Wolfe Research: Top Oil Stocks to Watch Amid Market Volatility

Investing.com – Wolfe Research has identified its top stock picks in the oil sector. Analysts warn that recent sector performance has pushed valuations to potentially unattractive levels unless there are higher expectations for long-term oil prices. The firm maintains a selective strategy, emphasizing that absolute value and the rate of change are the key screening criteria.

Strength in recent oil prices has boosted next-quarter earnings outlooks to levels not seen since 2022. Global major oil companies and exploration and production firms have raised their average profit expectations for the first quarter of 2026 and for the full year by 36%. However, the research firm says that the translation to valuations has been held back due to the effects of price lag and price structure.

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**APA Corporation - **Wolfe Research’s top stock pick faces a complex valuation setup. The sector’s performance year to date has lifted some companies’ valuations to unattractive levels unless there are higher expectations for long-term oil prices. The firm remains constructive on long-term oil prices, but believes the time horizon is not sufficient to offset spot price risk, so it takes a selective stance.

APA Corporation reported fourth-quarter earnings that beat the earnings-per-share forecast, even though revenue was slightly below expectations. The company also received a Barclays upgrade to an Equal Weight rating, and Raymond James raised its price target.

**BP - **For some companies, energy-sector valuations at current prices appear already fully priced. Factor rotation has lifted XLE by 23% before February 28, and combined with a rapid reversal in oil prices, the sector’s absolute performance year to date is close to 30%. The limited impact of incremental change and incremental free cash flow on discounted cash flow is consistent with this, especially as the oil-price curve increasingly shows spot premiums.

BP has been asked to cut production at Iraq’s southern main oil fields and is in discussions with Mexico regarding potential new oil exploration agreements. The company is also seeking permits for natural gas projects in Trinidad and Venezuela.

**Devon Energy **- Strength in recent oil prices has significantly boosted the near-term earnings outlook. However, the physical oil and products markets have shown unusual price volatility, contradicting the normal relative price relationship and distorting earnings transparency. The company benefits from mark-to-market valuation based on real price benchmarks.

In the latest development, Devon Energy’s proposed merger with Coterra Energy has cleared the Hart-Scott-Rodino antitrust waiting period. In addition, both TD Cowen and Raymond James raised their price targets for the company’s stock.

Ovintiv - Spot prices have an equal chance of surging or plunging, depending on how long the geopolitical conflict lasts. Any signs of normalization in flowing markets could mark the end of a non-discriminatory shift away from the energy sector. The company believes that acknowledging the exogenous influences in sector performance means it needs to maintain a certain level of caution.

Ovintiv Inc. reported fourth-quarter results that beat the earnings-per-share forecast while also meeting the revenue outlook. The company also received a target-price increase from Bank of America Securities, while Truist and Morgan Stanley began covering the stock.

Western Oil - Wolfe’s valuation framework is defined as free cash flow multiplied by duration, adjusted for the capital structure. Current price still serves as the base-case scenario for screening absolute value, even though the sector’s absolute performance year to date has already captured most of the upside from the forward curve.

Western Oil received upgrades to an Overweight rating from both Wells Fargo and Piper Sandler, citing improved capital efficiency. There are also reports that CEO Vicki Hollub is preparing to retire.

TotalEnergies - The company maintains a relative preference for assets that have absolute value at current prices, especially when the rate of change can distinguish between absolute performance— including value shifting from net debt to equity.

TotalEnergies reported fourth-quarter adjusted earnings that beat analysts’ expectations, and revenue was also significantly above market consensus. The company also said that due to field shutdowns caused by conflict in the Middle East, it has lost 15% of its oil and gas production.

ConocoPhillips - Wolfe continues to believe that the biggest beneficiaries of temporary upside surprises in oil, natural gas, and refining are de-leveraging events.

Reports say ConocoPhillips is exploring selling some Permian Basin assets, and Goldman Sachs has added the company to its Conviction List. In addition, Roth/MKM downgraded the stock to a Neutral rating; Truist began covering the stock and gave it a Hold rating.

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