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5 Energy Stocks That Are Broker Favorites

Nilanjan Choudhury

One thing the oil market downturn has taught investors: nobody has much visibility into the future. So, when you think of something as a clear line of sight one quarter, it can soon be overshadowed by an unforeseen event.

We all know that 2015 was brutal for the oil industry with U.S. crude futures ending last year 30% below the 2014 level, which itself was 46% below the 2013 level.

This year promises more of the same.

The uncertainty in the energy markets have continued in 2016 with a lot of volatility. Oil prices recovered from a 12-year low of $26.21 a barrel in February to $50/barrel mark in early June, slipped again to under $40 only to rally toward $50 once more.

Energy Investing Is Tricky

Despite oil’s massive recovery since February, it’s still under $50 – about half the level of two years ago – and far below the breakeven price for many energy companies. Therefore, the commodity is not yet out of the woods and record high inventories amid robust production could still push it to the depths of multiyear lows.

Even the industry, which is cutting deeper, seems to think so. Companies around the world continue to slash jobs, defer/cancel projects worth billions of dollars and renegotiate contracts with suppliers to help protect their balance sheets.

To sum up, even as crude prices continue to make their way up, world oil supply remains in a glut and is likely to remain so through 2016. This might make any oil price strength short-lived.

Follow Expert Opinion  

The uncertainty of oil prices means that the future direction of the commodity’s movement is anybody's guess. However, fundamentals suggest that the odds are firmly stacked against a sustained rally and point toward sideways-to-flat crude price expectation. In fact, some industry observers feel that the door is open for one more retest of the recent multi-year lows.

On the contrary though, the commodity’s recovery to $50, predictably, has had a positive effect on stocks in the sector. In particular, savvy investors might view the price bump as the impetus the stocks need after freefalling for two years. Undoubtedly, still a long way to go, but improving crude prices may have already primed certain oil producers and linked entities for upward momentum.

In such troubled times, it might be a wise decision to go ahead with stocks preferred by analysts who have a deep fundamental knowledge and understanding of the industry and its companies.

Stocks with brokerage upgrades are often in for a good day and probably more. Consequently, a downgrade may indicate rough days ahead. Whatever the movement, the market tends to react to it. Also, research shows that stocks with broker rating upgrades outperform those that aren't upgraded and they almost certainly record better results than those stocks that get downgraded.

Here Are the Stocks

With the help of our Zacks Stock Screener, we have selected 5 stocks that have been given Strong Buy/Buy rating by 80% or more brokers. A favorable Zacks Rank #1 (Strong Buy) or #2 (Buy), which justifies a company’s strong fundamentals, further adds value to these stocks.

Matador Resources Co. MTDR: Matador Resources is an independent exploration and production company engaged in the acquisition, finding, and development of unconventional onshore oil and gas properties.

Zacks Rank #1

Strong Buy or Buy broker rating: 80%

China Petroleum and Chemical Corp. SNP or Sinopec: With its head office in Beijing, Sinopec is one of the largest petroleum and petrochemical companies in Asia.

Zacks Rank #2

Strong Buy or Buy broker rating: 100%

Independence Contract Drilling Inc. ICD: Houston, TX-based Independence Contract drilling offers land drilling services for oil and natural gas producers primarily in the U.S.

Zacks Rank #2

Strong Buy or Buy broker rating: 83.3%

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vermilion Energy Inc. VET: A Canada-based international oil and gas producer, Vermilion Energy boasts of leading positions in Europe, North America and Australia.

Zacks Rank #2

Strong Buy or Buy broker rating: 100%

Ultrapar Participações S.A. UGP or Ultrapar: It is one of the largest distributors of liquefied petroleum gas in Brazil and a leading producer of petrochemicals and chemical.

Zacks Rank #2

Strong Buy or Buy broker rating: 100%

Bottom Line

For the novice investors, energy market volatility makes investing a precarious and panicky activity. However, the above-mentioned stock picks are expected to be good bets given their top ranks and brokers’ confidence.

Where Do Zacks' Investment Ideas Come From?

You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
CHINA PETRO&CHM (SNP): Free Stock Analysis Report
ULTRAPAR PA-ADR (UGP): Free Stock Analysis Report
MATADOR RESOURC (MTDR): Free Stock Analysis Report
VERMILION EGY (VET): Free Stock Analysis Report
INDEPENDC CONTR (ICD): Free Stock Analysis Report
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