Despite a recent drop in energy stocks, there are catalysts indicating demand could be on the rise over the coming months. Thus, now may be an opportune time to explore energy stocks with outsized growth potential.
As a hedge against inflation, and a means of providing significant income and stability, these stocks tend to be stalwarts of many portfolios. Of course, investors can’t expect big time growth from these names. But for those seeking reasonable valuations, slow and steady growth, and healthy yield, these are energy stocks worth considering before the energy market takes off again.
Lets’ dive in.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) gains traction among institutional investors, including Warren Buffett, who holds over 200 million shares valued at $13 billion. OXY’s commitment to sustainable innovations and strong operations in key oil production regions contributes to its enduring market share.
Buffett seized the opportunity to invest in OXY when its stock price dipped below $60. Notably, Occidental’s surge in free cash flow and commitment to share buybacks contribute to its appeal. That is to say, the company’s rather small dividend yield of only 1.2% isn’t going to get many investors out of bed.
However, there’s strong consensus that shares of OXY stock are undervalued here. The average analyst price target for this top energy stock currently sits at $68.96, indicating potential gains of around 20% for investors willing to jump in.
Occidental has surpassed production expectations and maintains disciplined spending, resulting in a strong net margin of 24.58%. With a remarkable return on invested capital of 22.34%, outperforming the industry average, OXY is an excellent choice for a portfolio of Warren Buffett stocks.
Exxon Mobil (XOM)
The concept of “peak oil” has become less relevant thanks to technological advancements in the energy industry. The abundance of supply, driven by horizontal drilling and hydraulic fracturing, has made the United States the largest oil producer globally, surpassing Saudi Arabia and Russia. As a result, energy stocks, such as Exxon Mobil (NYSE:XOM), offer stability to investment portfolios. Exxon Mobil, the world’s largest non-government energy company with a rich history dating back to 1870, has evolved over time. Today’s oil stocks, including Exxon Mobil, are distinct from their predecessors, offering different investment prospects.
Exxon Mobil has delivered strong returns over the past decade, outperforming the broader market index. By focusing on financing its most profitable projects in lucrative regions, the company achieved record-breaking profits of $55.7 billion last year. While the majority of Exxon’s assets are in the U.S., it generates the majority of its profits internationally.
With attractive valuation metrics, trading at low earnings multiples and producing substantial free cash flow, Exxon offers an appealing investment opportunity. The company also maintains a solid dividend track record, raising its payout for 40 consecutive years as a Dividend Aristocrat. With top-tier assets and operations, Exxon is a reliable choice for long-term investors.
Plug Power (PLUG)
When it comes to green hydrogen, Plug Power (NASDAQ:PLUG) stands out as a top contender. With its comprehensive green hydrogen ecosystem, the company excels in various sectors such as E-mobility, material handling, and stationary power. Plug Power has secured significant wins, both in the U.S. and Europe, where hydrogen infrastructure is well-established. The company’s revenue consistently grows on a sequential and year-over-year basis, reflecting its success in the market.
Renewable energy company Plug Power has gained the attention of prominent investors. Point72 Asset Management, led by billionaire Steve Cohen, acquired 2.3 million shares, while Citadel Advisors, owned by billionaire Ken Griffin, bought 4.56 million shares. Furthermore, the Canada Pension Plan Investment Board obtained over 215,200 shares of PLUG. These notable investments highlight the growing interest in PLUG stock and its potential for future growth.
That said, there’s also the case to be made that PLUG stock could be overvalued at current levels. This is one I think is more speculative. But for investors looking to capitalize on momentum in the clean energy sector, this is one to certainly keep an eye on before a potential rally in July.
On the date of publication, Chris MacDonald 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.
