So far, the market is off to a blazing start in 2019, and we’ve bounced more than 10% off the December lows.
Is it sustainable?
Personally, I much prefer a sure thing when it comes to investing money today. Fortunately, I think I’ve found one in the form of the energy stocks.
Last quarter, oil prices fell thanks mainly to a crisis of confidence triggered by the U.S. Federal Reserve removing stimulus from the economy and raising interest rates.
Those lower crude oil prices hurt oil stocks, but the losses are likely only temporary.
What took place over the last few months is all about behavioral finance.
When the central bank was unmoved to pause in its rate hike mode, investors threw a tantrum.
Bond rates fell on the long end, further flattening the yield curve. That flattening negatively impacted the dollar. And of course, a weaker dollar translated to lower crude prices.
The drop was significant too with the price of West Texas Crude falling to $46.06 per barrel from a high of $76.40 in October 2018.
Now, 2019 will be a whole new ball game.
The early stages of a rate hiking cycle are the most difficult and most volatile for the market.
That’s due to uncertainty. Nobody really knows what will happen with rate hikes; thus, it’s better to be safe than sorry.
Arguably, the U.S. Federal Reserve is near the end of its current rate hiking cycle. The impact of any further hikes will likely be a lot less volatile. If there are no further hikes, there will be a lot more certainty.
More certainty then results in more confidence.
And of course, more confidence means risk on more stock buying and bond selling.
Bond selling means higher rates on the yield curve, and higher rates mean a stronger dollar.
A stronger dollar means higher oil prices.
Such an outcome is a near certainty no matter how hard the government tries to screw it up with the shutdown.
Money Morning Global Energy Strategist Dr. Kent Moors has a price target on West Texas Crude of $70 to $72 per barrel in 2019. It’s easy to see why in the current environment.
In addition to my macroeconomic thesis of a strong dollar pushing up oil prices, Moors goes into more detail on what he calls a “global supply shortfall.”
Both OPEC and International Energy Agency analysts are suggesting a shortfall to present in the middle of the year.
Whatever the trigger, it does seem clearer than anything else out there that crude prices are moving higher. That makes buying energy stocks now the best contrarian play in the market today.
We turned to the Money Morning Stock VQScore™, which had just given three energy stocks its highest rating.
That means these stocks are screaming buys right now…
Top Energy Stocks to Buy Now, No. 3
The first stock we have for you today is EOG Resources Inc. (NYSE: EOG).
When oil last hit the $70 target Kent Moors sees for 2019, EOG Resources traded for $132 per share. Today, you can buy the stock for less than $100.
That’s a bargain in my book.
The company is an oil and gas exploration company founded in 1985.
It is stable and growing.
It reported $17 billion in revenue last year, and there’s an expectation of $18 billion for 2019 according to analysts.
A substantial $5.74 per share in earnings allows the company to withstand whatever speed bumps that may be ahead.
I don’t expect any.
About the only thing that I’d be worried about is natural gas prices, but even there, the trajectory for gas should be similar to oil.
Top Energy Stocks to Buy Now, No. 2
Second on our list is CrossAmerica Partners LP (NYSE: CAPL).
CrossAmerica is a fuel distribution company focusing on both wholesale and retail, most notably with its Circle K stores.
Shares of CrossAmerica traded for just under $19 per share at its peak in 2018.
That’s not much appreciation from the current price of just over $16.
The real prize with CrossAmerica is the 13% dividend yield.
Typically such a high yield is not sustainable, but in the case of CrossAmerica, I think it is.
Analysts expect the company to make a profit of $0.71 per share in 2019. That cash flow should be able to support the dividend.
If the dividend yield drops, it will likely be due to shares of CrossAmerica moving higher.
That’s a good outcome for investors no matter the case.
Top Energy Stocks to Buy Now, No. 1
Finally, the top stock on our list right now is EnLink Midstream Partners LP (ENLK).
This midstream oil company is another big dividend play for investors.
Currently, the company offers a dividend yield of 11.86%.
In the fall of 2018, shares of Enlink peaked at just under $19 per share. The value proposition with Enlink is a bit more attractive than CrossAmerica, given the $13 per share current price.
Analysts expect the company to make a consistent profit of $0.38 per share this year and $0.37 per share in 2019.
Revenue is expected to jump by more than 10% from $7.75 in 2018 to $8.78 in 2019.
That 10% revenue growth is huge considering the late cycle nature of the current economy.
If Moors is correct with his prediction on oil prices, the numbers might be even stronger.
Energy stocks are not only a great contrarian play for 2019, they might very well be the surest thing in the market today.
— Jamie Dlugosch
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Source: Money Morning