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Oil Favorites from the Heartland
10/27/2014 8:00 am EST
One of the areas where prices are dramatically falling is the price of oil and with it oil stocks, observes Russ Kaplan, editor of Heartland Advisor.
Making an accurate analysis of the value of oil stocks, however, requires going beyond all of the news headlines and media hype, and instead, looking at each of the oil companies’ fundamentals.
For this reason, I consider the large integrated oil company stocks such as ExxonMobil (XOM), Conoco-Phillips (COP), Chevron (CVX), and Occidental Petroleum (OXY) as strong buys to make at this time because they have diversified.
Take Conoco-Phillips as an example. It has a price/earnings ratio of 9.5, which is almost half the market average, a return on equity of 16%, and a dividend yield of 4.2%.
The dividend is considerably above what you can get on most safe investments and this is a safe investment.
But isn't the price of oil going down? Yes, but it is unlikely to stay there. Even if it does, Conoco-Phillips has also expanded their exploration and resources into natural gas, where prices are going up.
Looking beyond the United States to the rest of the world, the amount of oil and natural gas is going up sharply. Think, for example, how many Chinese are entering the middle class and giving up their bicycles for cars?
Plus, mining, manufacturing, and trade have exploded and all of these industries require ways to move their products.
Falling oil prices have also presented us with a new buy recommendation, which is Total (TOT), an integrated oil company out of France. It fits all of my criteria for undervalue and pays an incredible dividend of 5.5%.
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