Energy stocks are heating up and it’s time to consider which ones are the best to buy.
It was only a matter of time before the price of oil surged above $90 a barrel. And if the current geopolitical landscape doesn’t change, the predictions for $150 oil may come to fruition in 2024.
One takeaway for investors is that policy decisions matter. The world is attempting to transition our energy infrastructure to renewable sources.
It’s allowing Russia and OPEC to set the terms of the debate surrounding the availability of crude oil. The combination of these factors, and others, stacks the deck against the consumer.
However, it also creates an opportunity for investors in the energy sector. Many oil and gas stocks are rallying sharply and will continue to follow oil prices higher.
This means there’s still time for you to get in on these stocks at an attractive price.
And despite oil prices being above $90, there are still some energy stocks that offer investors good value as share buybacks and dividends.
Here are seven energy stocks geared to investors looking for growth and value on their fourth quarter shopping list.
Halliburton (HAL)
Halliburton (NYSE:HAL) is one of the world’s leading suppliers of oilfield services. Its products and services help to make oil companies more efficient at every stage of their project lifecycles.
In the company’s most recent earnings report, Halliburton reported that 53% of its revenue came from international projects.
That global scope keeps the floor for the company’s revenue and earnings relatively high. But for the company to maximize its ceiling, it needs higher oil prices like the market is seeing now.
HAL stock is up 9% in the last month and is trading near the top of its 52-week range. Despite that growth, the stock is valued at just 13x earnings.
Since 2020, the company is using digital and automation services to lower its capex spend. This is increasing the company’s free cash flow which will allow the company to add value to shareholders. That value is currently measured by a dividend that yields 1.6%
Pioneer Natural Resources (PXD)
Pioneer Natural Resources (NYSE:PXD) is an upstream company that holds the largest contiguous acreage position in the prized Permian Basin.
Pioneer recently announced plans to increase the number of low-cost, high-return horizontal wells that “provide more effective drainage and productivity.”
The combination of increasing its well productivity while lowering its capex spend is boosting the company’s free cash flow.
This complements the company’s innovative variable dividend that supplements its regular dividend. All told, the company delivered 557 mm in shareholder returns in its most recent quarter.
Analysts give the stock a consensus Buy rating with an average price target of $261.78, which is 11.7% higher than the current PXD stock price and goes along with the company’s 2.14% dividend yield.
Enterprise Products Partners (EPD)
As a midstream company, Enterprise Products Partners (NYSE:EPD) will benefit from the higher price of crude oil, but also because it’s one of the leading transporters of natural gas which will be in high demand as fall and winter arrives in the northern hemisphere.
However, the company generates revenue and earnings regardless of the price of oil. That’s clear in the price chart of EPD stock since 2020.
The stock is up almost 100% since the pandemic-fueled low in March 2020.
Another factor that makes Enterprise Products Partners attractive to investors is the company’s business model as a master limited partnership (MLP). This gives the company some tax advantages, but it also requires it to distribute a significant portion of its income to investors as a dividend.
Not surprisingly, Enterprise Products Partners is a dividend aristocrat that has increased its dividend payout for 26 consecutive years. That dividend currently comes with a 7.26% yield.
Enbridge (ENB)
Enbridge (NYSE:ENB) Is another mainstream oil and gas company that makes this list of energy stocks to consider.
Enbridge owns a network of pipelines throughout the United States and Canada. The company also operates a series of natural gas and electric utilities. This diversified asset base creates reliable cash flow that’s reflected in its revenue and earnings.
ENB stock is down 14% in 2023 and 3% in the last month. One reason is the company recently purchased three U.S. natural gas utilities for $14 billion.
However, $4.6 billion of the acquisition was in the form of assumed debt. Investors were already concerned about the company’s debt level. This will just add fuel to that fire (no pun intended).
Enbridge is clearly presuming that natural gas use in the United States will continue to grow in the next few years. If it does, investors will be very happy.
Earnings should drop about 1.42% in the next 12 months. However, analysts remain bullish on ENB stock, giving it an upside of 66.
ConocoPhillips (COP)
ConocoPhillips (NYSE:COP) is an upstream oil and gas company with assets in five continents.
It is one of the world’s largest independent exploration and production companies based on total production and proved reserves. The company explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas around the world.
COP stock has been one of the biggest winners as investors turned their attention to the energy sector in anticipation of higher oil prices.
The stock is up 25% in the last six months. But with earnings forecast to grow 24% in the next 12 months, it’s easy to see the stock meeting, if not exceeding, analysts forecasts for 10% stock price growth.
ConocoPhillips recently completed $1.3 billion of share repurchases and has a dividend that has grown for six consecutive years and currently has a yield of 1.66%.
Chevron (CVX)
The last two energy stocks on this list are some of the biggest names in the oil and gas sector. First up is Chevron (NYSE:CVX) which is an integrated oil and gas company with upstream, midstream, and downstream operations. The oil and gas giant has an exceptional balance sheet that reflects the company’s ability to perform well regardless of the price of oil. To that end, the company’s break-even crude oil price is in the $50s.
The company is also a dividend aristocrat that has increased its dividend in each of the last 37 years. It has an attractive dividend yield of 3.54%. And now with oil on the rise, CVX is up 10% in the last three months and is within 5% of turning positive for the year.
With fundamentals like that, it’s not hard to see why Chevron is a Warren Buffett stock. And even though Buffett’s hedge fund sold some shares earlier this year, it still owns a substantial stake in the company.
Even with oil at over $90 a barrel, CVX stock is trading around $170. And with a P/E ratio of 10.8 it’s not wrong to believe the stock is undervalued.
Occidental Petroleum (OXY)
Last on this list of energy stocks is another Buffett stock, Occidental Petroleum (NYSE:OXY).
Buffett doubled down on his belief in the oil and gas company with not just one, but two, significant purchases of OXY stock in the last year.
Buffett now owns 25% of the company and has permission from the U.S. Securities & Exchange Commission (SEC) to buy as much as 50%. And investors should take note that part of Buffett’s investment in OXY stock includes $10 billion of preferred stock.
Make no mistake, Buffett saw oil prices going up and believes that Occidental is well positioned to take advantage of those prices. That’s because the company has a leading position as an exploration and production company in the renowned Permian Basin.
The company’s earnings are expected to grow by 42% in the next 12 months. Currently analysts are only projecting 6% growth in the OXY stock price. But that’s a discrepancy that investors may be able to profit from.
On the date of publication, Chris Markoch had a LONG position in CVX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
