The Motley Fool

The 3 best oil stocks to buy right now

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

New Ways of Investing - Hands Only Using Smart Phone
Image source: Getty Images

With the oil price rising recently, I’ve been looking for the best related stocks to buy right now for my portfolio. Buying oil stocks can be a great way to gain exposure to the commodity, but this strategy doesn’t come without risks. 

Oil and gas stocks can be highly volatile. As they tend to have fixed production costs, they’re leveraged plays on the commodity.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

According to Tullow Oil‘s (LSE: TLW) full-year 2018 results presentation, a $5 move in the price of oil either way would have detracted or added $125m from free cash flow. That year the group generated $411m in free cash flow from operations. As such, a drop of just $16.44 would have wiped out group cash flow. In the first half of this year, the oil price dropped by around $50 in four months. 

These are only rough figures, but I believe they clearly illustrate the risks of investing in this sector. Companies can make or lose fortunes overnight.

Still, I’m comfortable with the level of risk involved in investing with these businesses. That’s why I’ve been looking for the best stocks to buy right now as the price of oil recovers.

The best oil stocks to buy right now

Tullow Oil is one of the firms on my list. This company is a very high-risk investment. It’s currently involved in renegotiating the terms of its debt with lenders. If management fails, the group could collapse. However, if the business succeeds, the share price could rally as Tullow gains breathing space.

At the end of November, the company projected it could generate as much as $7bn in cash from operations over the next decade. Its current market capitalisation is £431m. I think this shows just how much potential the business has. That’s why I’d buy it for my portfolio. 

Green energy 

Royal Dutch Shell is another group that features on my list of the best oil stocks to buy now. The company, which is one of the world’s largest oil producers, recently unveiled a plan to invest billions of dollars in renewable energy over the next 30 years.

Of course, the company isn’t without its risks. It has a lot of debt, and the low oil price also meant the business had to write off billions of dollars of assets last year. Nevertheless, despite these challenges, I’m optimistic about the groups future. That’s why I’d buy it today. 

Large payout 

Finally, I think one of the best oil stocks to buy right now is Cairn Energy (LSE: CNE). There’s been a cloud hanging over this company for the past few years after India seized a 10% stake in its subsidiary there.

The company has been fighting the government for compensation, and a court recently ruled in its favour, awarding the business $1.2bn  (£870m) in damages. The sum hasn’t been paid yet, but it could be a huge positive for the £900m market-cap firm.

Of course, there’s a high chance India may not pay. In that case, Carin’s future is more uncertain. That’s the most significant risk facing the business right now. But this is a high-risk, high-reward bet on an enormous payoff to the company.

Still, I’m comfortable with this level of risk. That’s why I’d buy Cairn today. 

The high-calibre small-cap stock flying under the City’s radar

Adventurous investors like you won’t want to miss out on what could be a truly astonishing opportunity…

You see, over the past three years, this AIM-listed company has been quietly powering ahead… rewarding its shareholders with generous share price growth thanks to a carefully orchestrated ‘buy and build’ strategy.

And with a first-class management team at the helm, a proven, well-executed business model, plus market-leading positions in high-margin, niche products… our analysts believe there’s still plenty more potential growth in the pipeline.

Here’s your chance to discover exactly what has got our Motley Fool UK investment team all hot-under-the-collar about this tiny £350+ million enterprise… inside a specially prepared free investment report.

But here’s the really exciting part… right now, we believe many UK investors have quite simply never heard of this company before!

Click here to claim your copy of this special investment report — and we’ll tell you the name of this Top Small-Cap Stock… free of charge!

The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.