Oil stocks as a group have been market laggards since the S&P 500 bottomed out late last year. If there's any solace to be found, it's that analysts say rising demand and lower inventories should help the top-rated oil stocks outperform in the second half of 2024 and beyond.
Oil stocks are underperforming for a bunch of reasons, but an underappreciated factor might be that the majority of the bull market's gains have been driven by the Magnificent 7 stocks and excitement over all things AI.
But slower economic growth, a softening jobs market and the cumulative effect of years of above-average inflation have also been a weight on the sector. Happily, concerns about the state of consumer spending appear to have been overblown.
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"Many U.S. consumers have indeed faced weakening finances in 2024, but their demand for crude oil products has proved resilient," write Wells Fargo Investment Institute analysts Mason Mendez and John Laforge. "After a soft start to the 2024 driving season, U.S. crude oil demand has improved and is now in-line with its typically strong seasonal pattern."
Indeed, the U.S. four-week consumption average hit its highest point of the year in late June, the analysts add. At the same time, U.S. airport travel activity notched a record high of 2.82 million passengers per day in the final week of June.
The improving backdrop for demand has helped the S&P 500's energy sector close some of its performance gap with the broader market midway through the year, but it still has catching up to do. For the year to date through mid-July, the S&P 500 was up 17% on a price basis. The energy sector of the S&P 500 trailed the broader S&P 500 by about 5 percentage points.
How to find the best oil stocks
In order to find the best oil stocks to buy now, we started by screening the S&P 500's oil & gas sector for Wall Street analysts' top-rated names.
Here's how the ratings process works: S&P Global Market Intelligence surveys analysts' stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call. In other words, lower scores are better than higher scores.
We further limited ourselves to stocks with more than 10 Strong Buy recommendations (in order to ensure adequate analyst coverage and sample size). Lastly, we dug into research, fundamental factors, valuation, analysts' estimates and other data on the top names.
Our screen served up both familiar names and smaller players. Have a look at the table below to see Wall Street's best oil stocks to buy now.
| Company | Ticker | Analysts' Consensus Recommendation Score | Analysts' Consensus Recommendation |
|---|---|---|---|
| SLB | SLB | 1.45 | Strong Buy |
| Targa Resources | TRGP | 1.48 | Strong Buy |
| Halliburton | HAL | 1.61 | Buy |
| Diamondback Energy | FANG | 1.68 | Buy |
| Baker Hughes | BKR | 1.70 | Buy |
| ConocoPhillips | COP | 1.78 | Buy |
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