Some folks are saying that it’s time to throw in the towel on energy stocks. After all, the sector, as measured by the Energy Select Sector SPDR (NYSEARCA:XLE), is barely up for the year. Look at the more aggressive SPDR S&P Oil & Gas Explore & Prod. ETF (NYSEARCA:XOP), which includes smaller, wildcat oil and gas companies, and the sector has managed to lose money in 2019 — a year in which nearly everything else has rallied sharply.

Zoom out, and things look even worse. XLE and XOP are down 27% and 57% over the past five years, respectively. Over the same time period, the S&P 500 is up more than 50%.

To be clear, an oil and gas bust is one thing. However, the rhetoric has gotten even darker now. On one hand, you have folks saying that fracking and shale have unlocked nearly unlimited amounts of cheap energy going forward. On the other, environmentalists and electric car advocates suggest that the fossil-fuel era is ending.

Within a decade or two, they claim, we’ll all be using electric vehicles powered by windmills and solar panels.

The truth, as always, is more complicated. New developments in energy extraction have created more supply, sure. However, the shale boom is already losing steam, and we should expect a major slowdown in 2020 and onward. Shale has not proven a reliable generator of actual operating profits, so capital is quickly leaving the sector and production gains will taper off as well.

Meanwhile, on the alternative energy front, there’s certainly great progress there. But solar and wind still make up just a couple percent of overall worldwide power generation; old-fashioned hydro power is still far more important. It’s a fantasy to think we’ll go from sub-5% wind and solar to a majority of them in a short period. As it is, the world is still phasing out coal — a process that is taking decades — and there’s little reason to get rid of oil and gas while far more environmentally damaging coal retains wide usage.

As always, it’s a cycle. Oil is currently in a bust, but it will have another boom. The IEA estimates oil demand will continue rising sharply for at least another five years and then plateau around 2030. The “twilight” of oil is still quite a ways off, and in the meantime, there are profits to be made as the current oil bust gives way to the next big upswing.

Energy Stocks to Buy: ExxonMobil (XOM)

ExxonMobil (NYSE:XOM) is arguably the most-hated mega-capitalization stock in America right now. It’s one of the few large companies just hovering around even in 2019. The Environmental, Social, and Governance (ESG) funds are rushing to dump Exxon and other oil majors. The climate change protests have raised particular animosity toward Exxon given its role in controversial scientific and lobbying efforts.

All in all, many folks feel embarrassed to talk about Exxon, let alone say they are buying it hand over fist. We can profit from this because XOM stock is offering its highest dividend yield in nearly 30 years at the moment, as the stock offers a 5% dividend.

Some bears on XOM stock make an argument that Exxon can’t cover its dividend out of cash flow, but this is faulty analysis.

Exxon is currently spending tons of money with the intention of doubling its profits and cash flow over the next five years. Huge projects such as the offshore Guyana field are coming online now. Investors buying XOM stock today will be rewarded over the next several years as these forward-looking investments start to pay off in a big way.

Canadian Natural Resources (CNQ)

Exxon is the most obvious energy stock to buy right now. It’s the rare household name that offers a fat dividend, a fantastic balance sheet and is seriously undervalued. XOM stock checks all the boxes.

Of the oil majors with the most upside, however, that title goes to Canadian Natural Resources (NYSE:CNQ).

Canadian energy companies have a big advantage over U.S.-based firms at the moment. The edge is that Canada has had a glut of oil and gas production in recent years. Meanwhile, political roadblocks have prevented Canadian midstream entities from building sufficient pipelines and other takeaway capacity. This has caused Canadian oil and gas prices to slump far below world levels.

Deeply discounted oil and gas prices have hurt smaller energy firms, but it has helped the large players like Canadian Natural. Why’s that? It has forced the oil companies to focus on cash flow, and the ones that don’t have enough of it have already gone bust. Canadian Natural has been buying up assets on the cheap from Devon (NYSE:DVN) and other struggling firms as low prices have forced huge layoffs and spending cuts.

In essence, Canada has already lived through the sort of anti-energy, industry regulatory environment that investors now fear may hit the U.S. in 2021 depending on the outcome of the presidential election.

CNQ stock has gotten thrashed, along with the sector; But it deserves better. The company is generating an enormous free cash flow yield of 12% per year. That means, even after capital expenditures, Canadian Natural would earn back its entire market cap in cash flow in just eight years. And Canadian Natural has tons of long-life assets that will generate cash for decades.

CNQ stock is offering a 4% dividend, but still leaves plenty of cash flow for other uses — giving it plenty of room to pick up more assets at fire sales prices, buy back stock or pay down debt. CNQ stock is set to prosper even with flat oil prices, and will make windfall gains when oil prices recover. In the meantime, enjoy the dividend.

Canadian Natural has hiked the dividend payout reliably, which is especially impressive given the plunge in oil prices and massive dividend cuts and bankruptcies elsewhere in the industry.

Suncor (SU)

Like Canadian Natural Resources, Suncor (NYSE:SU) is another dirt-cheap Canadian energy stock to consider now. In fact, Barron’s just profiled Suncor as a better alternative to Saudi Aramco for investors wanting a giant, integrated energy firm at a fantastic price.

