Diamondback Energy, Inc.

(NASDAQ Global Select)
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Bullish +75

2 Energy Stocks to Buy Before Oil Hits $150 a Barrel

AI-generated analysis

πŸ“ˆ Upstream oil producers like ConocoPhillips and Diamondback Energy could benefit if oil prices reach $150 per barrel.

β›½ Global oil prices have recently trended upward to around $100/barrel due to tensions in Iran and the Strait of Hormuz closure risks.

🌍 Supply restrictions or infrastructure destruction in the Middle East could further spike oil prices significantly beyond historical highs.

🏭 Upstream producers earn higher margins from selling extracted oil and gas when commodity prices rise compared to downstream refiners.

πŸ’° ConocoPhillips generated $2.375 billion barrels of oil equivalents last year with cash flow potentially exceeding $20 billion at $150/barrel oil prices.

πŸ“œ Management expects to return 45% of excess cash flow to shareholders in 2026 through dividends and share buybacks.

πŸ›‘οΈ Companies with North American assets are considered safer havens if Middle East conflicts continue to disrupt global supply chains.

⚑ Diamondback Energy focuses on Texas and has a market cap of $55 billion, offering high cash flow generation even in lower price environments.

πŸ“ˆ Diamondback's stock is up 30% year-to-date with further upside potential if the Strait of Hormuz remains closed for extended periods.

πŸ’Ό Both energy stocks aggressively return cash to shareholders through buybacks and dividends, enhancing portfolio hedge capabilities.

⚠️ Historical peak oil price was $147 in 2008 during a recession, but inflation may justify breaking this record if supply shocks occur.

πŸ“‰ Economic downturns caused by high oil prices in the past could be mitigated by holding these upstream producers as hedges.

❗ Investors are advised not to assume oil hitting $150 is certain given unpredictable geopolitical developments in 2026 and beyond.

🎯 The Motley Fool Stock Advisor recommends ConocoPhillips among other picks, though it wasn't included in their latest top-ten list.

πŸ“Š The Motley Fool claims an 884% total average return for Stock Advisor, significantly outperforming the S&P 500's 179%.

πŸ‘€ Analyst Brett Schafer holds no position in the mentioned stocks and discloses that The Motley Fool recommends ConocoPhillips.

Bullish Signals
  • ConocoPhillips generated free cash flow of over $16 billion in 2022, with potential to exceed $20 billion if oil prices reach $150 per barrel.
  • Management at ConocoPhillips is guiding to return 45% of excess cash flow to shareholders by 2026 through dividends and share buybacks.
  • Diamondback Energy stock is up 30% year-to-date with significant upside potential if Middle East conflicts continue and oil prices rise.
  • Diamondback Energy generated $5.5 billion in free cash flow last year even with lower oil prices, indicating strong operational resilience.
  • Both companies are upstream producers positioned to benefit from rising oil and natural gas prices through improved margins.
  • The closure of the Strait of Hormuz creates a supply shock scenario that would favor North American oil producers like Diamondback Energy with domestic assets.
  • Diamondback Energy has a market capitalization of $55 billion and is aggressively returning cash to shareholders through buybacks even more so this year.
  • Analyst team identifies these energy stocks as valuable portfolio hedges against potential supply shocks in the Middle East.
Risk Factors
  • Oil prices have never reached $150 a barrel; the record is slightly below that at $147 in 2008 during a U.S. recession, raising uncertainty about whether this price target will be achievable without causing severe economic downturns.
  • High oil prices could worsen global inflation and economic conditions, potentially hurting the broader stock market rather than just benefiting energy stocks.
  • ConocoPhillips was not included in The Motley Fool Stock Advisor's list of 10 best stocks for investors to buy now, despite their bullish outlook on its performance in higher oil environments.
  • The article notes uncertainty around the timing and likelihood of oil reaching $150 by 2026 due to unpredictable geopolitical events that could disrupt supply chains or lead to price volatility.
  • Diamondback Energy relies heavily on Texas assets which may face more localized risks compared to ConocoPhillips' broader global exposure.
Full Analysis
Two energy stocks recommended to hedge against rising oil prices are ConocoPhillips (NYSE: COP) and Diamondback Energy (NASDAQ: FANG). Upstream producers, particularly those extracting oil and gas, stand to benefit significantly if crude prices reach $150 a barrel due to increased margins from selling products along the supply chain. The article highlights that oil prices have recently trended around $100 or higher, driven by geopolitical tensions involving Russia/Ukraine and conflicts in Iran that could restrict flows through the Strait of Hormuz. If this strait remains closed for an extended period, supply constraints could drive oil prices to new heights, potentially reaching the $150 level for the first time since a record high of $147 in 2008. ConocoPhillips is identified as one of the largest upstream energy players globally, having generated 2.375 million barrels of oil and natural gas equivalents last year, with approximately 1.5 million barrels coming from the lower 48 states. The company's free cash flow peaked at over $16 billion in 2022, and if oil prices hit $150, free cash flow could exceed $20 billion. Management is guiding to return 45% of excess cash flow to shareholders by 2026 through dividends and share buybacks, positioning the stock as a strong candidate for portfolios concerned about supply shocks or higher energy costs. Diamondback Energy is described as a pure play on North American oil and gas, specifically focused on Texas assets which are viewed as safer than Middle Eastern sources where conflict risks persist. Despite being up 30% year to date, Diamondback Energy generated $5.5 billion in free cash flow last year even at lower oil prices, suggesting its potential to produce much higher cash flows at a $150 price point. With a market capitalization of $55 billion, the article suggests it has plenty of upside if the Strait of Hormuz remains closed. However, the text notes that anything can happen in geopolitics, so reaching $150 is not guaranteed, but acquiring these stocks could serve as an effective hedge for investors worried about such a supply shock occurring by 2026.