Last year was a great year for energy stocks. And oil stocks were among the largest beneficiaries. An investing axiom is that stocks that outperform one year tend to underperform in the following year. But that doesn’t appear to be the case with oil stocks. This is why it’s time to look at candidates for the best oil stock to buy now.
President Joe Biden said the quiet part out loud during the State of the Union when he acknowledged that the United States, and the world, will need oil for the next 10 years. I’ll take the over on that, but I digress.
The point is that even as the world is transitioning to clean energy, and in fact, because of it, oil demand will remain strong. And while you could easily invest in one or more of the “big oil” companies, I’ve found three choices for the best oil stock to buy now. All three of these stocks have a consensus buy rating from analysts.
Energy Transfer (ET)
The first candidate for best oil stock to buy now is Energy Transfer (NYSE:ET). The master limited partnership transports natural gas and propane through its pipeline network that spans approximately 120,000 miles across 41 states.
The company reported fourth-quarter earnings in mid-February and posted $1.40 in full-year earnings per share (EPS). However, Energy Transfer is projecting a full-year EPS of $1.24 in the next 12 months. That may be one reason ET stock is down 6% since reaching a near three-year high in January.
But the price action has been choppy. And that may be because ET stock does present a solid fundamental case. The company sports a forward price-to-earnings (P/E) ratio of 8.89x earnings. Revenue has been growing by double digits, if not triple digits, in each of its last eight quarters. And because the company is organized as a master limited partnership, investors get an attractive dividend with a yield of 9.64%.
Cheniere Energy (LNG)
Cheniere Energy (NYSE:LNG) is next on this list of best oil stocks (although it is a natural gas company and not an oil company). Unlike Energy Transfer, Cheniere Energy has a premium valuation of over 27x earnings. But there’s a reason for that. The company currently produces about 11% of global liquefied natural gas (LNG). But the company can double its capacity in the coming years.
LNG stock has dropped as demand for LNG has declined. This was due in part to demand destruction in Europe. But it was also due to warmer-than-expected weather. This has allowed Europe to navigate what was supposed to be a potentially nightmarish winter.
But Russia’s war against Ukraine is showing no signs of letting up. And unlike in 2022, Europe will have to build up its stockpiles without Russian gas (which they still had for half of last year). And that demand will be filled by U.S. companies like Cheniere.
And likely as a way of preparing for the increased demand, Cheniere recently announced it had started the regulatory process for a major expansion at its Sabine Pass export terminal in Louisiana.
Halliburton (NYSE:HAL) stock is down 11% in the last month as analysts are beginning to fade oil stocks. The thought is that, at some point, Russia and Ukraine will reach a settlement, and oil demand will drop sharply. That would mean that the company’s streak of sequentially increasing revenue will come to an end.
And earnings would likely plunge as well. In the past four quarters, Halliburton has posted an EPS of $2.16. The company is forecasting an EPS of $3.86 for the next year. That supports a P/E ratio of around 20x earnings and a much higher share price.
But if demand dries up, those earnings will be revised lower.
That’s a lot of ifs and but’s, and I’m skeptical. It doesn’t appear there will be any resolution to the Ukraine war in the next few months. And that means the demand for oil will remain stable. That bodes well for Halliburton and HAL stock.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.