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5 Top-Ranked Oil Stocks to Buy as Iran Sanctions Return

Swarup Gupta
Analysts believe crude prices could cross $90 a barrel following the resumption of sanctions.

On Monday, the Trump administration announced that it is following on with its plan to reimpose sanctions on Iran. Officials announced that some sanctions will come into effect once again at 12:01 AM ET on Tuesday. The remaining measures will resume from Nov 5, 2018. Oil prices gained ahead of the resumption of sanctions, also bolstered by a decline in Saudi crude production.

Some analysts think that the step up in production by OPEC and its allies will cap oil prices going forward. But others believe that crude prices could cross $90 a barrel following the resumption of sanctions. This is likely to hold true since China seems unwilling to raise its intake in the near future. Investing in oil stocks looks like a smart option in this scenario.

Oil Prices Jump Ahead of Sanctions

On Monday, WTI crude price increased by 52 cents or 0.8% to $69.01 a barrel. This was its highest close since Jun 29. The immediate catalysts for the increase were the reimposition of sanctions and a fall in Saudi crude output for July. But the focus remained squarely on sanctions that are aimed at preventing Iran from evading strictures imposed on its energy industry.

The first phase of sanctions is aimed at making it tough for Teheran to undertake international monetary transactions. Additionally, transactions in precious metals, commodities like graphite and types of aluminum and steel will become difficult.

In effect, these measures will have a limited impact on Iran’s economy. But measures coming into place after three months could cripple the country’s automotive and civil aviation sectors. Sanctions to be imposed on Nov 5 will also effect oil-related transactions, shipping and the broader energy sector.

Can Oil Prices Cross $90?

When the United States imposed sanctions on Iran on the last occasion, around half of its total output of 2.4 million barrels went offline. Market watchers currently estimate that sanctions imposed on Tuesday and over the next three months will take 1 million barrels per day of Iran’s crude offline. 

Amrita Sen, chief oil analyst at Energy Aspects thinks sanctions on Iran’s crude could boost oil prices above $90 a barrel. She thinks that the belief that China would increase its intake of Iranian crude is a misconception. Instead, Sen pointed at the fact that China has said that it will leave its uptake unchanged.

Meanwhile, Morgan Stanley MS thinks the country’s production will fall to 2.7 million barrels a day by the fourth quarter. Bank of America Merrill Lynch analysts have opined that "for every 1 million barrels per day imbalance, we see a price impact on Brent of around $17."

Our Choices

The Trump administration’s determination to push ahead with sanctions on Iran is likely to weigh significantly on its economy, particularly its energy industry. While analysts had earlier predicted that the resultant surplus production would be mopped up by Asian economies, particularly China, this may not be the case.

In such an event, oil prices could increase significantly over the next three months. Investing in oil stocks looks like a prudent move at this point. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mammoth Energy Services, Inc. TUSK is an integrated oilfield service company.

Mammoth Energy Services has a VGM Score of A. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 3.2% over the last 30 days.

W&T Offshore WTI is a leading oil and natural gas explorer with operations primarily focused on resources located off the coast of Gulf of Mexico.

W&T Offshore has a VGM Score of A. The company has expected earnings growth of 38.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 9.4% over the last 30 days.  

McDermott International, Inc. MDR is a fully, vertically integrated company providing engineering and construction solutions to energy firms.

McDermott International has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 4.1% over the last 30 days.

Helix Energy Solutions Group, Inc. HLX is an international offshore energy company that provides specialty services to the offshore energy industry, with a focus on their growing well intervention and robotics operations.

Helix Energy Solutions has a VGM Score of B. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 18.4% over the last 30 days.

Eclipse Resources Corporation ECR is an independent exploration and production company. It is engaged in the acquisition and development of oil and natural gas properties in the Appalachian Basin.

Eclipse Resources has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 33.3% over the last 30 days.

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Morgan Stanley (MS) : Free Stock Analysis Report
 
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Helix Energy Solutions Group, Inc. (HLX) : Free Stock Analysis Report
 
W&T Offshore, Inc. (WTI) : Free Stock Analysis Report
 
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