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Deep Dive: As Russia moves into Ukraine, here are the oil stocks that might benefit the most

In the modern era of undeclared wars, the start of any military action is bound to be confusing. Russia’s “peace-keeping” military move into eastern Ukraine, following Russian President Vladimir Putin’s recognition of two regions that have declared independence, puts the world energy market in flux.

The stage was already set for higher oil prices with accelerating demand. Further supply uncertainty in the face of economic sanctions against Russia and a possible disruption of the flow of natural gas to western European countries from Russia added to it.

Here’s current coverage of events in Ukraine and in world energy markets:

Below is a screen of oil companies’ stocks, following the same methodology we used on Feb. 15. Much has changed in a week, with a combination of stock-price action and analysts’ target changes meaning the analysts see upside of at least 30% for nine heavily favored stocks, when a week earlier that could be said for only five stocks.

In order to take a broad look at oil stocks, we began with the holdings of these three exchange traded funds:

The Energy Select Sector SPDR ETF
XLE,
-0.10%

holds the 21 stocks in the energy sector of the S&P 500
SPX,
-0.53%
.
 The sector has risen 21.8% this year through Feb. 18. All other sectors of the S&P 500 have fallen during 2022 except for the financial sector, which is up slightly. XLE has $35 billion in assets and annual expenses of 0.12% of assets. It is highly concentrated, with shares of Exxon Mobil Corp.
XOM,
+0.40%

 and Chevron Corp.
CVX,
+0.75%

making up 43.5% of the portfolio.

The iShares Global Energy ETF
IXC,
+0.15%

 holds 46 stocks, including all the stocks held by XLE. It brings in large non-U.S. companies, such as Shell PLC
SHEL,
+0.85%

SHEL,
-0.08%
,
  TotalEnergies SE and BP PLC
BP,
-0.21%

BP,
-0.85%
.
 (For the three companies just listed, the first ticker is a European listing, the second is the American depositary receipt, or ADR. Many of the locally traded non-U.S. companies listed below also have ADRs.) IXC has $1.9 billion in assets, with an expense ratio of 0.43%. The fund’s largest two holdings are Exxon Mobil and Chevron, which together make up 25.3% of the portfolio

The iShares S&P/TSX Capped Energy Index ETF 
XEG,
+0.86%

 holds 20 stocks of Canadian energy producers. It is also heavily concentrated, with the three largest holdings, Canadian Natural Resources Ltd
CNQ,
+1.47%
,
Suncor Energy Inc.
SU,
+0.41%

 and Cenovus Energy Inc.
CVE,
+1.14%

 making up 62% of the portfolio. The ETF has 2 billion Canadian dollars in total assets, with an expense ratio of 0.63%.

Analysts’ favorite oil stocks

Together the three ETFs hold 64 stocks. Here are the 18 stocks from that group rated “buy” or the equivalent by at least 80% of analysts polled by FactSet, sorted by the 12-month upside potential implied by consensus price targets. Share prices and consensus price targets are in the currencies of the country where the stocks are listed.

Company

Ticker

Country

Share “buy” ratings

Closing price – Feb. 18

Cons. price target

Implied 12-month upside potential

Held by

Advantage Energy Ltd

AAV-CA

Canada

85%

$6.00

9.52

59%

XEG

Birchcliff Energy Ltd.

BIR,
+2.23%

Canada

86%

6.28

9.73

55%

XEG

Parex Resources Inc.

PXT,
+1.50%

Canada

100%

26.68

37.45

40%

XEG

Tourmaline Oil Corp.

TOU,
+1.99%

Canada

100%

46.13

64.07

39%

XEG

Tamarack Valley Energy Ltd.

TVE,
+1.06%

Canada

92%

4.71

6.52

38%

XEG

ARC Resources Ltd.

ARX,
+2.36%

Canada

100%

14.40

19.87

38%

XEG

Enerplus Corp.

ERF,
+1.42%

Canada

85%

14.81

19.77

34%

XEG

Secure Energy Services Inc.

SES,
+0.33%

Canada

100%

5.98

7.81

31%

XEG

Whitecap Resources Inc.

WFC,
+2.08%

Canada

93%

9.13

11.90

30%

XEG

Freehold Royalties Ltd.

FRU,
+1.82%

Canada

87%

13.20

16.80

27%

XEG

Santos Ltd.

STO,
+3.20%

Australia

82%

6.87

8.61

25%

IXC

Shell PLC

SHEL,
+0.85%

U.K.

80%

19.44

24.07

24%

IXC

Cenovus Energy Inc.

CVE,
+0.51%

Canada

100%

19.60

23.75

21%

IXC, XEG

ConocoPhillips

COP,
-0.25%

U.S.

87%

89.63

104.61

17%

XLE, IXC

Diamondback Energy Inc.

FANG,
-0.49%

U.S.

85%

131.47

148.09

13%

XLE, IXC

Valero Energy Corp.

VLO,
-0.69%

U.S.

81%

86.72

94.41

9%

XLE, IXC

Schlumberger N.V.

USB,
+0.88%

U.S.

93%

40.21

43.33

8%

XLE, IXC

EOG Resources Inc.

EOG,
+0.14%

U.S.

