canada||100%||5.98||7.81||31%||XEG|
|Whitecap Resources Inc.||CA:WFC||Canada||93%||9.13||11.90||30%||XEG|
|Freehold Royalties Ltd.||CA:FRU||Canada||87%||13.20||16.80||27%||XEG|
|Cenovus Energy Inc.||CA:CVE||Canada||100%||19.60||23.75||21%||IXC, XEG|
|Diamondback Energy Inc.||FANG||U.S.||85%||131.47||148.09||13%||XLE, IXC|
|Valero Energy Corp.||VLO||U.S.||81%||86.72||94.41||9%||XLE, IXC|
|Schlumberger N.V.||USB||U.S.||93%||40.21||43.33||8%||XLE, IXC|
|EOG Resources Inc.||EOG||U.S.||82%||111.62||119.75||7%||XLE, IXC|
You can click on the tickers for more about each company.
Click here Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
We have included dividend yields, as calculated or estimated by FactSet. Don’t assume dividends are distributed quarterly, as is common for U.S. stocks. Some companies only distribute annually.
You might be wondering why Exxon Mobil and Chevron didn’t make the screened list, above. Only 35% of the analysts polled by FactSet rate Exxon Mobile a “buy,” after the stock’s 26% increase this year through Feb. 18 and its 49% increase from a year earlier. Chevron didn’t make the list even though it is rated a “buy” by 74% of analysts because the analysts see “only” 8% upside for the stock over the next year. Then again, both of these stocks have attractive dividend yields, as you can see on the next list, and neither was forced to cut its dividend during the pandemic, when so many other companies did so.
Highest dividend yields — tread carefully
During a period of rising oil prices, it seems unlikely that investors will see many energy companies cutting dividends, as they did early in the coronavirus pandemic. Then again, a very high dividend yield implies investors expect payouts to be cut.
For this screen, we let the chips fall where they may, screening the 64 stocks to list the 23 with dividend yields of 4% or more. Here they are, with a summary of analysts’ opinions of the stocks.
|Company||Ticker||Country||Dividend yield||Share “buy” ratings||Closing price – Feb. 18||Cons. price target||Implied 12-month upside potential||Held by|
|Petroleo Brasileiro SA ADR Pfd||PBR.A-US||Brazil||15.32%||57%||12.85||15.23||19%||IXC|
|Petroleo Brasileiro SA ADR||PBR||Brazil||14.05%||50%||14.01||14.43||3%||IXC|
|Woodside Petroleum Ltd.||AU:WPL||Australia||6.64%||69%||28.19||29.44||4%||XC|
|Kinder Morgan Inc. Class P||KMI||U.S.||6.51%||21%||16.60||19.15||15%||XLE, IXC|
|ONEOK Inc.||OKE||U.S.||6.05%||29%||61.81||66.00||7%||XLE, IXC|
|Peyto Exploration & Development Corp.||CA:PEY||Canada||5.99%||64%||10.01||14.09||41%||XEG|
|Pembina Pipeline Corp.||CA:PPL||Canada||5.97%||44%||42.23||44.41||5%||IXC|
|Williams Cos. Inc.||WMB||U.S.||5.74%||68%||29.62||32.18||9%||XLE, IXC|
|Freehold Royalties Ltd.||CA:FRU||Canada||5.45%||87%||13.20||16.80||27%||XEG|
|TC Energy Corp.||CA:TRP||Canada||5.39%||26%||66.81||68.29||2%||IXC|
|GALP Energia SGPS SA Class B||PT:GALP||Portugal||5.15%||50%||9.71||11.86||22%||IXC|
|ENEOS Holdings Inc.||JP:5020||Japan||4.84%||78%||454.30||544.22||20%||IXC|
|Exxon Mobil Corp.||XOM||U.S.||4.55%||35%||77.36||80.95||5%||XLE, IXC|
|Pioneer Natural Resources Co.||PXD||U.S.||4.55%||79%||233.38||252.76||8%||XLE, IXC|
|Suncor Energy Inc.||CA:SU||Canada||4.53%||61%||37.06||44.10||19%||IXC, XEG|
|Valero Energy Corp.||VLO||U.S.||4.52%||81%||86.72||94.41||9%||XLE, IXC|
|Phillips 66||PSXP||U.S.||4.33%||79%||85.07||99.31||17%||XLE, IXC|
|Chevron Corp.||U.S.||4.26%||74%||133.42||144.42||8%||XLE, IXC|
Also note that the highest-yielding stocks on the list are American depositary receipts of Petroleo Brasileiro SA (known as “Petrobas”) preferred shares
and common shares
Unlike traditional preferred stocks issued in the U.S., this Petrobas preferred issue has no par value. (More information about the Petrobas ADRs is available in this filing from Dec. 21, 2021, with the Securities and Exchange Commission.)
Any stock with a very high dividend yield is inherently dangerous. The high yield means investors believe the payout will be reduced. If investors expected the dividend to be safe, the share price would be higher and the dividend yield lower. So the highest-yielding stocks might best be left to professionals or other sophisticated investors.
During a time of special uncertainty for equity markets and the energy market, it remains important for you to do your own research and form your own opinions about which investments, whether through ETFs or other funds or a combination of those and/or individual stocks, match your investment objectives.