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3 Top Oil Stocks to Buy Now

Jason Hall, Tyler Crowe, and John Bromels, The Motley Fool

Oil prices are steadily climbing higher. On May 22, Brent crude futures passed $80 for the first time since 2014, a sharp recovery from early 2016, when oil prices fell below $26 and had many pundits calling for $15 prices. But even with the strong run for oil prices and many oil stocks over the past year, there are still opportunities for patient investors with a long-term focus. 

If you're shopping for great buys in the oil patch right now, three Motley Fool contributors think you should take a close look at tech-heavy but asset-light oilfield services provider Core Laboratories N.V. (NYSE: CLB), value-priced independent oil producer Apache Corporation (NYSE: APA), and refining giant Marathon Petroleum Corp (NYSE: MPC)

Oil and gas pricing rising on a computer screen.

Image source: Getty Images.

Keep reading to learn why these real-world investors have identified Core Labs, Apache, and Marathon Petroleum as timely oil stock buys. 

This virtual "picks and shovels" company may be the best play in the oil patch

Jason Hall (Core Laboratories): Over the past four years, oil producers have learned the hard way that profits trump oil output -- at least the ones who survived the downturn, which saw oil prices fall more than 75% from mid-2014 to early 2016:

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price data by YCharts.

And while shares of Core Labs would fall more than half from the 2014 peak to the 2016 bottom, it remained a strong -- and profitable -- business through the worst oil downturn in decades while most of its peers struggled mightily. And even with its stock price up more than 40% since the bottom in 2016, I think Core Labs is a worthy buy today. 

Why? It gets back to my opening sentence: Profit trumps production. Today's oil producers are more return-focused than ever, even as oil prices approach $80 per barrel. Core Labs' business is providing producers with data they can use to wring more oil or gas out of each reservoir, increase output, and lower production costs. Core's customers are spending more for production enhancement, which also happens to be a higher-margin business for the company. This helped profits surge 30% in 2017 and another 39% on an adjusted basis in the first quarter of 2018

Add it all up, and today's profit-focused producers are leveraging Core Labs' capabilities to drive output and returns. That bodes very well for the company and its investors. 

A rare value

John Bromels (Apache Corporation): With oil prices above $70/barrel for the first time since 2014, oil drillers -- and their stock prices -- are having a very, very good year. Many independent oil and gas exploration and production companies have seen their shares rise 20% or more since the start of 2018, which is making value hard to find.

But there's one company that has bucked that outperformance trend: Apache Corporation. Despite the improving oil price climate and a recent monster find in the red-hot Permian Basin of Texas, Apache has actually seen its shares decline by 1.8% over the course of the year. Luckily for investors looking to buy into oil now, though, this represents an excellent opportunity to buy shares at a cheap price and snag a best-in-class 2.4% dividend yield.

While Apache hit some unforeseen hiccups in 2017 -- Hurricane Harvey caused several problems for the Houston-based company -- its first quarter of 2018 was a winner, with per-share earnings coming in above analysts' expectations. The company is also pumping more oil and gas, with Permian Basin production up 19% from its Q2 2017 lows. Indeed, Apache raised its 2018 production guidance on the strength of its Permian operations.

It's unclear why the market hasn't rewarded Apache the way it has other oil drillers. Apache's slow-and-steady development of its new Alpine High oil play may have investors nervous it will be late to the party if oil prices start to creep downward again. But in the meantime, Apache investors can pick up a decent yield and a compelling growth story for a bargain price.

An emerging force in American refining

Tyler Crowe (Marathon Petroleum): Ever since Marathon Petroleum was split off from its former parent, Marathon Oil, the refiner's management team has done an incredible job of creating shareholder value. The company has executed some well-timed strategic moves, such as buying BP's Texas City refinery and spinning off its midstream segment into subsidiary partnership MPLX. These moves, coupled with a generous helping of buybacks and dividend increases, have helped generate market-crushing returns since its inception. 

Today, though, we are getting a new chapter in Marathon's history, and that is as the U.S.'s largest refinery. Last month, Marathon Petroleum and Andeavor (formerly Tesoro) announced a $23 billion deal that will create the largest and most geographically diverse refiner in America with over 3 million barrels per day of refining capacity. Management believes that it will be able to reap enormous benefits from operational synergies and better sourcing of crude oil from its more diverse footprint. These should allow management to accelerate the rate at which it returns cash to shareholders over time. 

While I can understand why some people might be wary of such a large deal and the headaches that normally come with integrating two companies, Marathon's management has done a great job of maintaining shareholder value as its North Star. Marathon has already proven to be one of the better investments in the oil and gas industry over the past few years, and this Andeavor deal has the potential to make it an even better investment. 

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Jason Hall owns shares of Core Laboratories. John Bromels owns shares of Apache. Tyler Crowe owns shares of Core Laboratories. The Motley Fool recommends Core Laboratories. The Motley Fool has a disclosure policy.