I’m going to let you in on a little secret (which isn’t that much of a secret): the world runs on oil. Thanks to the energy density of hydrocarbons, global societies will probably run on oil for as long as we all shall live. It goes against the narrative, I understand. But it’s also the reason why you should consider oil and gas stocks to buy.
While people talk a big game about renewable energy infrastructure, you can’t cheat physical laws. Hydrocarbons will always command greater energy density than wind or solar infrastructures. As such, it’s impossible to ignore oil and gas stocks, especially when you’re talking about current events.
Right now, the sector is suffering a disinflationary cycle. A good chunk of this narrative centers on Russia’s invasion of Ukraine. The invaded country is fighting back by hitting the Russians’ refineries (or downstream energy units). That means Moscow will need to make up for the lost revenue.
Translation? Big dumps of upstream energy commodities in the global market. That’s been deflationary for the sector but another geopolitical flashpoint — whether in Europe or the Middle East — could reverse this narrative.
So, the below oil and gas stocks to buy could be on a temporary discount.
Shell (SHEL)
One of the biggest integrated oil and gas stocks to buy, Shell (NYSE:SHEL) arguably offers a great place to park your money, especially if you have $500 lying around. Presently trading hands at $71.55 a pop, Shell commands a market capitalization of nearly $225 billion. Along with its robust hydrocarbon business, which covers all components of the sector value chain, Shell has also made significant investments in hydrogen and other clean energy solutions.
Financially, Shell has been a strong performer. Between the second quarter of last year to Q1 2024, the company posted an average earnings per share of nearly $1.98. Aside from a miss in Q2, Shell has beaten analysts’ bottom-line targets. Overall, the average positive earnings surprise, or the magnitude by which EPS beat experts’ consensus view, landed at 11.08%.
During the trailing 12 months (TTM), Shell posted net income of $18.01 billion or $5.46 per share. Revenue in the cycle hit $302.14 billion. For fiscal 2024, EPS may rise approximately 2.17% to reach $8.49. Revenue may rise 1.8% to hit $322.19 billion.
Matador Resources (MTDR)
An independent energy firm, Matador Resources (NYSE:MTDR) engages in the exploration, development, production and acquisition of oil and natural gas resources in the U.S. Right now, this upstream component faces pressure from the geopolitical events mentioned earlier. However, should tensions — particularly in the Middle East — escalate on the global stage, the upstream category could become incredibly pertinent.
Another factor that works in favor of MTDR as one of the oil and gas stocks to buy is the underlying financial performance. During the past four quarters, Matador’s average EPS reached about $1.75. This print translated to an earnings surprise of 11.53%. Notably, the company beat four out of the past four quarterly EPS estimates.
In the TTM period, Matador posted net income of $876.67 million or $7.30 per share. Revenue in the cycle reached $2.83 billion. For fiscal 2024, analysts anticipate a lift of 15.4% to $7.81. On the top line, revenue may expand by a robust 24.4% to reach $3.49 billion. What’s more, in fiscal 2025, sales are expected to hit $4.19 billion.
With so much promise, MTDR ranks among the top oil and gas stocks to buy.
Diamondback Energy (FANG)
Based in Midland, Tex., Diamondback Energy (NASDAQ:FANG) also falls under the hydrocarbon upstream sector. An independent entity, Diamondback acquires, develops, explores and exploits unconventional, onshore oil and natural gas reserves in the Permian Basin. Geopolitically, this framework may offer a key advantage, especially if outside forces threaten global energy supply chains.
Financially, outside of a miss in Q2, Diamondback has been consistent in recent disclosures. During the past four quarters, the company’s average EPS came out to $4.60. This print translated to an average earnings surprise of 1.88%. That’s decent considering the aforementioned Q2 miss.
During the TTM period, Diamondback posted net income of $3.18 billion or $17.73 per share. Revenue in the cycle hit $8.27 billion. For fiscal 2024, covering experts believe that earnings may rise by 6.1% to reach $19.11 per share. On the top line, sales could expand by 8.9% to hit $9.16 billion.
Adding to the attractive narrative is Diamondback’s forward dividend yield of 4.68%. Combined with its strong buy assessment, FANG ranks among the oil and gas stocks to buy.
On the date of publication, Josh Enomoto 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.
