A few months back, I recommended that you follow the No. 1 Investment Trend of 2014 to find the top shale stocks.
Wait, what?
As I noted, shale oil producers celebrated the surge of oil prices in 2014 to $100 by drastically expanding their production.
With greater supply on the market, oil prices collapsed to less than $40. And the top shale stocks of that year were hammered.
Nine years later, oil prices are much higher. But the top shale stocks are still profoundly undervalued. Nevertheless, it looks like their fortune is about to change – and a bright future is ahead for several names.
This is the No. 1 Trend for Top Shale Stocks
Last week, OPEC announced a “surprise” cut to oil production, months after Russia slashed its output.
It wasn’t surprising to me, given that oil prices were slumping and the OPEC put (where the cartel steps in and cuts to support prices) has historical precedence.
That was the big story for the energy markets.
But the bigger story for investors came over the weekend. Exxon Mobil (XOM), the globally integrated energy producer, announced a strategic investment.
The Wall Street Journal reports that Exxon is looking to acquire Pioneer Natural Resources (PXD), one of the top shale oil producers in the nation. The proposed deal would quickly establish the largest producer in the Permian Basin, a large shale formation in Texas.
PXD popped as much as 8% on the news.
Naturally, other shale producer stocks rose as well. Shares of Occidental Petroleum (OXY), currently the largest oil producer in the United States, saw its stock rise 2%.
The news has driven speculation that more oil deals are on the horizon, a trend that I fully expect to materialize in the coming months.
Rising inflation has driven up the cost of production, in addition to the cost of capital. Only specific players with deep pockets can afford to navigate these short-term challenges.
If smaller producers face tighter margins, we could see a bidding war explode for top-performing assets.
How to Play Shale Oil M&A
Over at Tactical Wealth Investor, we’ve tapped into the oil consolidation trend with a name few investors know. It’s a private-equity-backed company on an acquisition spree over the last few years.
Shares have rallied from roughly $10.15 on March 15 to more than $12.00 today, thanks to a rebound in oil prices and improving liquidity in the market.
This cash-rich company buys attractive oil-producing assets nationwide and turns them into cash-churning operations. Once it improves the efficiencies of these oil wells and other projects, it can quickly sell them to larger players for big bucks.
It currently pays a very attractive, fully covered dividend of 5.6%, with a long-term price target of $20 per share. That would represent a more than 65% return from current levels.
In the future of oil, there will be winners and losers. The key is to identify value in this market – and recognize why the market has undervalued these assets.
OPEC has provided cover to push oil prices higher, which could fuel aggressive reactions to this decision by major oil players.
Exxon’s potential deal for Pioneer is just the beginning of something much bigger.
To your wealth,
Garrett Baldwin
Market Momentum is Yellow
There shouldn’t be any surprise that we’re now seeing some interesting activity out of the S&P 500 and the Russell 2000 ahead of earnings season. I’m playing trades to the upside, but I do feel that there is a lot of danger on the horizon with such choppy conditions in this market.
Become a member of Tactical Wealth Investor right here.
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
