With oil at six-year lows and some of the biggest names in the energy sector in the red this year, now is a great time to get excited about underperforming oil and gas stocks.
The price of West Texas Intermediate crude oil is trading at a six-year low of around $42.00 per barrel. And with an oversupply of oil and an underperforming global economy, chances are really good that oil prices will stay depressed for the foreseeable future.
It also doesn’t help that OPEC, the charming friends of the United States, reported that oil output hit a three-year high in July with a daily average of 31.5 million barrels. The record output was a result of increases from Iraq, Angola, Saudi Arabia, and Iran. (Source: opec.org, August 14, 2015.)
Interestingly, while the International Energy Agency said the oversupply of oil will persist through 2016, it also said demand for oil is at its fastest pace in five years and that lower oil prices will start to make a dent in OPEC production in the coming years.
You can either wait until next year to see if that happens, or you can look at some of the biggest underperforming energy companies now and determine whether it’s a good idea as an investor to buy low and sell high.
Below are three of the best underperforming energy stocks to watch.
3 Unloved Energy Stocks That Could Rebound
Exxon Mobil Corporation (NYSE:XOM)
2015 has not been kind to the world’s largest publicly traded integrated oil company. Oil prices are down more than 21% while Exxon Mobil Corporation’s (NYSE:XOM) share price is down 12% trading at a three-year low of $78.00 per share.
Oil prices will remain low for the foreseeable future. But Exxon is a well-diversified energy giant with strong upstream, midstream, and downstream operations. It also has a strong balance sheet.
What’s the downside? Aside from oil prices having to rebound, Exxon is so large that its share price will not exactly spike when the global economy recovers. Instead, it will continue to provide investors with steady, long-term capital appreciation.
While you wait for this to happen, you can take solace in the company’s 3.5% annual dividend yield ($2.92 per share). You may also like to know that Exxon Mobil has raised its annual dividend for the last 33 consecutive years. That certainly helps weather industry cycles and inflation.
BP PLC (NYSE:BP)
BP PLC (NYSE:BP), the world’s number three publicly traded oil concern, certainly has room to grow. Trading at around $35.75 per share, the company is down 2.1% since the beginning of 2015 and almost 30% over 2014 highs near $50.00 per share.
The company has operations in approximately 80 countries and has reserves of 17.52 billion barrels of oil equivalent. With 14 refineries, BP processes 3.2 million barrels of crude oil per day. (Source: BP.com, last accessed August 14, 2015.)
In its recently announced second-quarter results, the company said it continues to cut costs and improve efficiencies. Brian Gilvary, CFO also noted that the company is focused on rebalancing its sources and uses of cash during the lower price environment.
These proactive measures will not only help the company’s share price rebound in the coming months and years, it also helps BP maintain its juicy 6.7% ($2.40 per share) annual dividend.
Schlumberger Limited. (NYSE:SLB)
It can’t get the oil industry out of a slump but it can help individual oil and gas companies. Schlumberger Limited (NYSE:SLB) is one of the world’s largest oilfield services companies. Some of its services include seismic surveys, formation evaluation, drilling technology and equipment, construction and completion, and project management.
While the company’s share price isn’t exactly getting hammered, it’s flat year-to-date and there is certainly room for improvement. Trading near $83.75 per share, Schlumberger is down 28% over 2014 highs.
The good news; when the oil industry rebounds, energy companies will be turning to Schlumberger to help them find new oil plays. The better news; in addition to the capital appreciation, investors can enjoy the company’s annual dividend of 2.38% or $2.00 per share.