No matter what your feelings about global warming and alternative energy might be, there is no getting around the fact that oil will play a major role in the world’s economy for several more decades at least. There is also the very real possibility that the price of oil will return to the highs of 2008 prior to widespread adoption of alternative fuels. For these reasons, investing in integrated oil companies would seem like a good way to hedge against one’s own energy costs.

Exxon Mobil (XOM): Exxon Mobil is the world’s largest oil company and set records for profits for 4 straight years. The company explores, drills, transports, and refines oil and natural gas. It has proven reserves of 12.8 billion barrels of oil and equivalents. It is currently trading at a P/E of 11 and has a dividend yield of 2.4%.

Commentary: It is hard to argue against owning one of the world’s most profitable companies in a business whose product is in demand and that you use extensively also. It is almost like paying yourself to use your own product. Furthermore, a yield of 2.4% is also good to have. I would definitely consider owning this stock and trading around a core position. I would even consider selling covered calls to enhance my income. Oil will have some value as a commodity until it is completely replaced.

Marathon Oil Corporation (MRO):  Marathon also is involved in the production of oil and natural gas products from the exploration stage through the final products.  It is much smaller than Exxon with 1.2 billion barrels of oil and equivalents.  It is a little bit cheaper trading at a P/E of 8 with a dividend yield of 3.0%.

Commentary:  I am somewhat partial to MRO since I did own it for a time.  It is hard to argue against a yield of 3% while holding a stock that can protect you from inflation.  If I was in the market to purchase more stock in the near future, I would definitely consider this one.

Chevron (CVX):  Chevron is another integrated oil company, and as the name would imply, is completely involved in the oil and natural gas industry.  It has proved reserves of 11.2 billion barrels of oil, trades at a P/E of 8.6 and yields 3.8%.

Commentary:  Chevron is another company worth considering.  Its stock price has lagged XOM and MRO over the past five years.  It is not immediately evident why, but CVX is fighting a $27 billion environmental liability case in Ecuador which may be weighing down the stock.  A favorable judgment could allow the stock to gain a little and may make this stock somewhat speculative.  Personally, I would not speculate in this way, but would pick some other company.

ConocoPhillips (COP):  ConocoPhillips is the second largest US oil company behind Exxon Mobil.  It has 10 billion barrels of reserves.  The company lost money in the last year so it doesn’t have a meaningful P/E.  It does yield 4.1%, however.

Commentary:  This stock has lagged the others discussed above over the last year and 5 years.  Why bother?

BP plc (BP):  BP is a British oil company that is the world’s third largest behind Exxon Mobil and Royal Dutch Shell.  It has 18.2 billion barrels of oil equivalents.  It is the largest oil and gas producer in the United States.  Its P/E is 13.9 and yield is 6.5%. 

Commentary:  The stock has seriously lagged the others over the past 5 years but has done better over the past year.  I think this one might be worth a look given its relatively strong recent performance and high yield compared to the others.

Owning an integrated oil company can be a great way to take advantage of rising oil prices and will certainly ease any pain felt at the gasoline pump.