Fracking and shale drilling have made the energy sector one of the best places to find returns in the last few years. As we’ve continued to unearth massive amounts of oil & natural gas here in North America, energy stocks continue to outperform.
So far, the energy stocks in the S&P 1500 Index have managed to post a hefty 5% return in April and nearly 6% return since the start of the year. That compares to only a 1% return for the entire S&P Composite 1500. The bulk of that return has come from high-flier smaller independent drillers like Range Resources (RRC).
Still, there’s also something to be said about holding steady blue-chip energy stocks in your portfolio, too.
Featuring vast reserves, hefty cash flows and juicy dividend payments, blue-chip energy stocks can provide plenty of stability when balancing them with the faster shale players. Meanwhile, many of these companies trade for relative peanuts, at historically low price-to-earnings ratios and other metrics.
Investors shouldn’t ignore blue-chip energy stocks in their portfolios. Here are four of the best to bet on.
Blue Chip Energy Stocks To Buy — Murphy Oil (MUR)
Following many integrated energy stocks leads, smaller Murphy Oil (MUR) is quickly becoming “lean & mean.” The firm has recently undergone some asset sales and changes in order to become a U.S.-focused E&P firm. That includes spinning off its U.S. refining division as off Murphy USA (MUSA), sellingor closing its refinery operations in the U.K. as well as putting its Malaysian assets up for sale.
On the flipside, MUR has been plowing headfirst into some of America’s hottest shale formations, including the Bakken and Eagle Ford.
For its latest quarter, MUR showed that its production increased 1.3% year-over-year to nearly 205,000 barrels per day. The bulk of that production gains came from its acreage position in the Eagle Ford. Meanwhile, profit margins for Bakken acreage continue to rise and lead the energy sector. Other production wins for MUR include the Gulf of Mexico.
And with the focus now on the U.S., Murphy might be one of the best blue-chip energy stock to buy. Those efforts in the U.S. should help MUR grow its cash flows by $5 billion per year by 2019. Shares of MUR stock currently trade for a P/E of just 13 and sport a 2% dividend yield.
Blue Chip Energy Stocks To Buy — Marathon Oil (MRO)
Where did MUR get the idea for spinning-off its refining operations to get lean and mean? That would be energy stock stalwart Marathon Oil (MRO). MRO hasn’t looked back since spinning off its refining arm a few years ago.
Like MUR, MRO’s main bailiwick is now prospecting the Eagle Ford and America’s other shale formations for natural gas and oil. And on that front, it ha been quite successful.
In the Eagle Ford, Marathon managed to increase its production by 50% last year to reach 90,000 barrels of oil equivalent (BoE) per day. However, MRO’s recent capex spending announcements will have it tackling the Eagle Ford with gusto. MRO promises to spend roughly 60% of its $5.9 billion capex budget on the Eagle Ford and other shale plays in the U.S. — such as the SCOOP and Bakken. That spending will help MRO see a 30% boost in production.
And like MUR, Marathon is one of the cheapest energy stocks out there. MRO stock trades for forward P/E of less than 13 and sports a growing 2.1% dividend yield.
Blue Chip Energy Stocks To Buy — Devon Energy (DVN)
As natural gas prices imploded a few years ago, many of the frackers who chose to specialize in the fuel has saw their share prices shrink. Case in point: Devon Energy (DVN). However, the story at DVN today is about growth rather than dwindling profits.
Devon has gotten smart about adding more liquids production to its mix.
Recent moves include including buying $6 billion worth of Eagle Ford exposure from privately held GeoSouthern last year as well as nearly $3 billion worth of natural gas fields to Canadian Natural Resources (CNQ).
Those deals have made natural gas liquids and shale oil a major piece of DVN’s future. And investors should be buying their piece of that future. Overall, liquids now make up about 45% of Devon’s product mix. However, it expects to tack on another 5% in 2014 as its Eagle Ford acreage keeps on producing.
And while DVN stock has surged since the beginning of the year, it’s still pretty cheap. With a forward P/E of 11, Devon is one of the cheapest blue-chip energy stocks to buy today, given its growth profile.
Blue Chip Energy Stocks To Buy — Occidental Petroleum (OXY)
While integrated giant Occidental Petroleum (OXY) may have some issues in California to contend with, its global focus and recent “lean & mean” attitude make it a worthwhile investment. It recently announced that it will spin off its California operations and reduce its ownership in pipeline MLP Plains All-American Pipeline (PAA).
Like the other blue-chip energy stocks on this list, the U.S. has become the place du jour for OXY. The firm continues to see rising production. Overall, OXY managed to see is global oil & gas production jump to 763,000 BoE per day versus last year’s 745,000. What’s key is that OXY saw domestic U.S. production jump by 10,000 per day to reach 274,000.
That higher production along with higher crude prices — both here and abroad — helped OXY see a 2.6% rise in its quarterly profits. Revenues surged nearly 6% as well for the quarter.
With the spinoff of its California assets coming at the end of 2014, investors buying OXY stock today are in a unique position to benefit. Already, OXY is cheap, with a P/E of 13. However, after the spinoff is completed, the faster moving OXY shares should trade at a higher multiple. That’ll lead to some nice gains.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.