Hideout in the Energy Sector? Here are the Top Oil Stocks to Watch

The energy sector has remained a safe-haven as the U.S and Israel’s conflict with Iran continues to escalate. Geopolitical tensions in the Middle East have led to broader market volatility, with crude oil prices rising because the Iran conflict has created a sudden and significant risk of supply disruption, especially around the Strait of Hormuz, the world’s most critical oil chokepoint.

Even though Iran produces only a modest share of global crude, its geographic position gives it enormous leverage over global flows.

Keeping this in mind, the energy sector is the top-performing sector this year, boosted by a nearly 30% surge in crude prices amid disruptions in the Middle East. Notably, the performance of the broader Zacks Oils & Energy Market is not too far behind, impressively outperforming the S&P 500’s virtually flat YTD return and the Nasdaq’s decline of 3%.

Big Oil Stocks are at 52-week Highs

Energy stocks with the strongest upside from the Iran conflict are those most leveraged to crude oil price spikes and potential supply disruptions through the Strait of Hormuz. The conflict has already pushed Brent and WTI crude prices to multi-month highs of over $70 a barrel, and investors have rotated heavily into large-cap integrated oil companies, U.S. shale producers, and refiners.

It’s no surprise that Chevron CVX and Exxon Mobil XOM have led the wave of integrated oil stocks reaching 52-week highs, having international operations that span the entire value chain of oil production, refining, and distribution. Occidental Petroleum OXY is another integrated oil producer that has recently seen its stock hit a new one-year peak and trades at a more affordable price tag of $53 a share, although its shale production is primarily in the U.S. 

Regarding oil refiners, Marathon Petroleum MPC, Phillips 66 PSX , and Valero Energy VLO are noteworthy names that are near 52-week peaks as well.

All of these big oil stocks currently land a Zacks Rank #3 (Hold), with it noteworthy that Chevron and Phillips 66 stand out with annual dividend yields that are above 3%.

A  Zacks Rank #1 (Strong Buy) Stock to Consider

Sporting a Zacks Rank #1 (Strong Buy), TechnipFMC FTI looks poised to benefit from the oil disruption in the Middle East as a leading manufacturer and supplier of products, services, and fully integrated technology solutions for the energy sector.

The company benefits when oil companies increase capital spending on offshore and subsea projects, which typically happens when oil prices rise. TechnipFMC is diversified globally but is less exposed to direct Middle East operational risk. Ultimately, higher long-term oil prices generally support more subsea investment, which is TechnipFMC’s core business.

TechnipFMC stock is trading near a 52-week high of $68 but is still reasonably valued at 24X forward earnings, with EPS expected to rise 14% this year and projected to leap another 19% in fiscal 2027 to $3.34. Plus, EPS revisions have continued to trend higher in the last 30 days, as shown below.

Bottom Line & What to Watch Next

Investors may be gravitating toward the energy sector as a temporary hideout because it offers a combination of defensive characteristics, strong fundamentals, and geopolitical tailwinds that stand out in a volatile market environment. Several forces are pushing capital into energy right now, and together they make the sector feel comparatively safer than high-beta or richly valued areas of the market.

That said, here are five key points that investors will want to watch going forward.

1. Whether tanker traffic through the Strait of Hormuz slows further

2.  OPEC+ production responses

3. Duration and escalation of the conflict

4. U.S. SPR (Strategic Petroleum Reserve) policy changes

5. Production and refining margins if crude volatility persists

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This article originally published on Zacks Investment Research (zacks.com).

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