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These 3 Oil Stocks Are Up 20% This Year (and Could Have More Room to Run)

By Matthew DiLallo – Updated May 14, 2018 at 5:32PM

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Despite this year’s big run, these oil stocks could have more upside ahead thanks to one common catalyst.

Oil prices have been on fire over the past year and recently topped $70 a barrel, which is the highest crude has been since late 2014. That rally in the oil market has helped fuel big-time gains in many oil stocks. Three that stand out are Anadarko Petroleum (APC), Hess (HES 2.27%), and ConocoPhillips (COP 0.27%) because each has risen more than 20% this year. They might still have additional upside from here given that all three plan on spending billions of dollars to buy back more of their stock.

Buying back stock as quickly as it can

Hess has led the way this year by rallying more than 33%. While the uptick in oil prices ignited that rebound, the company's buyback program has acted like gasoline to fan those flames.

A barrel standing on a grey floor with money bursting out of it with a happy businessman celebrating next to it.

Image source: Getty Images.

Hess initially announced a $500 million repurchase program last November as part of its strategy to unlock value for shareholders, which also included paying off $500 million in debt and ramping up its drilling activities in the Bakken shale. Hess made quick work of that initial authorization, spending the entire amount by the end of the first quarter. Because of that, the company's board increased the program by $1 billion, which it expects to complete by year-end. In fact, the company entered into an accelerated repurchase agreement in April to buy back $500 million in shares. Meanwhile, with $500 million left to go, the company still has enough money to move the needle since it could retire another 3% of its outstanding shares at the current stock price.

Returning the windfall as quickly as possible

Anadarko's stock is up almost 28% this year due to the same factors driving Hess' rally. Anadarko, like Hess, initially announced a buyback program last fall, though for $2.5 billion of its stock -- enough to retire 10% of its shares outstanding at the time -- as well as pay off another $1 billion in debt. Anadarko would go on to add $500 million to its buyback program earlier this year, while also boosting its dividend 400%.

The company also made quick use of that authorization. By the end of 2017, Anadarko had already repurchased $1.1 billion in shares, and it recently entered into two accelerated share repurchase agreements that will exhaust its current authorization by the end of the second quarter, just nine months after the initial announcement. However, the company will likely continue buying back shares in 2018 given that oil prices are well above its $50 budget baseline, which positions it to generate significant free cash flow. While the company could use that money in a variety of ways, CEO Al Walker stated on the first-quarter conference call that Anadarko is "philosophically motivated to continue increasing our share repurchase plans as one of the uses of cash over the balance of the year."

Three oil pumps at sunset.

Image source: Getty Images.

Continuing the strategy

ConocoPhillips' shares are up about 26% this year, which continues the massive rally since the company first announced its share repurchase program in late 2016, with shares now up more than 50% over that time frame. However, there's plenty more fuel left in the tank given the scope of ConocoPhillips' buyback.

Initially, ConocoPhillips planned to repurchase $3 billion in shares over a three-year period, driven in part by asset sales. However, after blowing past its target in 2017, ConocoPhillips was able to repurchase the entire amount last year. Because of that, the company now plans to buy back a total of $7.5 billion in stock by 2020, including $2 billion this year. Though, with oil well above its $50 budget level, ConocoPhillips could buy back even more shares than planned.

Higher oil and big-time buybacks are a powerful combination

While higher oil prices have helped drive most oil stocks up this year, this trio has vastly outperformed rivals thanks to their buyback programs. They could continue doing so given their plans to repurchase even more shares this year, making them compelling oil stocks to consider buying. 

 

Matthew DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Hess Stock Quote
Hess
HES
$126.91 (2.27%) $2.82
ConocoPhillips Stock Quote
ConocoPhillips
COP
$115.93 (0.27%) $0.31
Anadarko Petroleum Stock Quote
Anadarko Petroleum
APC

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