The Oil Shock Is Here: How to Protect Your Investments Now

For investors looking to protect their portfolios from this rampant oil shock, here are three top stocks to consider buying as portfolio cornerstones right now.

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Key Points
  • The oil shock we're seeing play out in the market has been remarkable, and investors are on edge to see what happens next.
  • For those who want a bit more portfolio diversification (and to shield returns from potential downside from this spike), here are three ideas to consider.

With commodity prices globally surging thanks to the ongoing U.S./Israel-Iran conflict, there are now new fears that surging oil prices could lead to the next wave of inflation, which could impact many investors in a very negative way.

That said, there are companies within the oil and gas sector which could be big beneficiaries, and we’re already seeing a broad-based rotation toward these names right now. Here are three top ideas for investors looking to benefit from rising oil prices over the long term.

oil pump jack under night sky

Source: Getty Images

Canadian Natural Resources

One of my favourite dividend-paying Canadian energy stocks, Canadian Natural Resources (TSX: CNQ) has a beautiful chart, shown below.

Shares of this top-tier oil sands producer have been surging, in part due to the company’s record oil production, solid margins, and sturdy balance sheet. However, I think this stock price spike is more tied to the company’s massive reserves and a re-rating of the value of those reserves over the coming decades.

That’s the case with most oil majors right now. But with high single-digit production growth and plenty of room for dividend hikes over time (not to mention a current dividend yield of 3.7%), there’s a lot to like about how Canadian Natural is positioned right now.

ExxonMobil

My first U.S.-based pick of this list, ExxonMobil (NYSE: XOM) has long been among the world’s largest crude producers globally for decades.

As such, when we talk about sheer reserves, this company takes the cake (outside of Saudi Aramco, really). The company’s fully integrated business model provides incredible stability, even in times of oil price declines. Owning almost the entire value chain, from upstream production to refining, chemicals, and retail (gas stations), Exxon has investors covered in terms of delivering actual value to consumers.

With a fortress balance sheet and decades of dividend income provided to investors (at the 3% level or higher), this is a top way I think investors can think about playing oil and gas right now.

Chevron

Another leading U.S. energy major, Chevron (NYSE: CVX) has also seen incredible price appreciation of late, due to most of the same catalysts.

Indeed, Chevron offers investors a similar defensive appeal to the other names on this list. With premier assets in the Permian Basin, as well as in Australia and Kazakhstan, the geopolitical risk now being priced into every sector is relatively widespread. That’s a good thing for investors looking for disciplined capital returns (dividends and share buybacks) over time, as Chevron has provided both in spades.

Trading at an attractive valuation compared to its peers, Chevron looks like a top-tier pick for investors looking for outsized exposure to this energy price surge right now.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources and Chevron. The Motley Fool has a disclosure policy.

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