Oil Price Weakness: 5 Stock Market Picks to Watch for Value

Weak oil pricesBasically, oil prices have been wreaking havoc in the energy sector and value has emerged in a stock market that offers little.

While the oil and gas business isn’t everyone’s cup of tea, it’s a proven wealth creator for shareholders and a top sector for generating dividend income.

In these pages, we’ve considered Kinder Morgan, Inc. (KMI) on a number of occasions. This position has held up far better on the stock market than its peer group. The company recently acquired its limited partnership subsidiaries and management expects to grow dividend payments by a minimum 10% in each year for the rest of this decade.

In recent history, top domestic energy producers were expensively priced on the stock market and rightly so. Institutional investors bid these stocks tremendously as they provided the growth.

As is always the case with resources, the story has materially changed for a number of companies. High expense operators are going to be in trouble this year.

Weak Oil Prices Making Oil Stocks Attractive?

One company that continues to hold up well on the stock market and is now much more reasonably priced is Synergy Resources Corporation (SYRG).

This highly liquid institutional favorite is becoming an attractive takeover candidate. The stock is down marginally from its high, which is a real accomplishment, considering the carnage among a great number of oil stocks.

One company that is a good example of the kind of oil play that may appeal more to income-seeking investors is Phillips 66 (PSX). This spin-off from ConocoPhillips (COP) has been consistently increasing its dividends to stockholders.

The position did very well on the stock market since being spun off, and the story is mostly about earnings growth. The top line is expected to be pretty flat near-term.

Oil stocks are high-risk, just like any other resource-related investment. The underlying commodity is the arbiter of earnings and share prices. While the significant reduction in oil prices is likely to be a short-term aberration in the longer-run trend, the supply glut is here to stay for a little while.

Previously, we considered related businesses that benefit from lower oil prices. The railroads are a standout and once again, many of these companies should report great first-quarter financials. (See “Four Top Stock Groups for Your Investment Portfolio in 2015.”

Additional Stocks Set to Benefit from Weak Oil

The Greenbrier Companies, Inc. (GBX) is an Oregon-based supplier to the railroad industry. Sales and earnings for this company are expected to be strong this year. On the stock market, Greenbrier has pulled back substantially and the position is no longer fully priced, making it a good example of the kind of stock that’s cheaply priced and set to profit.

One highly successful company that’s worth putting on your radar now is Cabot Oil & Gas Corporation (COG). This domestic natural gas producer made a lot of headlines (related to its growth) over the last several years. It’s been an institutional favorite and the position quadrupled on the stock market until midway through last year.

With the energy sector now less in favor due to weak spot prices, the next few quarters should provide investors with the opportunity to consider growing companies at much more attractive prices.