Episode summary
Buy the Big Oil Stocks Now
Zacks Market Edge
· · 48 min · Hosts: Tracey Ryniec, Mark Zinski, Neena Mishra, Ethan Feller
Summary
Energy exposure has shifted from a crude-price trade to a refining-margin trade. The host argues that while oil producers still look attractive with crude back above $80 a barrel, the bigger opportunity now is in refiners because attacks on Russian and Middle Eastern infrastructure have tightened diesel and gasoline supply and pushed crack spreads to record levels. That has made refining stocks the strongest part of the energy complex this year.
Among integrated oil names, ExxonMobil (XOM), Chevron (CVX), and TotalEnergies (TTE) still look appealing because they combine production, transport, refining, and chemicals, and they all show strong expected earnings growth this year. But the host is more enthusiastic about pure-play refiners such as Valero (VLO) and Marathon Petroleum (MPC), which are benefiting most directly from elevated product prices and constrained capacity.
The host also warns that these are cyclical stocks and that next year’s earnings estimates are likely to come down if oil prices and crack spreads normalize. For now, though, the view is that refining remains the best short-term energy trade, while integrated majors still offer dividend income and leverage to a tighter oil market.
Key takeaways
- The host says refiners are the best-performing energy subgroup because diesel crack spreads are at record highs and capacity has been taken offline.
- ExxonMobil (XOM) remains attractive because it owns 21 refineries globally and has about 5 million barrels per day of refining capacity.
- Valero (VLO) is the host’s preferred pure-play refiner, with 14 refineries and expected earnings up 282% this year.
- Marathon Petroleum (MPC) also screens well, with 13 refineries and expected earnings up 336% this year.
- Chevron (CVX) still looks solid for income, with a 3.5% dividend yield and record U.S. production in the second quarter.
Notable quotes
“the refining stocks have soared and are the best performing group out of the subgroups in energy year to date”
“I still like the producers, the American and the Canadian producers because if oil the oil market does tighten, they will have some excellent quarters coming up”
“It owns 21 refineries globally, including several in the US, including the big big one down in Texas, the Bowmont refinery”
“this is the golden age. That's what I like to call it for the refiners, especially these that are not in, uh, the Middle East or Russia”
“I really like this industry uh refining and marketing but you can get refining and marketing with the big caps”
How the episode opens
Stocks, bonds, ETFs, straight out of downtown Chicago. This is Zach's Market Edge. Welcome to Zach's Market Edge, the podcast about investing in your life.
I'm your host, Tracy Rinick, and I'm going solo again this week to talk about energy stocks. I covered them right kind of in the beginning when the Iran war broke out and there were things that we did not know were going to happen back then that now some things have happened some things have not so my view on where you should be investing has changed a bit in the last six months so I wanted to revisit it and so that's what we're doing this week but what on energy should we even be looking at? Back at the beginning of the war, I recommended only buying the oil producers, specifically the American or Canadian ones, because they did not have exposure to the Middle East.
Um, and they were just simply getting the oil out of the ground and they were mostly unhedged. That means they did not have a bet on where oil would be. So as the oil price rose then uh so would their earnings and all of that.
Oil did rise it is higher than earlier in the year before the Middle East conflict began but it never got to the kind of crazier levels that everybody thought it would get to with the straight of Hormuz being mostly shut. So, we have been releasing oil globally from the SPRs, including the Americans, the Europeans, and the Japanese. And then, it sounds like, but nobody knows for sure, the Chinese were also using an SPR uh to buy less oil at the height of the conflict in like May and June of this year.
So, they bought less and this brought some stabilization to the oil market.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- oil stocks
- cash flow
- big oil
- stock picking
Companies and tickers mentioned
- XOM
- CVX
- TTE
- ExxonMobil
- Chevron
- TotalEnergies
Watch the episode
Watch “Buy the Big Oil Stocks Now” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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