Low oil prices reportedly have created some nice bargains among “oily industrials,” or big manufacturing firms with robust sales to the energy industry.
Here are four such stocks, according to Barron's:
- Flowserve (FLS), a leader in pumps, valves, and seals, generates about 40% of sales from energy-related customers—from oil drillers to electricity producers. Flowserve tends to hold up well in hard times; it sells small parts that need frequent replacement.
- Emerson Electric (EMR), best known for its consumer products, gets roughly a third of its sales from energy.
- United Rentals (URI) rents equipment to the energy and construction industries, and should gain from consolidation in rental markets. RBC analyst Seth Weber sees the stock climbing 35%, to $140.
- (FLR) builds chemical plants, oil refineries, and other facilities. It has no debt. At $8.89, Sean Eastman of KeyBanc calls the stock a “deep value idea.”
Meanwhile, oil futures marked their third straight week of losses last week - and have fallen for eight of the past nine - with Brent ending down 24% and WTI off around 7%.
"The market is very concerned of a repeat of negative pricing as the Cushing storage and delivery hub saturates," Harry Tchilinguirian, global oil strategist at BNP Paribas in London, told the Reuters Global Oil Forum. "The shift of open interest away from June will have negative consequences for the liquidity of the contract, potentially leading to greater volatility in its price," he added.
U.S. crude inventories rose to 518.6 million barrels in the week to April 17, near an all-time record of 535 million barrels set in 2017.
Global economic output is expected to contract by 2% this year, worse than the financial crisis, while oil demand has collapsed 30% due to the pandemic, Reuters reported.
In the United States, a record 26.5 million Americans have filed for unemployment benefits since mid-March, and the Congressional Budget Office predicted that the economy would contract by nearly 40% annually in the second quarter.
"The current oil balance is simply awful, and no improvement is anticipated until after June due to massive fall in global oil demand," said oil broker PVM's Tamas Varga.
The Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, pledged this month to cut output by an unprecedented 9.7 million barrels per day in May and June.
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