NEW YORK (TheStreet) -- I was talking to Stephanie Link today about the supermajor oil companies and their prospects for the next several years. I tend to like the independent E+P oil companies more than any of the supers, but out of all of these megacaps, I tend to like Royal Dutch Shell (RDS.A) and Total (TOT) the best.
Oil production increases have been the best indicator of rising stock prices with oil companies. Finding great production increases with reasonable cost increases has been much easier with the smaller independent oil companies than with the majors. Those monster integrated companies have been better used as 'bond-like' equity holdings, delivering a steady dividend to investors that will grow consistently if slowly.
Read More: 7 Stocks Warren Buffett Is Selling in 2014
But not all dividends are created equal. Shell, for example, has spent quite a lot of capital searching for new barrels of production in the last several years, but with relatively less success than other super majors. Consequently, they have lagged behind some of the others in share price while still delivering a healthy dividend.
But that is changing: Stephanie points out to me the changed focus of Royal Dutch Shell, in a similar move to those made by Conoco Philips (COP) and Occidental Petroleum (OXY) . She calls it "shrink to grow," where capital expenditures are scaled back, allowing the producing assets to 'catch up' to the money being spent. With Shell, this new attitude has been expressed by new CEO Ben van Beurden, where even a small $2 billion or $3 billion decrease in capital expenditures over 2015 will greatly enhance the bottom line.
Add that to what has been a relatively weak European stock market and you have a great value reason for owning Shell, if you had to own one of the super majors.
I talk more about the majors with Stephanie in the video above.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time. Action Alerts PLUS is long OXY.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates TOTAL SA as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate TOTAL SA (TOT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income." You can view the full analysis from the report here: TOT Ratings Report