3 oil stocks to buy as macroeconomic indicators favor the price of crude oil at $100

Oil is – and always has been – the main driver of energy stocks. When prices swing as aggressively as they are about to, investors tend to position themselves with more than clear expectations. However, not everything begins and ends with oil prices; there are many ways you can spot a trend before it forms.

Paying attention to the specific price action of currencies and bonds or analyzing trends in the ISM PMI indices can help you get ahead of the curve. Possible additions to the “professional traders” portfolio may include names like Hess Co. NYSE: YES, Chesapeake Energy Co. NASDAQ:CHKand even Transocean Ltd. NYSE: RIG.

As for oil, instead of just watching the price at the gas pump rise as an indicator, you can start connecting the dots, perhaps even the same ones linked by analysts on The Goldman Sachs Group Inc. NYSE:GS as they predict oil prices will reach $100 a barrel this year.

Rate cuts started it all

The stock market may have outdone itself, recently hitting new all-time highs in anticipation of the Federal Reserve (Fed) cutting interest rates later this year. However, not all titles followed suit.

Tech stocks like Nvidia Co. NASDAQ:NVDA they have recently taken the lion’s share of attention. In contrast, others have yet to see new rallies.

Goldman expects to see a turnaround in the US manufacturing sector this year, and the latest manufacturing PMI data suggests it may be right. Orders from abroad increased 6.4% in February. This meant that exports were the main driver of economic growth that month.

Now, to fulfill these new export orders, manufacturing is needed, right? Higher production means higher profits for stocks operating in international markets, such as conglomerates The Coca-Cola Co. NYSE: KO and other.

However, production, shipping and other stages of the value chain occur only with oil, hence the increase in prices relative to demand. This trend has influenced how the dollar index has moved recently. The euro-dollar rate rose from 1.07 to 1.09 this month, weakening the dollar against other foreign currencies.

These stocks are not a blind bet

Markets tend to pay a higher valuation for stocks that are expected to outperform the market or at least their competitors. This is why you need to look for those who stand out in the oil and gas sector, which today trades at an average forward P/E ratio of 9.0x.

You also need to make sure there is a good enough reason to overpay for a stock, which typically depends on expected earnings per share (EPS) growth in the coming months. These two components are why these stocks are the best choice.

When size matters, choose Hess

With a market capitalization of $45 billion, Hess boasts the highest forward P/E ratio of the group. Its 15.6x valuation puts it at a 67% premium to the industry average and above both Chesapeake and Transocean.

However, this is the name that projects the least EPS growth. Analysts expect Hess’ EPS to increase 28% over the next 12 months; there’s nothing exciting about it until you consider its size.

Companies of this size simply don’t grow double digits that easily, and an international presence acts as a stability and quality bonus for markets to justify a higher premium.

No surprise Mizuho Financial Group Inc. NYSE:MFG Analysts have set a $200 price target for the stock, predicting a 33% rally from today’s prices.

Chesapeake and Transocean: An opportunity to double your money

If you’re looking for more excitement and risk, Chesapeake and Transocean might do it for you. With the most anticipated EPS growth in the industry, these stocks still have a long way to go before they hit a ceiling.

Projecting 370% EPS growth for Transocean, analysts believe this stock could go as high as $8 per share, about 40% higher than its current price.

Such high growth for a company that is only $4 billion in size should command a higher price target, so perhaps analysts are waiting to see how higher oil prices impact its financials. Price action is compressed here too, as the stock trades at 65% of its 52-week high awaiting a clearer message.

This constitutes a bet against the grain. Now, Chesapeake is the one where you can follow the market momentum. That stock trades at 95% of its 52-week high price, and analysts see an EPS increase of 130% for the next 12 months.

With a forward P/E of 12.8x, Chesapeake trades at a 37% premium to the industry. Because it has seen better price action, demonstrating market acceptance of this growth play, it trades at an 8% premium to Transocean.

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