The Best Energy Stocks in the Worst Times

Oxford Resource Explorer Weekly Wire

Gosh, this is an ugly time for oil. That’s why I’m happy you’re holding the energy stocks we’ve recommended. They’re the best stocks for a bad market.

It’s hard to find anyone who is bullish on oil prices. And that’s a good thing.

As you know, bearishness is a contrary indicator. It won’t take much good news to trigger a short-covering flurry that sends oil prices surging – temporarily, anyway.

My target for domestic crude oil in 2015, which I shared at a conference earlier this year, was $35 on the downside – and we saw oil bottom in that area recently. For next year, I expect oil prices to average $40 per barrel. But they’ll be volatile – so look out! The swings could be huge.

The Energy Information Administration (EIA) has a $54 average price target for 2016.

Goldman Sachs, on the other hand, has a $20 target. It expects oil storage to fill up around the world and oil producers to keep pumping flat-out. And sure, the world is currently producing around 2 million barrels per day (bpd) more than it needs.

But let me risk upsetting the grumpy bears’ apple cart by pointing out a few things.

Global demand will rise next year. The EIA expects global oil demand to climb by 1.4 million bpd. Other estimates differ. But all the estimates are for demand to go up.

U.S. shale production could fall precipitously. In fact, the EIA now predicts that companies operating in U.S. shale basins will cut production by a record 570,000 bpd in 2016.

Whoa! What a neck-snapping change in direction!

Meanwhile, bankruptcies in the U.S. oil industry are surging. Nine (and counting) U.S. oil and gas companies filed for bankruptcy in the fourth quarter. And no wonder. They had more than $2 billion in debt and were losing money on every barrel.

For the full year, 41 oil and gas companies filed for Chapter 11 or Chapter 7 bankruptcies. Their collective debt, secured and unsecured, totaled $16.7 billion.

There were some big names that went bankrupt in 2015: Quicksilver Resources… Ivanhoe Energy… ERG Resources… Sabine Oil & Gas… Magnum Hunter Resources… The parade of pain goes on and on!

None of them were our recommendations, by the way. And when weak producers fail, that leaves more business to be divided among the strong ones.

So what do you have for energy companies?

You have Occidental Petroleum Corporation (NYSE: OXY). Here’s an interesting fact. You probably noticed that the Energy Select Sector SPDR ETF (NYSE: XLE) rallied 2.72% last week. Investors scooped up beaten-down companies. Guess who led the ETF’s charge? That’s right – Occidental. It was the best performer in the ETF, adding 3.4% to its stock price for the week.

The fact is, Occidental is a low-cost producer. Once the herd of investors stops panicking about energy, the stock will pick up big-time.

You also have Exxon Mobil (NYSE: XOM). Along with being HU-U-UGE, and therefore having economies of scale, this wellhead-to-gas-pump integrated oil company has so much going for it. I’m talking massive cash flows that protect and even grow its dividend. And heck, Iraq just invited Exxon to invest in its rich oil fields to boost production. Exxon is already working in Iraq, so this seems like a natural step… and a source of cheap oil in the future.

And in Dave’s picks, you have Alon USA Partners (NYSE: ALDW). Did you know that Alon is one of the best-performing energy stocks of 2015? It’s consolidating now, but it has the fundamentals to power higher. And heck, a 17% payout isn’t too shabby.

Dave also recommended CVR Refining (NYSE: CVRR). Its 20% yield certainly pays you to wait. And it continues to enjoy high refining margins. CVR has scheduled maintenance this quarter, which will reduce its throughput, so we’ll keep an eye on it.

You have another pick that’s an oil play, even though it doesn’t seem like one at first. That’s The Goodyear Tire & Rubber Company (NYSE: GT). The prices of its inputs (rubber and oil) are falling hard. This widens Goodyear’s profit margins. At the same time, thanks to cheap gasoline, drivers are covering more miles. And that means tires wear out faster. It’s good to be Goodyear right now.

In case you haven’t seen it yet, I have a new pick for you in the January issue of Oxford Resource Explorer. It’s a pick in an industry that does better the more oil is produced and has to be moved around the world. The benchmark price this industry can charge is up 50% since mid-August. Yeah, that’s right. While oil company profits have gone down, there are some companies whose profits are going way up.

Click here to access the issue.

Have a happy new year.

All the best,

Sean

P.S. I hope you were able to join me at the New Orleans Investment Conference this year. It was packed with amazing presentations by top-notch analysts, including Brent Cook, Doug Kass, James Rickards, Marc Faber, Rick Rule, Doug Casey and David Morgan.

If you missed the conference, I have great news. You can now get a complete set of discs containing the audio recordings of all the presentations. Or you can order video recordings of select general session presentations.

I can tell you – because I was there – the quality and value of these presentations is exceptional. And now, they can be yours. Just click here.