Jim Cramer expects that the rise in petroleum prices is temporary but he remains a fan of the oil sector, recommending stocks like Chevron (CVX) - Get Report, Pioneer Natural Resources (PXD) - Get Report and most recently, Exxon Mobil (XOM) - Get Report, after the company's latest board changes.
There's nothing amiss about the market being led by oil, as long as the rest of the industrials are following close behind, Cramer told viewers of his Mad Money show earlier this week.
Oil prices have been rallying, and shares of oil companies have been rising in line. Credit Suisse analyst Manav Gupta raised his price target for Exxon Mobil to $72 from $69, affirming a neutral rating.
Oil has been out front, and moving higher, not because of rising demand, but because of lower supply, Cramer said. Many oil wells were shut in as the economy slowed during the pandemic and still have yet to return. As prices continue to rise, production will eventually return to normal levels, Cramer said, making the current rise in crude prices transitory.
Over on Real Money, contributor Jim Collins discusses how blossoming offshore drilling opportunities around the world are an example of how oil isn’t going away as an opportunity for strong dividends and growth. Investors ignore big oil at their own peril, he said. Get more of his investing ideas and trading strategies on Real Money.
Cramer added, “Companies such as Exxon Mobil and Chevron and their international brethren are going to continue to use their excess cash flows to reward shareholders via dividends. While this may seem outdated -- Chevron's refusal to aggressively buy back its stock, which is yielding nearly three times the current yield of its bonds, drives me batty -- real returns should never be discounted. ... Inflation hurts Big Tech just as much as it helps Big Oil. Ignore the noise and keep adding to your energy stock holdings.”
Collins wrote on Real Money that investors and companies will succeed by going beyond the political sphere of the U.S. “In the spirit of reading the tea leaves, Exxon Mobil management wisely has chosen to shift its focus outside the U.S. ... Exxon Mobil is still going to dominate Texas, but that is probably it for North America.”