3 Top Oil Picks: Genel Energy PLC, Rockhopper Exploration Plc And Nostrum Oil & Gas PLC

As an investor, one of the greatest challenges is being able to separate emotions from your investment decisions. In other words, relying on cold, hard logic rather than fear or greed when deciding upon which investments to make, and when.

As such, a lot of investors seem to buy when share prices are relatively high and sell them when the outlook has worsened (and when their investment is worth a whole lot less). Worse still, they hesitate to buy at the most opportune moments and fail to sell when their valuations are sky-high and there are more enticing opportunities available elsewhere.

Of course, it is easy to state the above and, with hindsight, the correct investment decisions are always obvious. Furthermore, putting logic into action when your emotions are saying the complete opposite takes a huge dollop of courage, but in the long run can really be worth the effort.

In fact, one sector where it could make a huge difference to your portfolio returns is the oil industry. Clearly, it is enduring a hugely challenging period at the present time, with the price of oil slipping back below $50 this week and looking likely to move even lower in the short run as a global supply/demand imbalance worsens. However, buying oil stocks for the long run seems to be a logical move. After all, they are very cheap, have large margins of safety and, in some cases, are expected to post strong earnings growth over the short to medium term.

One example of such a company is Genel (LSE: GENL). It operates in Iraq and has endured a very challenging period, with its share price having dropped by 41% since the turn of the year as the twin problems of a lower oil price and an unstable political outlook for Iraq have combined to hurt investor sentiment. And, looking ahead, things could get worse before they get better, with Genel’s share price performance likely to be very volatile.

However, Genel is forecast to post growth in its bottom line of 54% next year, which could positively catalyse investor sentiment in the company. And, with Genel trading on a price to earnings growth (PEG) ratio of just 0.3, it seems to offer excellent value for money at the present time, too.

Meanwhile, it is a similar story for Nostrum (LSE: NOG), with the oil and gas company set to recover from a tough 2015 by posting triple-digit earnings growth in 2016. This, of course, is very optimistic guidance and, as such, there is always a chance that forecasts are downgraded between now and the reporting date. However, with Nostrum trading on a forward price to earnings (P/E) ratio of just 12.2, this possibility appears to be fully priced in and Nostrum, therefore, offers a very appealing risk/reward ratio.

And, while Rockhopper (LSE: RKH) may be even less certain regarding its future financial performance, it too seems to be worth buying. That’s because, while the outcome of the current four-well exploration and appraisal campaign is a risk, with there being the potential for disappointing news flow, Rockhopper remains a very well-funded and balanced oil exploration play.

For example, it has other partners (including Premier Oil) at the strategic Sea Lion project and, while the prospect is very much a long term one, the costs of exploring in the meantime could be lowered due to a falling oil price, which would be beneficial to Rockhopper and help to improve investor sentiment moving forward.

Of course, finding stocks that are worth adding to your portfolio from any sector is a tough task, which is why the analysts at The Motley Fool have written a free and without obligation guide called 10 Steps To Making A Million In The Market.

It's a simple and straightforward guide that could make a real difference to your portfolio returns. As such, 2015 could prove to be an even better year than you had thought possible.

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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.