The stock market’s tumble on Monday also spooked even the best oil and gas stocks. Because fears of a recession were the primary reason for the market’s implosion, traders were worried about the impact on oil.
The energy industry is reliant upon robust demand—and the higher pricing that follows—to fuel future growth. If the economy were faltering, so would oil and gas demand. Brent crude and West Texas Intermediate fell about 1% to their lowest prices since January.
However, since the sky hasn’t appeared to be falling just yet, both benchmarks have rebounded, along with the stock market as a whole. The S&P GSCI Crude Oil index is up about 3% since Monday and is 2% above Friday’s close.
Yet, with the stocks of many industry players still down for the year, now is an excellent time to shop for bargains. The following three companies represent some of the best oil and gas stocks to buy in August.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) is the largest integrated oil and gas company. It is also earning massive profits. Second-quarter results showed a 17% profit increase to $9.2 billion, one of its highest profit levels ever. Earnings per share of $2.14 also handily beat Wall Street’s estimates of $2.02.
The increase was driven by greater production in the oil-rich Permian Basin. Exxon has established itself as the biggest player in the region after acquiring Pioneer Natural Resources last year. It merged the then-leader’s 850,000 net acres with Exxon’s 570,000 net acres.
Exxon aims to increase oil and gas production in the region by 50% by 2027. Record output in the Permian and Guyana made this possible. Production surged from the first quarter to 570,000 barrels per day.
The results were slightly offset by middling natural gas prices and refining margins that narrowed from last year. As a premier producer with valuable upstream, midstream and downstream assets, Exxon also pays a dividend that yields 3.3% annually. This is why the energy giant is one of the best oil and gas stocks you can buy today.
EQT (EQT)
EQT (NYSE:EQT) is the country’s largest natural gas producer with over 1.1 million net acres on the opposite side of the trade. Despite its dominance, it doesn’t command as much attention from investors as many other gas stocks. While natural gas prices have been a limiting factor for its business, EQT’s massive size allows it to use economies of scale to lower costs.
Now, prices may be moving in their direction as they jumped 4% the other day. Government gas stockpiles are low and could spark a wave of buying over concerns of tight supplies. Macroeconomic and geopolitical concerns are also applying upward pressure. A much broader war in the Middle East may be brewing as Iran rattles its sabers at Israel, which could further disrupt regional supplies.
Even with the blistering summer heat, summer is waning and cold temperatures will be returning. If we have an early cold snap or winter temperatures are colder than usual, that will push natural gas demand higher.
EQT stock is trading at a significant discount. Shares are down 22% this year and trade at 8 times earnings estimates. With analysts forecasting the natural gas giant growing earnings at 15% annually for the next five years, this is a great time to buy EQT stock.
Enterprise Products Partners (EPD)
Another leader in its field is Enterprise Products Partners (NYSE:EPD), one of the largest midstream operators in the oil and gas industry. It has over 50,000 miles of pipeline and enough storage capacity for more than 300 million barrels of liquids.
Greater production from oil and gas companies like Exxon and Chevron (NYSE:CVX) necessitates the use of its infrastructure. However, because Enterprise Products operates on long-term take-or-pay contracts, which means it gets paid regardless of whether its customers use its capacity or take the product, it is a very stable revenue stream.
One word of caution about EPD stock is that the company is structured as a master limited partnership (MLP). That creates complex tax considerations, so you may not want to own it in a normally tax-deferred individual retirement account because you could owe taxes. Enterprise Products Partners might not be a stock for everyone, but it is potentially lucrative for those who can buy.
On the date of publication, Rich Duprey held a LONG position in XOM and CVX stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
