How you can profit from rising oil prices with these 3 stocks

The energy sector is beginning to generate a lot of interest among the top brokers with many expecting it to perform well over the next year.

Brent crude oil is now trading at $USD68 a barrel, its highest level in 3 years but still some way off its 2008 highs of $140 a barrel. The Financial Times is reporting that there are five key factors to watch that could affect oil prices and possibly push them higher. These factors are:

  • Rising geopolitical risks- including protests in Iran
  • US shale and non-Opec supply
  • Global demand
  • A potential alliance between Opec and Russia
  • Hedge funds accumulating bullish positions on oil prices.

With LNG spot prices also rising, this creates an interesting proposition for energy stocks. With that in mind, here are 3 energy stocks that are highly leveraged to rising prices in 2018:

  • Woodside Petroleum Limited (ASX: WPL) is stepping up production by investing in a number of growth and low capital projects. Top broker Morgan Stanley expects Woodside’s Senegal project to provide some upside as interest in that country heats up. Top firms BP and Total have all made recent moves in Senegal. Woodside is currently trading at a PE ratio of 22 and a dividend yield of 3.5%.
  • Santos Ltd (ASX: STO) has a strong asset base with low production costs (e.g. its Cooper Basin & Gladstone LNG assets) as well as high margin assets such as PNG, Northern Australia, and WA Gas. The company recently signed a deal with Origin Energy to increase its domestic gas supply.
  • Origin Energy Ltd (ASX: ORG) is also tipped to do well in 2018 with Morgan Stanley raising its share price target for the company to $10.88 from $8.88 and maintaining its “overweight” recommendation. UBS and Goldman Sachs also have buy ratings on the company. Origin Energy is currently trading at a PE ratio of 17.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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