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Iran Deal Exit to Boost Oil Prices: 5 Top-Ranked Picks

Swarup Gupta
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On Monday, President Donald Trump tweeted that he would be announcing his decision on the Iran nuclear deal at 2:00 pm on Tuesday. The price of U.S. crude had soared above the $70-mark before his announcement on speculation that Trump would take a tough position on Iran. Early on Tuesday, prices declined marginally from their highest level since 2014 on profit taking.

Trump continued to criticize the nuclear deal on Monday and it is widely believed that renewed sanctions on Iran will lead to a significant shortage in supplies. Another factor boosting oil prices is the intensifying economic crisis in Venezuela, which is endangering both production and exports. Adding oil stocks to your portfolios at this time looks like a smart option.

Trump Thinks Deal is “Badly Negotiated”

Trump has been critical of the deal for a long time now and renegotiating the terms of the agreement was one of his key campaign pledges. In 2017, Trump declined to certify the deal to Congress. Later, in January this year he waived sanctions but warned that this was unlikely to happen again unless the terms of the deal were made tougher.

Meanwhile, repeated negotiations will the United States’ European partners have failed to yield results ahead of a May 12 deadline. Trump and hawkish foreign policymakers believe that the deal with Iran is flawed since it fails to rein in the country’s ballistic missile program, its role in regional tensions and its backing for terrorist organizations designated by the United States.

Fresh Sanctions to Impede Oil Supplies

On Monday, WTI crude moved above $70 per barrel for the first time since Nov 2014 before moving marginally lower on Tuesday following profit taking. Impending sanctions against Iran have helped to boost oil prices in recent weeks. Analysts believe that such measures would deprive global oil markets of around 350,000 to 500,000 barrels of Iranian crude oil.

And this could be just the beginning of a supply shortage which could raise global prices by nearly $7 per barrel, per a report from The Goldman Sachs Group, Inc. GS. Currently, Iran’s oil exports stand at 2.6 million barrels per day. Further, long term sanctions could harm major oil projects.

In July 2017, TOTAL S.A. TOT inked a 20-year deal with the National Iranian Oil Co., which would commence with a $2 billion project. The end of the nuclear deal would mean that the United States would require oil companies across the world to reduce their purchases from Iran. Total, which has U.S. interests, is unlikely to violate U.S. sanctions.

Our Choices

Most market watchers believe that Trump is likely to exit the Iran nuclear deal on Tuesday or at least take a tougher stance on the issue. This would imperil oil supplies from Iran at a time when Venezuela’s declining oil production is likely to undergo further reductions.

OPEC and Russia’s production controls agreement has already boosted oil prices substantially this year. If the United States decides to re-impose sanctions on Iran, oil prices are likely to get a further boost. Investing in stocks of oil companies looks like a smart option 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 VGM score of B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Delek US Holdings, Inc. DK is a diversified energy business focused on petroleum refining, marketing and supply of refined products, and retail marketing of fuel and general merchandise.

Delek US Holdings has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 42.4% over the last 30 days.

Nine Energy Service, Inc. NINE provides onshore completion and production services to unconventional oil and gas resource development.

Nine Energy Service has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 33.9% over the last 60 days.

Energy Transfer Equity, L.P. ETE is a provider of a range of services related to energy in the United States.

Energy Transfer Equity has a VGM Score of A. The company’s projected growth rate for the current year is 12.4%. The Zacks Consensus Estimate for the current year has improved by 1.1% over the last 30 days.

CVR Refining, LP CVRR is engaged in the refining and marketing of petroleum primarily in the United States

CVR Refining has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by more than 100% over the last 30 days.

WildHorse Resource Development Corporation WRD is an oil and natural gas company. It focused on the acquisition, exploration, development and production of oil, natural gas and natural gas liquid resources.

WildHorse Resource Development has a VGM Score of B. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 11.7% over the last 30 days.

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CVR Refining, LP (CVRR) : Free Stock Analysis Report
 
Energy Transfer Equity, L.P. (ETE) : Free Stock Analysis Report
 
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
Delek US Holdings, Inc. (DK) : Free Stock Analysis Report
 
TOTAL S.A. (TOT) : Free Stock Analysis Report
 
Wildhorse Resource Development Corporation (WRD) : Free Stock Analysis Report
 
Nine Energy Service, Inc. (NINE) : Free Stock Analysis Report
 
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