What a difference a few months can make. Crude oil prices, after touching multidecade lows of $27 per barrel in February 2016, have now come roaring back. Despite the step back from their recent $52 highs amid Brexit-fueled fears, a very strong argument could be made that the worst is likely over.
With this in mind, some of The Motley Fool's industry specialists put their heads together to generate three great oil stocks for Foolish investors to buy in July. Here's what they came up with.
Trouncing the rest of big oil
Tyler Crowe:One oil company that has looked rather interesting for a while now is Total . Over the past couple of years, it has been able to weather the storm of oil prices better than just about every other integrated oil and gas company -- in part because it has finished many of its major oil and gas development projects over this time. The boost of production and the decline in capital spending have helped to prop up its earnings. While the rest of its big oil peers saw net income fall more than 40% in 2015, Total's net income decline was a much more palatable 18%.
Despite Total outperforming the rest of the big oil bunch as well as having a deep bench of projects that should help maintain strong growth, Wall Street hasn't given its shares much love lately. Call it a reaction to Brexit, contained fears of oil prices, or whatever you wish -- the fact is, shares of Total are trading at 1.3 times tangible book value and a dividend yield of 5.9%. While we can argue over whether the rebound for oil is right around the corner or we're still a ways off, there's no denying that shares of Total are cheap right now, and investors who step up to the plate today will likely be happy they did several years down the road.
Ready for the rebound
Matt DiLallo: Leading North American E&P Devon Energy has undergone a pretty notable transformation during the downturn. With assets scattered across multiple basins, the company found that it was spread a bit too thin. It addressed the problem by refocusing its portfolio on a half-dozen core plays, jettisoning a bevy of non-core assets while acquiring additional acreage to strengthen its core.
Devon's transition is now mostly complete, with it controlling a premier portfolio focused on the top-tier resource plays. Furthermore, it has strengthened its balance sheet in the process, which gives it significant flexibility to ramp up drilling activities as oil prices improve. To put this into perspective, Devon now has $6.5 billion of liquidity and more than 12,000 future drilling locations that are economical with oil at $50 a barrel. However, despite that enormous drilling inventory, it will remain disciplined in ramping up its production, focusing on capturing value and improving returns as opposed to growing for the sake of growth.
With the oil market's fundamentals starting to turn the corner, it plays right into Devon Energy's hands. The company is well positioned to ramp up its activities, which should drive strong earnings growth. This combinationmakes it a great oil stock to buy right now to profit from the continuation of the market rebound.
Betting on crude with the "Canadian ExxonMobil"
Sean O'Reilly: Imperial Oil doesn't get mentioned nearly enough when investors talk about potential oil investments. To be sure, there are loads of great companies in the space, two of which are mentioned above. But for a best-of-breed operator that has strong ties to a name synonymous with the oil industry, one need look no further than our neighbor to the north.
Founded in 1880 and domiciled in Canada, Imperial Oil is 69.6% owned by ExxonMobil. As you might imagine, this leads to interesting cultural similarities between the two companies. Operational efficiency and conservative balance sheet management are the modus operandi. The company has increased its dividend for 20 years straight, has returned$12 billionto shareholders over the last decade via those dividends as well as share buybacks, and continues to make strides in increasing production profitably. Imperial is currently trading at just 15.57 times fiscal year 2017 S&P Global Market Intelligence analyst estimates and 1.15 times tangible book value.
Bottom line: Imperial Oil is a best-in-class operator that knows how to reward shareholders. The current downturn is giving investors a rare chance to be a partner in what amounts to ExxonMobil's Canadian operations.
The article 3 Oil Stocks to Buy in July originally appeared on Fool.com.
Sean O'Reilly has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy. The Motley Fool recommends Total. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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