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4 Stocks to Gain Even If OPEC Decides Against Deal Extension

Zacks Equity Research
The Vienna meeting is expected to answer the million-dollar question - will oil continue to trade above $55 per barrel?

The scheduled meeting of OPEC members with non-OPEC crude exporters for the third time in Vienna, Austria, is dominating the headlines. It should provide an answer to the million-dollar question — will oil continue to trade above $55 a barrel?  

The landmark production-cut accord, first signed in late 2016, helped oil cross the $50-a-barrel mark. After the deal, with the advancement of crude, major energy players regained financial strength and have been rewarding shareholders with healthy dividends.

OPEC Meeting

On Nov 30, OPEC members will meet non-OPEC players to decide on an extension of the crude production cut accord beyond the first-quarter 2018. More than 20 oil producers, including leading exporters like Russia and Saudi Arabia, will participate in the Vienna meeting. The agreement entails putting roughly 1.8 million barrels a day of crude oil out of the market.

Possible Outcomes

Most analysts are expecting the Vienna meeting to conclude with a deal extension for another nine months next year.

But Russia concerns might compel OPEC to push for either a shorter extension, say six months, or to delay its verdict until the first quarter next year, said CNBC. Both the decisions contradict the market’s expectations and hence could lead to a fall in oil prices.    

Tom Kloza of Oil Price Information Service added that it will be difficult for crude to cross $59.05 even if the cartel chooses the nine-month extension because recent crude prices are already reflecting the information.

Six-Month Extension

Alternative investment manager Again Capital believes that it will be hard to convince Russia for more than a six-month extension.

Again Capital added that Russian oil producers are not willing to extend the agreement as it will open up scope to ramp up drilling activities in the U.S. This in turn will hurt crude prices.

No Decision on Deal Extension

If OPEC refrains from taking any decision in the Nov 30 Vienna meet, oil prices will collapse.  

British multinational bank Barclays BCS said that OPEC’s decision to delay its verdict until the first quarter of next year will disappoint the market. Per Barclays, Brent crude will decline to the mid-$50 range from more than $60 a barrel.

Nine-Month Extension

CNBC reveals that with the speculation of oil to go up, hedge funds are opting for more long positions on crude futures. The decision is creating a ceiling in the oil price chart as traders will probably book profits once the commodity reaches a certain mark.

On top of that, the gathering of crude drillers in oil resources, as revealed by the recent rig count report of oilfield services player Baker Hughes, a GE company BHGE, will also hinder the crude rally.

Baker Hughes reported that rigs engaged in the exploration and production of oil and natural gas in the United States totaled 923 in the week ended Nov 22 — higher than the prior week’s 915. This marked an increase for three consecutive weeks after the tally fell for five weeks in a row.

Which Energy Stocks to Buy?

The fate of energy companies largely depends on crude price. The article has already established that none of the probable outcomes of OPEC’s Vienna meeting could boost oil prices beyond the $60 per barrel mark. This will likely limit the potential of many energy players to generate incremental cashflows.

Now, the challenge is to zero in on stocks that are shielded against the OPEC meeting outcome. We have employed our proprietary Stock Screener to shortlist four stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy).

These stocks also have a VGM Score of A or B. Here, V stands for Value, G for Growth, and M for Momentum, and the score is a weighted combination of these three scores. Our research shows that stocks with a solid VGM Score, when combined with a favorable Zacks Rank, offer the best investment opportunities.

BP Plc BP is a leading integrated energy company. The British energy giant has a portfolio of major upstream projects, like Clair Ridge, Juniper and Mad Dog Phase 2 developments, that are expected to drive cash flow.

The company sports a Zacks Rank #1 and has a VGM Score of B. It is expected to see year-over-year earnings growth of 116.5% in 2017. You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Plano, TX, Denbury Resources Inc. DNR is an upstream energy player. The Zacks #1 Ranked firm posted an average positive earnings surprise of 125% for the last four quarters.
The company, with a VGM Score of A, will likely post year-over-year earnings growth of 58.3% in 2017.

Northern Oil and Gas, Inc. NOG, based in Minnetonka, MN, is also an upstream energy player. The company, with Zacks Rank of 1, managed to beat the Zacks Consensus Estimate in three of the last four quarters, with an average positive earnings surprise of 175%.

Presently, the company has a VGM Score of B.

Headquartered in Fort Worth, TX, Approach Resources, Inc. AREX is primarily engaged in exploration and production activities in premium oil resources.

Approach Resources carries a Zacks Rank #2 and has a VGM Score of A.

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Barclays PLC (BCS) : Free Stock Analysis Report
BP p.l.c. (BP) : Free Stock Analysis Report
Denbury Resources Inc. (DNR) : Free Stock Analysis Report
Northern Oil and Gas, Inc. (NOG) : Free Stock Analysis Report
Approach Resources Inc. (AREX) : Free Stock Analysis Report
Baker Hughes Incorporated (BHGE) : Free Stock Analysis Report
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