3 remarkable winners amid an unseen surge

Entrepreneur

04-06-2025

Oil prices have been falling as OPEC increases production. Like Trump with trade, the cartel is looking to re-shape the chess board. Here's what investors need to know
This story originally appeared on WallStreetZen
The dominant story of 2025 has been President Trump using tariffs to restructure global trade.
So, many investors are missing another major development as OPEC has been increasing oil production. Notably, this increase in production has come about despite already weakening oil prices.
This is not an accident as OPEC is looking to increase its market share. Over the last decade, steadily rising US shale oil production has eroded OPEC's control of the market and resulted in the US becoming a net exporter of energy.
WTI Crude oil started the year at around $74 per barrel and currently trades below $60 per barrel. However, shale oil production is only viable at prices above $70 per barrel.
2020 and 2014
The last two major instances of OPEC members increasing oil production were in early-2020 and 2014. And, both instances marked the beginning of multi month declines in oil prices.
In 2014, WTI crude dropped from $105 per barrel in June 2014 to below $55 by the end of the year. The major impetus for this increase was the growth in US shale production which was starting to affect OPEC's market share and pricing power.
In early 2020, Saudi Arabia decided to increase oil production in an effort to discipline other OPEC members who were not abiding by the cartels' production quotas.
As the chart below shows, this resulted in oil prices sliding lower and eventually collapsing as the pandemic temporarily crippling oil demand.
Both experiences contain important lessons for investors.
2025
In its first production surge, OPEC didn't materially cut back on supply increases until there was a material decrease in rig counts and shale production. 2020 gives us few clues, since the production surge ended quickly, once the nature and challenge of the pandemic became clear in early March.
However, the biggest takeaway is that investors should not ""fight OPEC." A common adage on Wall Street is "don't fight the Fed." Essentially, this means don't be bearish when the Fed is aggressively easing or don't be overly bullish if the Fed is tightening policy.
Similarly, investors should have a more risk-averse approach when investing in oil, whenever OPEC is increasing production.
What Opportunities Does the OPEC Surge Create?
Instead, investors should focus on the consequences of a multi month decline in oil prices, as these are where investment opportunities can be found.
For instance, many airline stocks enjoyed spectacular rallies in 2014 and 2015 as lower oil prices boosted margins and profits. In 2020, many shippers enjoyed huge gains as the world was awash in excess oil which had to be stored and transported.
Investors should identify stocks with strong fundamentals that have strong quantitative ratings. Then, they can narrow down this list of stocks to find the ones that will benefit from this specific catalyst.
The Zen Ratings can help you screen for these stocks. For instance, investors can screen for stocks with an overall A or B rating along with strong component grades for defensive categories like Safety, Value, or Financials.
Currently, there are a handful of stocks that fit this criteria. In today's article, I want to discuss 3 companies: United Airlines (UAL), CVR Partners (UAN), and Hallador Energy (HNRG).
1. United Airlines (UAL)
United Airlines (UAL) is a major beneficiary of lower oil prices as it reduces costs, boosts margins, and leads to an increase in consumer spending. As oil prices dropped by more than 50% between June 2014 and February 2015, UAL's stock was up by nearly 70%.
UAL also brings outstanding financials given a solid balance sheet, low debt-to-equity ratio, and a rock-bottom forward P/E of 6.6 which is significantly cheaper than the S&P 500's forward P/E of 22.
The company is also well-regraded by Wall Street analysts as it has 8 Strong Buy ratings and 3 Buy ratings with no Sell or Hold ratings. It also has a consensus price target of $103 which implies 30% upside. Another indication of strong performance is that the company has topped analysts' earnings expectations for 11 straight quarters.
Similarly, the Zen Ratings are also bullish on the stock as it has a Strong Buy (A) rating. A-rated stocks have an average annual performance of 32.5% which beats the S&P 500's average annual gain of 10.8%.
2. CVR Partners (UAN)
CVR Partners (UAN) produces nitrogen fertilizer, providing farmers with ammonia and other products. A byproduct of reduced shale oil production will be higher natural gas prices, and fertilizer prices tend to rise with natural gas prices.
Like UAL, UAN offers a strong balance sheet, low leverage ratios, and an attractive valuation with a P/E of 11. UAN also pays an 8% dividend yield and has consistently hiked dividend payouts over the last decade.
While certain segments of the economy are going to lose from tariffs, agriculture is an exception. Either the administration is going to strike deals that will boost exports, or it will provide aid to farmers given their political importance as was the case during the previous trade war in 2018-2019.
Given these strong fundamentals, it's not surprising that UAN is rated a Strong Buy (A). The stock has appeal to both value and growth investors. The company's recent earnings reports reveal strong cash flow. Over the last 12 months, the company generated nearly $100 million in cash which is impressive given its total market cap of $825 million.
This combination ensures a margin of safety while providing exposure to positive catalysts.
3. Hallador Energy (HNRG)
While UAN will benefit from higher fertilizer prices, HNRG will benefit from higher coal prices. Coal prices and natural gas prices tend to move in the same direction. Further, the Trump administration's embrace of coal also removes another major headwind for the industry which led to underperformance for most of the last decade.
Essentially, coal stocks were mired in a brutal bear market from 2010 to 2020. Low natural gas prices made it less competitive. At the same time, the government was embracing environmental policies to reduce coal consumption. Now, both of these headwinds have eased, and investors are finding opportunities in the sector.
Wall Street analysts are also bullish on the stock as it has 2 Strong Buy ratings and 1 Buy rating with 0 Sells or Holds. In terms of the Zen Ratings, it's rated a Buy (B). B-rated stocks have produced an average annual return of 19.5% which beats the S&P 500's average annual gain of 10.8%.
The stock is also a standout in terms of component grades. Out of our universe of 4,500 stocks, it's in the top 3% for Growth. This is consistent with the company's improving outlook given increasing coal production and rising prices. Additionally, it ranks in the top 4% for Safety due to its low levels of debt, leverage, and collection of high-quality assets.
What's the Endgame For OPEC's Production Uptick?
While the endgame and path for Trump's trade war is unclear, the fallout and conclusion of OPEC's production surge is much more predictable.
While North American energy producers are likely to struggle, commodities like natural gas, coal, and fertilizer will benefit. Another winner will be airlines as consumer spending remains strong while fuel costs decline.
What to Do Next?