82%

111.62

119.75

7%

XLE, IXC

Source: FactSet

You can click on the tickers for more about each company.

Click here Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

We have included dividend yields, as calculated or estimated by FactSet. Don’t assume dividends are distributed quarterly, as is common for U.S. stocks. Some companies only distribute annually.

You might be wondering why Exxon Mobil and Chevron didn’t make the screened list, above. Only 35% of the analysts polled by FactSet rate Exxon Mobile a “buy,” after the stock’s 26% increase this year through Feb. 18 and its 49% increase from a year earlier. Chevron didn’t make the list even though it is rated a “buy” by 74% of analysts because the analysts see “only” 8% upside for the stock over the next year. Then again, both of these stocks have attractive dividend yields, as you can see on the next list, and neither was forced to cut its dividend during the pandemic, when so many other companies did so.

Highest dividend yields — tread carefully

During a period of rising oil prices, it seems unlikely that investors will see many energy companies cutting dividends, as they did early in the coronavirus pandemic. Then again, a very high dividend yield implies investors expect payouts to be cut.

For this screen, we let the chips fall where they may, screening the 64 stocks to list the 23 with dividend yields of 4% or more. Here they are, with a summary of analysts’ opinions of the stocks.

Company

Ticker

Country

Dividend yield 

Share “buy” ratings

Closing price – Feb. 18

Cons. price target

Implied 12-month upside potential

Held by

Petroleo Brasileiro SA ADR Pfd

PBR.A-US

Brazil

15.32%

57%

12.85

15.23

19%

IXC

Petroleo Brasileiro SA ADR

PBR,
+2.00%

Brazil

14.05%

50%

14.01

14.43

3%

IXC

Woodside Petroleum Ltd.

WPL,
+3.76%

Australia

6.64%

69%

28.19

29.44

4%

XC

Enbridge Inc.

ENB,
+0.51%

Canada

6.55%

54%

52.55

56.36

7%

IXC

Kinder Morgan Inc. Class P

KMI,
+0.90%

U.S.

6.51%

21%

16.60

19.15

15%

XLE, IXC

ONEOK Inc.

OKE,
-0.81%

U.S.

6.05%

29%

61.81

66.00

7%

XLE, IXC

Peyto Exploration & Development Corp.

PEY,
+4.20%

Canada

5.99%

64%

10.01

14.09

41%

XEG

Pembina Pipeline Corp.

PPL,
-0.90%

Canada

5.97%

44%

42.23

44.41

5%

IXC

Williams Cos. Inc.

WMB,
+0.73%

U.S.

5.74%

68%

29.62

32.18

9%

XLE, IXC

Freehold Royalties Ltd.

FRU,
+1.82%

Canada

5.45%

87%

13.20

16.80

27%

XEG

TC Energy Corp.

TRP,
-0.79%

Canada

5.39%

26%

66.81

68.29

2%

IXC

TotalEnergies SE

TTE,
+0.32%

France

5.29%

71%

49.94

58.94

18%

IXC

GALP Energia SGPS SA Class B

GALP,
-0.82%

Portugal

5.15%

50%

9.71

11.86

22%

IXC

Eni S.p.A.

ENI,
+1.40%

Italy

5.03%

65%

13.31

15.18

14%

IXC

ENEOS Holdings Inc.

5020,
-0.62%

Japan

4.84%

78%

454.30

544.22

20%

IXC

InPEx Corp.

1605,
+1.69%

Japan

4.79%

78%

1,127.00

1,394.44

24%

IXC

Exxon Mobil Corp.

XOM,
+0.40%

U.S.

4.55%

35%

77.36

80.95

5%

XLE, IXC

Pioneer Natural Resources Co.

PXD,
-3.05%

U.S.

4.55%

79%

233.38

252.76

8%

XLE, IXC

Suncor Energy Inc.

SU,
+0.13%

Canada

4.53%

61%

37.06

44.10

19%

IXC, XEG

Valero Energy Corp.

VLO,
-0.69%

U.S.

4.52%

81%

86.72

94.41

9%

XLE, IXC

OMV A.G.

OMV,
-1.59%

Austria

4.36%

50%

52.72

62.69

19%

IXC

Phillips 66

PSXP,
-0.73%

U.S.

4.33%

79%

85.07

99.31

17%

XLE, IXC

Chevron Corp.

U.S.

4.26%

74%

133.42

144.42

8%

XLE, IXC

Source: FactSet

Also note that the highest-yielding stocks on the list are American depositary receipts of Petroleo Brasileiro SA (known as “Petrobas”) preferred shares
PBR.A,
+2.84%

and common shares
PBR,
+2.00%
.
Unlike traditional preferred stocks issued in the U.S., this Petrobas preferred issue has no par value. (More information about the Petrobas ADRs is available in this filing from Dec. 21, 2021, with the Securities and Exchange Commission.)

Any stock with a very high dividend yield is inherently dangerous. The high yield means investors believe the payout will be reduced. If investors expected the dividend to be safe, the share price would be higher and the dividend yield lower. So the highest-yielding stocks might best be left to professionals or other sophisticated investors.

During a time of special uncertainty for equity markets and the energy market, it remains important for you to do your own research and form your own opinions about which investments, whether through ETFs or other funds or a combination of those and/or individual stocks, match your investment objectives.

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