The United States and Iran had signed an interim deal last month that ended months of conflict and led to the resumption of oil flows through the Strait of Hormuz. With both countries having entered a 60-day negotiation period to reach a permanent peace deal, commodity prices have retreated from their recent highs.

Some investors may assume that energy companies’ prospects will weaken from here. But the reality appears to be quite different. Two large-cap energy players, Phillips 66 PSX and Halliburton HAL, have surged 33.7% and 56.4%, respectively, over the past year, outperforming the broader oil-energy sector. Can this rally continue? Let’s take a closer look.

2 Energy Stocks in the Spotlight: PSX & HAL

West Texas Intermediate (“WTI”) oil is currently trading below $70 per barrel, according to data from Oilprice.com, significantly lower than the more than $100 per barrel reached in May this year. Phillips 66, currently carrying a Zacks Rank #2 (Buy), is likely to gain from the softer crude pricing environment. This is because PSX, a leading refining company, is now able to purchase oil at a lower cost, enabling the production of end products.

Although a leading refiner, PSX, unlike most of its refining peers, has diversified its business across midstream and chemicals. It is to be noted that the midstream business, by its very definition, is resilient since it generates stable cash flows as the assets are being utilized for the long term, and is less vulnerable to commodity price volatility. Hence, having a diversified business model, the large-cap stock is insulated from commodity price volatility to a great extent. Given the strength and resilience of its business model, Phillips 66 has significant room to continue its upward trajectory.

Halliburton is a leading oilfield service player providing technologies, products and services to the exploration and production companies across the entire well life cycle. The current oil prices, which are much lower than the shut-in prices, are likely to aid upstream activities, which are expected to have a positive impact on demand for the #2 Ranked Halliburton’s services encompassing Completion and Production & Drilling and Evaluation. The large-cap oilfield service company is thus well-positioned to sustain its upward momentum. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Halliburton Company (HAL): Free Stock Analysis Report

Phillips 66 (PSX): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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