5 Energy Stocks That Brokers Love Right Now

Earlier this month, oil prices settled above the psychologically important $50 per barrel level for the first time in more than 10 months.

The Oil Rally

Crude prices, which reached $110 per barrel in mid-2014, fell to a 12-year low of $26.21 in Feb as investors worried about the oversupplied market. The commodity’s collapse threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and pummeling producer’s profit margins.

However, indications that supply was easing helped oil prices rebound some 90% since then.

The surge in benchmark crude is being driven by supply outages in Nigeria, Libya, Venezuela and Canada – countries that hold some of the world’s major sources of crude.

The upward pressure in oil prices also reflect the U.S. Energy Department's recent inventory releases that show crude stockpile builds turning into draws. Things have been further helped by a continued decline in U.S. crude production and drop in oil-directed rigs – indicating a break in shale drilling activities.

Will the Momentum Last?

The million dollar question now is whether the rally marks the beginning of a powerful turnaround in oil prices on the back of deep cuts from explorers, or a temporary surge based on optimistic forecasts.

Despite oil’s massive recovery since February, it’s still under $50 – about half the level of two years ago – and far below the breakeven price for many energy companies. Therefore, the commodity is not yet out of the woods and record high inventories amid robust production could still push it to the depths of multiyear lows.

Even the industry, which is cutting deeper, seems to think so. Companies around the world continue to slash jobs, defer/cancel projects worth billions of dollars and renegotiate contracts with suppliers to help protect their balance sheets.

To sum up, even as crude prices continue to make their way up, world oil supply remains in a glut and is likely to remain so through 2016. This might make any oil price strength short-lived.

Confused? Broker Recommendation Can Help

The uncertainty of oil prices means that the future direction of the commodity’s movement is anybody's guess. However, fundamentals suggest that the odds are firmly stacked against a sustained rally and point toward sideways-to-flat crude price expectation. In fact, some industry observers feel that the door is open for one more retest of the recent multi-year lows.

On the contrary though, the commodity’s recovery to $50, predictably, has had a positive effect on stocks in the sector. In particular, savvy investors might view the price bump as the impetus the stocks need after freefalling for two years. Undoubtedly, still a long way to go, but improving crude prices may have already primed certain oil producers and linked entities for upward momentum.

In such troubled times, it might be a wise decision to go ahead with stocks preferred by analysts who have a deep fundamental knowledge and understanding of the industry and its companies.

Stocks with brokerage upgrades are often in for a good day and probably more. Consequently, a downgrade may indicate rough days ahead. Whatever the movement, the market tends to react to it. Also, research shows that stocks with broker rating upgrades outperform those that aren't upgraded and they almost certainly record better results than those stocks that get downgraded.

Here Are the Stocks

With the help of our Zacks Stock Screener, we have selected 5 stocks that have been given Strong Buy/Buy rating by 80% or more brokers. A favorable Zacks Rank #1 (Strong Buy) or #2 (Buy) further adds value to these stocks.

Braskem SA (NYSE:BAK) : Together with its subsidiaries, Braskem SA produces and sells thermoplastic resins. Headquartered in Brazil, the company is the largest petrochemical operation in Latin America. Over the past quarter, the Zacks Consensus Estimate for 2016 experienced an increase of 25% to $2.32.

Zacks Rank #1

Strong Buy or Buy broker rating: 100%

Independence Contract Drilling Inc. (NYSE:ICD) : Houston, TX-based Independence Contract drilling offers land drilling services for oil and natural gas producers primarily in the U.S. It has an excellent earnings surprise history, having beaten estimates in each of the last four quarters at an average rate of 49.68%.

Zacks Rank #1

Strong Buy or Buy broker rating: 85.71%

PetroChina Co. Ltd. ADR (NYSE:PTR) : Incorporated in 1999, PetroChina is headquartered in Beijing. The company – one of the leading integrated oil companies in the People’s Republic of China – is involved in the production and distribution of oil and gas, apart from refining and marketing operations. PetroChina’s expected EPS growth rate for 3 to 5 years currently stands at 15%

Zacks Rank #2

Strong Buy or Buy broker rating: 100%

PBF Logistics L.P. (NYSE:PBFX) : Parsippany, NJ-based PBF Logistics operates refined petroleum products storage and transporting facilities. It has an excellent earnings surprise history, having beaten/met estimates in each of the last four quarters at an average rate of 13.68%.

Zacks Rank #2

Strong Buy or Buy broker rating: 100%

Murphy USA Inc. (NYSE:MUSA) : Murphy USA is a retailer of gasoline products and convenience store merchandise primarily in the US. The El Dorado, Arkansas-headquartered company’s expected EPS growth rate for 3 to 5 years currently stands at 15.70%.

Zacks Rank #2

Strong Buy or Buy broker rating: 80%

Bottom Line

The inherent volatility in the energy sector simply cannot be ignored. Also, it may still take some time for the companies to emerge from this prolonged weakness. However, the above-mentioned stock picks are expected to be good bets given their ranks, brokers’ confidence, past performances and future growth projections.