When it comes to investment sectors, the concept of best oil and gas stocks might seem to be sunsetting. After all, the ideological machinery appears to be favoring clean and renewable solutions. Those are exactly adjectives that commonly describe hydrocarbons. Nevertheless, investors would be prudent not to avoid the space but to consider bidding it up.
Why? It really comes down to core realities. First and foremost, the world runs on oil and may continue to do so. I don’t want to go down a conspiracy rabbit hole but many of the conflicts we embroil ourselves in at least intersect with oil-related concerns. It’s quite possible that if hydrocarbons were truly irrelevant, our geopolitical framework would look dramatically different.
Second, a scientific component exists to the hydrocarbon dependency: fossil fuels command high energy density. That’s an attribute that will not go away. And it’s an advantage that hydrocarbons will always have over renewable solutions like wind and solar. On that note, below are best oil and gas stocks to consider.
Shell (SHEL)
An integrated oil and gas giant, Shell (NYSE:SHEL) ranks among the world’s supermajors. What makes the company compelling is that it features business units across multiple layers of the hydrocarbon value chain. Therefore, if you’re looking for the best oil and gas stocks, it’s difficult to ignore SHEL. Plus, the company is making heavy investments in hydrogen, adding a green angle to the mix.
Industry wise, the energy space has encountered both economic and geopolitical friction. At the same time, Shell has weather the storm quite well. Between the second quarter of last year and Q1 2024, its average earnings per share hit about $1.98. This print translated to an average earnings surprise of just over 11%.
During the trailing 12 months (TTM), Shell posted diluted EPS of $5.46 on sales of $302.14 billion. Admittedly, during the most recent quarter, its earnings and sales expansion rate was 15.5% and 16.7% down, respectively, on a year-over-year basis.
However, experts believe EPS will rise modestly by 2.4% to $8.51 in fiscal 2024. Also, sales could see a near 2% lift to $322.19 billion. With a forward yield of 3.77%, it’s one of the best oil and gas stocks to consider.
Cheniere Energy (LNG)
Based in Houston, Texas, Cheniere Energy (NYSE:LNG) technically falls under the oil and gas midstream component of the value chain. This area deals with storage and transportation solutions. However, what really makes Cheniere compelling is the focus on liquefied natural gas or LNG, just like its ticker. Given the geopolitical dynamics, LNG will likely increasingly become a key energy commodity.
Recently, Cheniere has been flying in the market due to a U.S. district judge blocking the Biden administration’s ban on approving applications to expert LNG, per Seeking Alpha. Previously, the pause in applications created uncertainty for LNG export projects. With that headwind out of the way, LNG stock may need to see a revised analyst estimate.
Here’s the issue. For fiscal 2024, covering experts anticipated that EPS may drop a stunning 80% to $8.11. Further, the top line might erode 22.5% to $15.81 billion. Obviously, these aren’t encouraging forecasts. However, shifting geopolitical frameworks along with legal transitions might bolster the natural gas space.
Also, it’s worth noting that we’re in an election year. Things can change and potentially favorably for Cheniere. Therefore, it’s one of the best oil and gas stocks to consider.
Phillips 66 (PSX)
Operating in the refining and market sector of the hydrocarbon ecosystem, Phillips 66 (NYSE:PSX) is a downstream specialist. Basically, if the product goes into your gas tank, we’re dealing with the downstream segment of the value chain. Fundamentally, PSX stock is intriguing because most drivers still use combustion-powered mobility. That might not change for a while.
Another factor to consider is geopolitics. For some time, we entered a lull in the flashpoint sense. However, this lull is not guaranteed to last. Indeed, the latest reports from the Middle East indicate that pressure is on the Israeli government to pull out from Gaza to prepare for a war with the powerful Iranian-backed Lebanese militia Hezbollah.
Tensions in the region present massive concerns for global oil supply chains. And that could boost the price of gasoline, which then may lead to increased profitability for downstream players.
To be fair, for fiscal 2024, analysts anticipate significant erosion in EPS of 29.35% to $11.17. Also, they’re looking at a 3.6% sales decline in sales to $144.54 billion. However, this narrative can always change because of geopolitics. Cynically, then, PSX is one of the best 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.
