Buy China's Top Oil Company

With oil pushing up against $80 a barrel again, many investors are looking for the best energy stocks to buy now. There’s no question in my mind that the top oil stock is China’s CNOOC Ltd. (CEO). While many companies like Exxon Mobil (XOM) are struggling, this Asian firm is booming right now and becoming a global energy powerhouse.

CNOOC Cashing In Abroad

Exxon Mobil (XOM) is one of the most widely held energy stocks. But my in-depth analysis of Exxon’s fundamentals indicates that it is struggling thanks to weak sales, poor earnings performances and a lack of overall buying pressure on Wall Street.

The reason for it all, in my opinion, is that XOM is one of the biggest companies on Earth and is simply not as hungry as it once was. Why push for growth and efficiency when you’re on top of the world already?

That’s what makes China’s CNOOC Ltd. (CEO) such a fantastic company. Formally the China National Offshore Oil Corporation, the company manages China's offshore oil and gas exploration and production activities. With strong ties to Beijing, CEO knows that it is the lifeline for energy to this emerging market. If China wants to grow aggressively, it needs more fossil fuels—and that means CEO has to grow aggressively too.

Just look at how the company continues to leap at opportunities in Africa. CEO is on the record as saying it plans to secure no less than one-sixth of Nigeria's oil production in the coming years. That's awfully ambitious! What’s more, CNOOC Ltd. has entered talks with Ugandan officials to invest in a large oil project that could be worth $5 billion to $6 billion dollars.

And it’s not just African finds—CNOOC reportedly is negotiating the purchase of leases owned by the Norwegian StatoilHydro in U.S. waters in the Gulf of Mexico, the source of about a quarter of U.S. crude oil production. That would be quite a coup if this comes to pass. You may remember that four years ago, CNOOC put in a $18.5 billion bid to buy Unocal Corp., but the effort was vetoed by Congress on national security grounds, and the company went to Chevron instead.

Exxon, meanwhile, has been caught flat-footed. Recently the company has realized the need to start expanding like CEO or risk getting squeezed out, but it’s getting to the party late. The latest instance came this week when Exxon Mobil became the first U.S. company to win a contract in Iraq—AFTER Baghdad had aleready completed deals with British and Chinese companies. XOM’s late entry doesn’t exactly cast it as an industry leader. CEO, on the other hand, continues to seek out new profit opportunities ahead of its competitors.

Buy CEO Stock Now

But as always, it’s important to note that a good story doesn’t always make a good investment. Before putting your money into any stock, you need to make sure the numbers indicate it’s a good buy. And as you’ll see, the sales and earnings of CEO indicate great current strength and future growth potential:

Current Strength: CEO is one of the largest fossil fuel outfits in the world. CNOOC has about 3 billion barrels of oil equivalent in estimated proved reserves, primarily in the South China Sea—but as I pointed out earlier, exploration continues at a breakneck pace. The company has a net production of 470 million barrels of oil equivalent per day, feeding the energy-hungry manufacturing segment in China as well as nations around the globe. While the company’s sales were down about 23% due to soft crude prices in the third quarter compared with last year, compare that to Exxon’s 68% crash in profits and you’ll see that CEO’s aggressive strategy has kept the company strong.

Future Growth: Oil continues to creep up as the economic recovery takes shape. Demand is picking up as we enter the winter months and energy needs increase. What’s more, a weak dollar is pushing up oil prices. Because crude is priced in U.S. dollars, exchange rates cause energy prices to go up as the greenback goes down. With record deficits and an unemployment rate of over 10%, there’s little hope for a strong dollar in the near term—meaning there will be little downward movement in crude anytime soon. This will result in much better sales and profits for CEO. And with an aggressive growth strategy that keeps bringing new fields online, output should soar and really deliver windfall profits to this Chinese stock.

The Verdict: The fundamentals of CEO are not perfect, since year-over-year comparisons are not very favorable right now. After all, gasoline prices were around $4 a gallon in the third quarter of 2008, and crude was cruising near $100 a barrel. However, there’s no denying that CNOOC’s fast-growing operations and strong business plan make it one of the foremost energy companies. I rate CNOOC a buy right now for any investor.