Opportunities in Oil

Cramer can’t figure out why oil stocks are trading as if crude cost $30 a barrel when the price just passed $50. Right now BP fetches the same price it did when the sweet stuff cost just $40. How is that possible when BP said that $50 oil was key to the company maintaining its 8.3% dividend payout?

Cramer thinks oil prices go higher, and on Thursday he offered up a stock that will benefit most from the trend: BP Prudhoe Bay Royalty Trust. While he wouldn’t normally recommend a subsidiary – BP owns BPT – Prudhoe Bay is an energy trust, which distributes most of its profits to shareholders as a way to avoid paying taxes. The company’s share price and its dividend are directly levered to the price of oil, so investors have a great opportunity for returns here.

Oil is up 52% from its 52-week low, while Prudhoe Bay is up only 23% from its bottom of just above $50 a share. So even if crude prices stall at this level, then BPT should still add $15 to its $61.35 share price. Of course, Cramer doesn’t think oil’s done going up. So beyond the catch-up in share price, investors will most likely see a dividend increase. The stock jumped 6% just today, but still Prudhoe Bay still yields 10.7%.

Back on Feb. 26, Cramer made a similar recommendation when called Permian Basin Trust a buy. PBT’s up 27% since then. Cramer does like Prudhoe Bay a bit more, though, because it’s a pure play on oil, while Permian Basin also has natural gas exposure. But investors should wait for a pullback before buying.

Watch the video for more about Prudhoe Bay’s dividend and its key Alaskan property.

Cramer's charitable trust owns BP.

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