Oil is a huge part of modern life, and its uses extend far beyond driving a vehicle from point A to point B. Oil is a component of products from plastics to rubber to asphalt to jet fuel.
When the price of oil drops, many companies are affected for better or for worse. Those that produce oil and gas see a decline in revenue because their product sells for less. Those that produce goods made from oil get a revenue boost as their supplies are cheaper to acquire.
As an investor, any change in crude goods signals an opportunity to profit when the change reverses. But where should you start? Let’s take a look at the top five stocks that you should buy as oil prices rebound. Keep in mind that this is speculative and not actual investment advice.
A Brief History of Crude
If you pay attention, you will notice that every time oil prices make a big move it makes the news.
Take a look at this chart showing oil prices over a period of 10 years. We can see that it tops out at about $144 per barrel back in June 2008 and then plummets rapidly during the Great Recession. Nearly as quickly as it plummeted, it regained ground. Between late 2009 and 2014 prices were consistently in the $90 range. But in 2014, oil plummeted again. It would sink well below $30 in early 2016 before beginning a long slow climb that continues at least into late 2018.
Source: Chart courtesy of Macrotrends
What does the price of a barrel of oil mean to a stock investor? Let’s take a look at five stocks that roughly correlate with the price of oil.
Exxon Mobil Corporation
Exxon Mobil Corp. has been one of the largest corporations in the world for a long time. With revenues in the hundreds of billions of dollars, this company is a solid stock where you can put your money. But just because it’s big doesn’t mean it isn’t subject to price fluctuations.
Exxon (NYSE: XOM) has seen many profitable years. Before the oil price decline in 2008, Exxon stock was trading in the mid $80s to low $90s. When the price of oil dropped, the stock took a roller coaster ride downhill until the middle of 2010, bottoming out in the upper $50’s. It rebounded until the end of 2014 when it peaked again at over $100 per share. Its 52-week range as of mid-October 2018 was about $72 to $89.
If you want a stock that follows the oil trends but has a somewhat lower risk, then Exxon Mobil is for you.
Chevron has roots in the 19th century. This company has withstood the test of time and is consistently in the top 20 largest companies in the world based on revenue.
Chevron (NYSE: CVX) follows a course similar to Exxon. In mid-2008, the company was trading at barely over $100 per share. By early 2009, that share price was nearly cut in half at $58 per share. The bottom didn’t last long, and as the economy recovered so did the stock. By the middle of 2014, prices were about 230% off of its lowest point, peaking at above $133 per share. Those prices didn’t last long, either, and the stock quickly sank to the mid-70s. Its 52-week range as of mid-October 2018 was about $108 to $134.
When oil prices rebound, we can expect Chevron to follow. This is a good stock for those who don’t want a ton of risk.
Conoco Philips is another a household name. It provides oil and gas to millions across America.
Conoco (NYSE: COP), has had a slightly rougher ride than Exxon or Chevron over the last 10 years and has seen a correspondingly bigger boost in 2018.
The stock topped out in June 2008 at about $94 per share. Over the next nine months, it lost nearly two-thirds of its value, hitting bottom in March 2009 at around $35 per share.
Conoco’s slow road back up was marked by a series of setbacks. It was getting back to peak prices in 2014 when oil prices declined and pushed the stock back into the mid $30s. It has moved upwards fast more recently. In 2018 alone, it moved from $55.32 to $79.40 as of Oct. 10, 2018.
As oil prices rebound, Conoco is poised to see more gains.
Cooper Tire & Rubber
Breaking away from the oil industry to look at oil-based products, we see a very different story. Cooper Tire & Rubber Co., a major player in the tire industry, profits from a low oil price in a couple of ways. The oil used to manufacture tires is cheaper. And people start driving more, meaning they buy more tires.
Cooper Tire & Rubber Co.'s (NYSE: CTB) stock took a different path. Back in 2007, when the economy was in its prime, the stock was trading around $27 per share. Like almost every other stock out there it took a big hit and lost over 80% of its value. In March 2009, it was valued at a mere $3.44 per share. The next few years saw great recovery, and when oil began declining in 2014, Cooper Tire stock gained.
So far, 2018 has not been kind to Cooper Tire. It started the year at $35.40 and was under $25 by mid-October 2018.
If oil prices continue to go higher, Cooper Tire may not prosper.
Petroleo Brasileiro, commonly known as Petrobras, is one for the risk takers. An oil stock with a market cap of $98 billion, it is about a quarter of the size of the other oil companies listed here and is majority-owned by the Brazilian government.
Petrobras (NYSE: PBR) has seen some great years and some that were not so great. In May 2008, the stock was valued at more than $70 per share. By the end of November of that year, it had plummeted to $17 per share. A quick rebound brought it back into the $50s, but it then declined steadily. In part, this was due to a Brazilian political corruption scandal known as Operation Car Wash that involved payments of kickbacks to government officials and Petrobras executives.
By mid-October 2018, Petrobras was back above $15.
An investor could profit immensely if oil rebounds. Otherwise, Petrobras could flounder for years to come.
The Bottom Line
Despite the big push toward renewable energy, oil is going to be a part of human life for many years to come. The price of oil will always fluctuate due to politics, supply and demand, war and a host of other reasons. The savvy investor can profit from that fluctuation.
Keep in mind that speculative investing (investing based on what might happen, rather than on strong financials) is risky. The potential for huge rewards is there, but you may lose all of your money.