After a strong run off the 2020 lows, the spot price for oil has backed up pretty dramatically. In fact, after hitting a 2021 high in July of $75.26 a barrel for West Texas Intermediate (WTI), the spot price fell all the way back to $62.14 on August 20, a big 20% decline. While prices have rallied back some, and Wednesday WTI was trading at the $68 level, many top stocks pulled back and are offering investors looking for energy exposure some outstanding entry points.
A new Goldman Sachs research report focuses on the companies with no hedges on their production. Big oil companies will often sell futures contracts at levels where they are prepared to deliver oil. They also protect their upside with hedges below the current pricing in case there is a big sell-off. Those with no hedges have no downside protection per se, but they can enjoy all the upside, and with prices back near the $70 level, they are making solid profits and generating free cash flow.
The Goldman Sachs report noted this:
Investors continue to focus on producers that are on track to generate attractive free-cash-flow which can allow for attractive cash returns to equity shareholders over time. Specifically, with second quarter 2021 results, investors appeared focused on which Exploration and production companies are most exposed to a potential upcycle in gas prices into 2022. At our base case scenario, we highlight Buy-rated stocks with no oil hedges and exposure to our bullish 2022 oil price outlook.
While all four of the featured stocks are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This large-cap company offers strong value for investors and reports earnings tomorrow. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids (NGLs) worldwide.
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