7 Oil Stocks to Buy Closely Tied to Crude Prices

The energy sector has outperformed the S&P 500 year to date, and the International Energy Agency recently raised its oil demand growth outlook for 2024. Crude oil prices have been on the rise, and West Texas Intermediate (WTI) prices are up more than 35% overall in the past three years.

Stocks that are highly correlated to oil prices are generating tremendous free cash flows. However, high correlation to crude can be a double-edged sword, as many energy investors experienced when crude prices collapsed in 2020. Here are the seven Bank of America "buy"-rated stocks with the highest correlation to WTI crude oil prices:

Targa Resources Corp. (TRGP)

Targa Resources is a U.S. midstream logistics company that specializes in onshore natural gas and natural gas liquids, or NGLs. Analyst Neel Mitra says Targa is experiencing a major free cash flow inflection as its capital expenditure needs fall. Mitra says the company can benefit from the overbuild of Permian Basin natural gas liquids piping, and Targa is still forecasting production growth in the Midland Basin in 2024. TRGP shares have a 52.3% correlation to WTI crude prices, the highest of any stock Bank of America recommends. The firm has a "buy" rating and $126 price target for TRGP stock, which closed at $111.78 on April 18.

Schlumberger Ltd. (SLB)

Schlumberger is one of the world's leading oilfield services companies. Analyst Saurabh Pant says Schlumberger is his top large-cap oilfield services stock for 2024. Pant says the company is highly exposed to international and offshore oil production, two areas which are the highlights of the current oil market cycle. He says Schlumberger's attractive combination of pricing power, operating leverage and capex discipline is allowing the company to generate solid free cash flows. Schlumberger has a 47.9% correlation to WTI crude oil prices. Bank of America has a "buy" rating and $62 price target for SLB stock, which closed at $50.94 on April 18.

Halliburton Co. (HAL)

Halliburton is a leading U.S. oilfield services company. Pant says Halliburton's North American business has been resilient and the company is generating impressive international revenue growth. In addition, he says the stock is attractively valued given its strong financial performance. If the company continues to return more than 60% of its free cash flow to shareholders in 2024 and 2025, Pant estimates it will return about 10% of its current market capitalization in that time. Halliburton has a 45.4% correlation to crude oil prices. Bank of America has a "buy" rating and $43 price target for HAL stock, which closed at $38.65 on April 18.

Baker Hughes Co. (BKR)

Baker Hughes is a U.S. oilfield services company that provides equipment and technology for the energy sector. BKR shares are down 5% year to date, the worst performance of any stock on this list. Baker Hughes is known as the global leader in liquefied natural gas (LNG) liquefaction, with more than 90% market share. However, Pant says Baker Hughes is far from an LNG liquefaction pure-play and has multiple growth pathways outside LNG. Baker Hughes shares have a 36.5% correlation to crude oil prices. Bank of America has a "buy" rating and $37.50 price target for BKR stock, which closed at $32.20 on April 18.

Freeport-McMoRan Inc. (FCX)

Freeport-McMoRan is the world's largest publicly traded copper producer, and it's also a major producer of gold and molybdenum. Analyst Lawson Winder says tight copper mine supply combined with steady demand will support copper prices, which is good news for Freeport-McMoRan. Winder says the company has high-quality leverage to copper prices and large and growing free cash flows. In addition, record gold prices are good news because gold makes up about 15% of Freeport's total revenue. Freeport-McMoRan has a 35% correlation to crude prices. Bank of America has a "buy" rating and $59 price target for FCX stock, which closed at $50.16 on April 18.

Oneok Inc. (OKE)

Oneok is a midstream U.S. oil and gas company that specializes in processing natural gas liquids. Oneok has an aggressive capital return program, including a 5% dividend yield. The company is targeting to return 75% to 85% of cash flows from operations after capex to shareholders via dividends and buybacks over the next four years. Mitra says Oneok has enough discretionary cash to complete its authorized buyback program by the end of 2025. OKE shares have a 26.7% correlation to crude oil prices. Bank of America has a "buy" rating and $86 price target for OKE stock, which closed at $77.88 on April 18.

Howmet Aerospace Inc. (HWM)

Howmet Aerospace manufactures lightweight metal products, specializing in jet engine components, titanium structural parts, aerospace fastening systems and forged wheels. Analyst Ronald Epstein says strong spare parts demand in the aftermarket is helping Howmet offset near-term headwinds from the Boeing 737 MAX production rate freeze. In addition, upcoming renewals and services negotiations related to long-term agreements could help expand margins moving forward. Epstein says Howmet is responsibly reducing leverage while also boosting its dividends and buybacks. Howmet shares have a 22% correlation to crude oil prices. Bank of America has a "buy" rating and $75 price target for HWM stock, which closed at $63.50 on April 18.