Wall Street has an incredibly short memory. Case in point: energy stocks
As we’ve fracked and fracked, prices for oil and other energy sources have plunged in recent months. Adding to fuel to that fire has been new energy-efficiency measures, slower demand caused by slowing economies and OPEC’s recent decision to keep on drilling at current rates.
And as oil prices have tanked, so have many energy stocks. For instance, the broad Energy Select Sector SPDR (ETF) (XLE) has fallen about 25% from his highs.
The thing is, the low-price environment won’t last forever. Heck, it might not last through 2015. You need a certain price for energy to make drilling in certain fields profitable — even OPEC members do. When energy companies can’t make a buck, they’ll stop producing. We saw this happen with natural gas back around 2012, and it’ll happen with oil. Ultimately, supplies will fall and prices will rise again.
Given that, energy stocks are a great long-term investment (read: for at least the next five years if not longer). Here are five that you can feel comfortable picking up now and holding for a good, long time.
Best Energy Stocks to Buy #1: ConocoPhillips (COP)
But COP stock isn’t a one-trick pony. It has its hands in many soups and holds total acreage in the U.S. just larger than the state of West Virginia. ConocoPhillips has holdings in areas of the Eagle Ford, Bakken and the San Juan Basin in New Mexico/Colorado, not to mention COP’s expansive holdings in the Gulf of Mexico and Alaska. These U.S. operations remain the greatest source of its capex spending and drilling programs, and as such, COP remains one of the lowest-cost operators of these rich shale fields.
It can handle a low-price environment just fine.
In addition to its bread ‘n’ butter U.S. operations, ConocoPhillips holds vast global assets as well. Assets in Canada, China and the North Sea continue to provide long-term growth for COP stock investors.
COP stock has delivered over the long term, and should continue to thrive over the next five years. The stock trades at just 8 times earnings and sports a hefty 4.5% dividend — which is amply supported by cash flows — so investors have the opportunity to buy a great long-term play on the cheap, and with income production to boot.
Best Energy Stocks to Buy #2: Halliburton Company (HAL)
As production-based energy stocks have been taken to the woodshed, those that provide the technology that enables said production have been hurt even more.
But they don’t call Halliburton Company (HAL) “King Hal” for nothing.
Halliburton is fracking, and fracking is Halliburton. It’s as simple as that. HAL pioneered the technology for the drilling technique., and when oil prices do eventually rise or we need to pull more energy out of the ground, Halliburton is going to get the nod.
And that’s even likelier after its recent plans to merge with rival Baker Hughes Incorporated (BHI).
The combo will control more than 39% of the U.S. fracking market and have significant exposure outside the country. All in all, the HAL/BHI combo should have the ability to charge E&P firms higher prices for fracking services. That should help both firms navigate any lower-priced oil environment — like the one we are currently in — with relative ease.
In the meantime, HAL stock has basically been halved, producing a deliciously cheap P/E of 10 and inflating its modest yield to 2% — a steal of a value in this energy stock.
Best Energy Stocks to Buy #3: National-Oilwell Varco, Inc. (NOV)
National-Oilwell Varco, Inc. (NOV) has made at least one part of more than 90% of all the drilling rigs operating in the world, earning the moniker “No Other Vender.” And like HAL, it has been taken to the woodshed.
But the drop in NOV stock is unjustified when you consider the long term.
Varco’s wide moat will continue to pay benefits down the line. NOV has its hands in variety of energy products and sources, from onshore shale to offshore deepwater. That means no matter the price of oil or natural gas, some segment of Varco is making money. That has helped the firm become a money-making machine. In its latest earnings report, NOV managed to make over $6 per share — leaps and bounds above the 80 cents per share it made back in 2004.
Meanwhile, Varco’s backlog remains robust, and NOV offers several products to improve efficiency of a well’s production (a fancy way of saying that it can reduce costs over the longer term). Those products should be in higher demand if oil continues its slide.
National-Oilwell Varco has one of the strongest balance sheets in the oil services sector, not to mention across all energy stocks in general. Net debt is just $2.1 billion, or less than one year’s earnings. NOV also spends its cash on shareholders, buying back stock and offering a nice dividend yield of 2.9%.
Best Energy Stocks to Buy #4: Enterprise Products Partners L.P. (EPD)
Midstream and energy logistics infrastructure doesn’t stop moving crude oil and natural gas just because prices are in the toilet. Which is why Enterprise Products Partners L.P.’s (EPD) drop is so puzzling. The firm has a large diverse asset base across multiple energy commodities and continues to see rising volumes throughout its pipelines.
Leading that charge has been EPD’s pipeline and gathering assets in the faster moving Barnett, Eagle Ford, Marcellus, Utica and San Juan Basin. Those shale regions feature the lowest cost of production with regards to oil, natural gas and natural gas liquids (NGLs).
Meanwhile, EPD has plenty of avenues for growth as well — namely, brand-new liquefied petroleum gas (LPG), ethane and NGL export infrastructure to propel growth. Demand for these products overseas, especially in energy hungry Asia, is rising rapidly. Producers in the U.S. will gladly pay EPD a hefty fee to sell their product.
New money in EPD shares would score a 4.1% yield and the opportunity to hold one of the largest and most diverse midstream energy stocks out there.
Best Energy Stocks to Buy #5: Apache Corporation (APA)
For independent energy producer Apache Corporation (APA), September probably was the worst time to report a major transformation into a U.S. shale operator. The firm has done around $11 billion worth of divestures, including fields in Canada, Argentina and some non-controlling interests in Egypt. Also gone are offshore fields in the Gulf of Mexico’s shelf.
What’s left are quality fields in the Permian and Anadarko basins. APA’s acreage in the relatively inexpensive Permian continues to produce higher volumes of crude and liquids. Meanwhile, Apache’s offshore wells along the Gulf Coast of Louisiana and Texas churn out hefty cash flows for the firm. All in all, by 2016, APA’s liquids production will reach about 69% of total, with the U.S. generating a majority of the volume and cash flows.
In the near term, that could be cause for concern given lower oil prices. However, the firm’s strong balance sheet, high cash flows and generally low-cost “acquire and exploit” business model will see it through the current malaise dragging down energy stocks.
And at $57 per share, APA is trading well below many analysts’ fair-value estimates of around $90.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.