What’s to like about Suncor? For one thing, the company is shareholder friendly — a rare trait in energy firms nowadays. Morgan Stanley’s Benny Wong recently wrote that: “Suncor is a poster child for capital discipline and returning cash to shareholders.” He has an outperforming rating and $38 price target on SU stock.

He’s right about the dividend. Suncor stock offers a 4% dividend, and management intends to hike it roughly 10% every year going forward. On top of that, Suncor buys back a substantial chunk of stock every year. It can fund all this because, like Canadian Natural, it has oil sands which can produce for decades without losing any production volume. Oil sands production is more akin to manufacturing than conventional oil production, as the resources are easily visible and recoverable at the surface of the earth. Process them, sell them and get your cash. That’s way different from shale, where production volumes decline precipitously soon after a new well begins production.

Long story short, Suncor is a safe income stock that investors are too worried about due to it being in the energy industry. Suncor has many decades of oil reserves and won’t need to spend much capital to keep production going at current levels. Even at current low energy prices, Suncor is making a boatload of cash. Once shale producers see production slump, oil prices should rise and give Suncor even fatter profit margins on its production.

Valero (VLO)

Oil refiners have become surprisingly good energy stocks in recent years. In the past, refiners were a boom-bust business that produced little meaningful shareholder value over time. Prices would surge when a big hurricane or snowstorm caused outages and gas price spikes, and prices would slump whenever refining spreads went down.

With the advent of the fracking boom, however, refiners have been one of the biggest winners. They now get access to unusually cheap North American oil, since there is a glut locally. If you can sell gasoline, asphalt, petrochemicals and the like at the same price as before and buy your crude oil at a discount from Texas rather than Saudi Arabia, you’re naturally going to earn a better profit margin.

Additionally, the federal government has put numerous regulations in place that make it largely impossible to build new refineries or add substantial supply to the overall market. This, in turn, has helped insulate the industry from competition and keep margins high for years now.

Valero (NYSE:VLO) is one great example. It runs a boring, but exceptionally profitable business refining and distributing gasoline and other oil products. VLO stock is trading at $94 and is set to generate just under $10 per share of earnings next year. That adds up to a P/E ratio under 10. Valero pays nearly a 4% dividend and is a cash flow machine prospering from the glut of shale production.

Delek (DK)

Delek (NYSE:DK) is another refining play like Valero. In contrast to Valero, however, Delek is a regional player with a market capitalization of just $2.52 billion. This means that DK stock has more volatility as oil prices swing around. DK stock surged from $12 to $60 between 2016 and 2018 as oil prices recovered and the outlook for oil and gas activity firmed up.

Since then, though, DK stock has given back half its gains, and now trades around $34. The current drop in energy prices may hit shale activity going forward and lower refining margins. That’s what the market is pricing in, nevertheless.

With the share price drop, however, Delek is now selling for less than 7x trailing earnings and pays a 3.6% dividend yield. With any upturn in sentiment for the oil and gas industry, Delek stock could enjoy a sharp reversal and head back up toward its 2018 highs.

Chevron (CVX)

Chevron (NYSE:CVX) is not my absolute favorite play of the giant oil majors. But it’s certainly an energy stock to consider, regardless. Chevron has produced tons of value for its loyal, long-term shareholders.

Going forward, Chevron has bet heavily on liquefied natural gas (LNG) projects. If these work out as planned, CVX stock will enjoy tremendous gains. At the moment, however, the natural gas market is absolutely drowning in excess supply. Natural gas prices have already slumped in the U.S, And now, the country is exporting the glut internationally; LNG prices have tanked in Europe and Asia thanks to rising shipments.

This may make Chevron stock more of a 2021 or 2022 story, as this market is unlikely to improve within the next few quarters. Long term, though, Chevron offers a lot of value after a decade of underwhelming returns. With the next surge in oil and gas prices, Chevron will go from being a Dog of the Dow to a star performer once again.

Northrim Bank (NRIM)

Finally, stick with me for this one. You might be asking what a bank such as Northrim (NASDAQ:NRIM) is doing on a list of energy stocks to buy — and that’s a fair question.

The answer is that Northrim is one of Alaska’s two large, home-grown banks. It’s pretty much just them and First National Bank of Alaska (OTCMKTS:FBAK) that dominate the local banking scene. There are a few national rivals with branches in Alaska, but if you want to do business with a company headquartered there, Northrim is at the top of a very short list of options.

This geographic isolation has paid Northrim huge benefits over the years. Its net interest margin (NIM) tends to run 30%-40% above the national average due to Alaska’s prosperity and the lack of local banking competition. Even with interest rates in the dumps now, Northrim is earning a net interest margin today that is on par with what lower 48 banks were earning 20 years ago (that is to say, much better). The scourge of zero-interest-rate policy hasn’t hit in the same way up north.

Thus, you get an unusually profitable bank in NRIM stock that also has a huge inflation kicker. If the price of timber goes up, Northrim wins. If gold prices surge, that’s good for Alaska’s mines. And obviously, if oil takes off again, Alaska is well-endowed there as well.

Northrim scores doubly on that front since Alaska pays out an oil dividend to each one of its residents every year funded out of royalties from energy production. Long story short, higher commodities prices are a home run for the Alaskan economy, and Northrim is a natural beneficiary.

At the time of this writing, Ian Bezek owned XOM, CNQ, SU, and NRIM stocks. You can reach him on Twitter at @irbezek.