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Gas prices could surge to over $4 a gallon this summer. But instead of sweating at the pump, you could be raking in the profit with these top oil stocks to buy.
The reopening of the global economy has been positive for oil prices, and it's only going to get better as demand rises.
West Texas Crude and Brent Crude are both up more than 20% in 2021. That has pushed gasoline prices higher by more than 40%, much to the dismay of consumers.
While Europe's bungling of the vaccine rollout and new lockdowns have some worried about continued weakness in the global economy keeping demand low, it is unlikely that this remains the case. The recent weakness increases the odds that OPEC extends production cuts and the Saudis continue their voluntary additional production cuts to support prices.
Rising oil prices will be a strong indication that the world economy is turning to normal. Not only will there be higher demand from summer travel season, but a reopened economy could mean even more travel as people take long-put-off vacations.
Unfortunately, higher demand could mean higher gas prices across the United States as we enter the summer. AAA is forecasting gas prices could hit $4 a gallon this summer.
Fortunately, there are some stocks that we can buy that will perform very well if oil and gas prices continue to move higher.
Marathon Stock Could Be a Big Gas Price Winner
Marathon Petroleum Corp. (NYSE: MPC) is one of the largest refiners in the United States. It owns 13 refineries in the midcontinent, West Coast, and Gulf Coast of the United States, capable of producing 2.8 million barrels per day.
It also owns transportation and storage facilities via its majority ownership of MPLX LP (NYSE: MPLX), a cash-paying MLP. This includes pipelines, storage tanks, and marine terminals used to move oil and gas from the production fields to the marketplace.
Refineries are pretty close to irreplaceable assets. The dense regulatory requirement and a stubborn not-in-my-backyard attitude among many cities and towns across the country make it very difficult to add refining capacity.
That's going to help Marathon profits this summer when demand for gasoline is surging. It will simply charge more for it knowing competitors won't easily be able to raise capacity.
A big part of the story for Marathon comes from the agreement to sell its Speedway gas stations and convenience stores to 7-11 for $21 billion in cash.
Management will use the cash to pay down debt, buy back stock, and add some cash to the balance sheet.
All of these should be great for the stock price. The buyback could be as much as one-third of the shares outstanding, which would be fantastic for existing shareholders.
Marathon already pays a high dividend yield of 4.3%.
Why Magellan Stock Is a Strong Buy Now
Magellan Midstream Partners LP (NYSE: MMP) owns pipelines that transport gasoline, diesel fuel, aviation fuel, kerosene, and heating oil to refiners and end markets such as gas stations, railroads, and airlines.
The company has 9,800-miles of refined products pipeline system with 54 terminals and 25 independent terminals. It has diversified the business in recent years to include crude oil pipelines and now has 2,200 miles of crude oil pipelines and storage facilities and two marine terminals.
Magellan Midstream Partners is a simple story. The oil needs to get to the refineries and then back to the customer in the form of gasoline, diesel fuel, aviation gasoline, or some other refined product. Magellan delivers the oil to the refinery and the product to the customer through its pipelines. It is paid a fee for the use of the pipeline.
The stronger the economy, the more product will be pumped through its pipelines.
Since it is an MLP, most of the cash left after expenses and maintenance gets paid out to us as investors. Right now, the dividend yield on Magellan Midstream is almost 10%.
The shares also appear to be undervalued given the ongoing economic recovery and level of oil prices right now.
That's a win-win for investors who get in now.
The Top Oil Stock to Buy Now
CrossAmerica Partners LP (NYSE: CAPL) is a distributor of gasoline in the United States. It delivers to 1,800 locations and across the country. It also owns or leases 1,100 sites that it leases out to its wholesale customers. Cross America is a distributor for most integrated oil companies and refiners in the United States. It is the single largest distributor of Exxon Mobil Corp. (NYSE: XOM) in the United States and in the top 10 for the other companies for which it distributes gas.
Cross America took advantage of attractive asset pricing in April of 2020 to make a large acquisition that dramatically expanded its retail gasoline operations. As a result, gross profits were up 146% in 2020 despite decreased demand because of the pandemic.
Once again, it is a simple business. Cross America sells gasoline. When gas prices go up, it collects more money even if margins stay the same.
Cross America is also an MLP, so much of that cash is coming our way in the form of dividends. Right now, the yield on Cross America Partner is a little over 10%.
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