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Which Oil Stock Is The Best Buy? Roxi Petroleum plc, Lgo Energy PLC, Hunting plc Or Soco International plc

While there is a relatively large amount of uncertainty within the oil sector right now, there are a number of excellent opportunities for long term investors. That’s because, while things could get worse in the short run, with profitability and impairments of oil-focused companies likely to disappoint during the course of the current financial year, the long term future for the sector remains relatively bright. That’s at least partly because of an improving global macroeconomic outlook which, coupled with improved efficiencies, could lead to rising profitability in 2016 and beyond.

The challenge for investors, though, is finding the right stocks through which to take advantage of low valuations, strong finances and a relatively bright medium to long term outlook. One example of a company that appears to offer all three is Hunting (LSE: HTG). It currently trades on a relatively high price to earnings (P/E) ratio of 22.4, but is expected to turn around a disappointing period by posting growth in its bottom line of 29% next year. This puts it on a price to earnings growth (PEG) ratio of just 0.6, which indicates that its share price could move much higher.

Furthermore, Hunting appears to have a relatively sound balance sheet, with it currently having a debt to equity ratio of just 15%. This shows that, while low interest rates mean that higher levels of borrowing may be more appealing, should the price of oil continue to fall then Hunting is unlikely to struggle in making its debt repayments or in servicing the cost of those debts. As such, investor sentiment could prove to be relatively upbeat moving forward.

Also having an improved financial position is Roxi Petroleum (LSE: RXP). It recently raised $20m through a placing and this news flow follows the announcement of an oil discovery on its BNG licence in Kazakhstan last year. This puts it in a strong position to increase the pace of its drilling programme at the site and, while it remains a relatively small and volatile stock, it could benefit from the potential for a bid approach moving forward.

LGO (LSE: LGO) is also making strong progress on its major asset; the Goudron field in Trinidad. It secured additional funding recently and is also taking advantage of a relatively low cost drilling environment. Furthermore, LGO also appears to have a very low cost curve and, while a higher oil price would undoubtedly be of benefit and would improve its future guidance, it still should be able to turn a profit even if oil remains at its current price level. This, coupled with its improving finances, could mean that investor sentiment picks up through the rest of the year.

Meanwhile, shares in Soco (LSE: SIA) have surged in recent weeks and are up 13% in the last month alone. However, there could be much more to come, since the company is forecast to increase its bottom line at a rapid rate. For example, earnings are expected to rise by a whopping 180% this year, and then by a further 98% next year. And, while Soco currently trades on a P/E ratio of 23, it has a PEG ratio of just 0.1, which indicates that its shares could move much higher. As such, it appears to be the pick of the bunch, although Roxi, LGO and Hunting may also have bright futures as investments, too.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.