BOSTON (TheStreet) -- With oil prices at $100 a barrel and demand growing, it's hard to go wrong by investing in the three largest U.S. integrated oil companies -- Exxon Mobil (XOM) - Get ReportChevron (CVX) - Get Report and ConocoPhillips (COP) - Get Report.

These companies will report second-quarter earnings this week, and the 26% increase in crude prices during that period will likely give them a lift. But their share prices aren't likely to experience big swings, one investment house suggests, which is a caution sign for new investors.

"If oil goes higher, the market worries about demand destruction, leading to underperformance," said

Deutsche Bank

(DB) - Get Report

in a July 11 research report. "If oil goes lower the group suffers. If it stays the same, fair value."

Shares of companies in the integrated oil and gas industry are up 11% this year, but are down 3% over the past three months, according to Morningstar. They've gained 33% over the past 12 months.

The environmental, regulatory and international supply challenges caused by the political turmoil in the Middle East has created volatility for the industry. The International Energy Agency shocked oil markets in June by releasing 60 million barrels of oil to bring down prices and help replace supplies lost from war-torn Libya.

But that was a short-term salve for the market, given the strong demand and reduced resources from other Middle Eastern markets. Oil has recently crept back up to $100, which is a boon for the Big Three's earnings. Major oil companies will likely grow when these issues are resolved, most analysts suggest.

"With their solid dividend yields and huge businesses diversified internationally, we look for equities of U.S.-based super-majors to rise alongside our forecasts for improved global economic growth and crude oil prices," said Standard & Poor's analysts, in a recent market update.

Exxon, Chevron and ConocoPhillips are expected to report solid second-quarter earnings. Let's take a closer look.


ConocoPhillips, with a market value is $106 billion, is scheduled to report Wednesday that it earned $3.1 billion, or $2.21 per share, for the second quarter. Although that's down from $2.77 per share last year on one-time items, those results are likely to be overshadowed by the company's recently announced plan to separate its refining and marketing business from its exploration and production operations, creating two publicly traded corporations.

ConocoPhillips also plans to sell of between $5 billion and $10 billion of underperforming assets to shore up its balance sheet and improve returns.

ConocoPhillips shares are up 13% this year, outperforming the 8% gain of the

Standard & Poor's 500 Index

. The stock has a forward price-to-earnings ratio of 8.8 and a projected dividend yield of 3.51%. S&P companies have an average forward P/E ratio of 13.7 and an average projected dividend yield of 2.1%.

Standard & Poor's rates the company four stars out of five -- a "buy" recommendation -- with a price target of $93, a 24% premium to its current price.

Exxon Mobil

Irving, Texas-based Exxon, the largest U.S. company with its market value of $417 billion, is expected to report earnings of $11.2 billion, or $2.29 per share, up about 48% from its year-ago figure, on Thursday.

On June 8, the company said it had "one of the largest (oil) discoveries in the Gulf of Mexico in the last decade." Exxon Mobil shares are up 18% this year. The company has a forward price-to-earnings ratio of 9.7 and a dividend yield of 2.21%.

Standard & Poor's analysts give Exxon Mobil five stars, its highest rating, rating its shares "strong buy" with a $103 price target, a 21% premium to its current price.


Chevron, a $217 billion market value company, is expected to report earnings of $7.2 billion, or $3.50 per share, up 33% from last year's $2.70 per share, on Friday. Chevron said in its mid-quarter update that it was benefiting from wider refining margins and higher crude-oil prices.

Chevron shares up 21% this year and the company has a forward price-to-earnings ratio of 8.5 and a dividend yield of 2.86%. Standard & Poor's rates Chevron five stars, calling its stock a "strong buy" and setting a price target of $128, an 18.5% premium to its current price.

"I'm generally bullish on the sector," said Stephen Rogers, manager of $165 million

California Investment Trust Equity Income Fund

(EQTIX) - Get Report

. Chevron is the largest holding in his fund at 3.6%, while Exxon Mobil is the third-largest at 2.4%.

He said the Big Three are relatively cheap, but they face political headwinds as the government tries to close tax breaks, which amount to $80 billion annually for the industry. Tougher environmental regulations after the disastrous oil leak in the Gulf of Mexico a year ago might also pose challenges. These issues will create significant uncertainty through the 2012 presidential election, he said.

Nevertheless, Rogers said the industry's fundamentals are compelling as demand from emerging markets continues to grow, and the world shifts from nuclear energy to natural gas after the nuclear disaster in Japan earlier this year. Given the companies' healthy dividends, the stocks are attractive alternatives to the bond market, and provide downside protection.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.