Cramer Recommends Selective Picking Of Oil Stocks

Growing Middle East tensions in reaction to the U.S. military's targeted killing of Qasem Soleimani, Iran's top general, doesn't mean investors should rush to pick any oil stock. Jim Cramer said Friday on "Mad Money" that only three oil names are worth buying.

Oil Reaction 'Already Overdone'

Many Wall Street analysts and strategists are likely to take a view that the "sky is falling because of Iran," Cramer said on "Mad Money."

Even in a worst-case scenario, there isn't much Iran can do to inflict long-term damage on U.S. stocks, he said. 

Oil stocks rallied in reaction to Soleimani's killing, but the move higher is "already overdone," Cramer said. Taking a step back and looking at the oil market makes this clear, he said, adding that the forward curve for five years in oil futures rose less than 50 cents per barrel.

Long gone are the days when Middle Eastern countries control oil prices, and this is why the price of crude oil "has so much trouble getting any kind of lift," Cramer said. 

Top Oil Picks

Investors who still feel the need to gain exposure to oil should be very selective in their choices, Cramer said.

First on the list is BP plc BP, due to an attractive dividend yield of more than 6%.

Second on Cramer's list is Schlumberger Limited. SLB, an oilfield services provider with a business that he said will likely gain on increased worldwide drilling — something that is "already happening," Cramer said.

Finally, a pure play on expectations for oil prices to "zoom higher" would be Pioneer Natural Resources, PXD, Cramer said. As an added incentive, Pioneer Natural could also be a takeover target, he said. 

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