It’s no secret that I’m incredibly bullish on energy stocks right now. But if you were to listen to the financial media’s talking heads and other analysts, you’ve likely heard that energy stocks are in a bubble and due to pop in 2023.
But here’s the truth: Energy stocks will continue to lead the market for the foreseeable future.
First, the world is in the midst of a potential energy crisis.
Yes, Russia helped trigger the global energy crisis when it invaded Ukraine, which led to bans on Russian crude oil and natural gas. Russia retaliated by limiting natural gas deliveries via the Nord Stream 1 pipeline to Europe. Leaks in the pipeline – which many believe were sabotage by Russia – now have the pipeline shut down indefinitely.
But we can’t just point fingers at Russia. The Biden administration and its “war on energy” have played their own role in the energy crisis. With the fewest drilling permits since the Nixon administration and the cancellation of the Keystone Pipeline, the United States has further added to the energy industry’s woes.
Now, the Biden administration tried to mask its mistakes by releasing 1 million barrels of oil per day from the Strategic Petroleum Reserve (SPR) for the past few months. All that’s successfully done is drain the SPR to its lowest level since 1980. Now, the U.S. needs to start to replenish these reserves.
Add in the fact that OPEC+ aims to curtail crude oil production by 2 million barrels per day, and it’s no surprise that energy prices remain elevated. Personally, I expect crude oil prices to rise back to $120 per barrel in the spring when worldwide demand naturally rises.
What this tells me is that energy stocks can no longer be ignored.
Wall Street’s anti-fossil fuel stance and environmental, social, and governance (ESG) investing push practically drove “dirty” energy stocks out of the S&P 500. A little more than a year ago, energy stocks only accounted for 2% of the S&P 500. But now, energy stocks are the best-performing sector and represent 6% of the S&P 500. I suspect energy stocks will account for 30% of the S&P 500 within two years.
The fact is that “woke” ESG policies are an expensive failure, and many of these “green” initiatives are inherently inflationary. Europe is a prime example: In the first half of 2022, household electricity prices soared 15%, while natural gas per kilowatt hour soared 34%. As a result, many European and Asian countries are now returning to “dirty” energy power sources.
Just two years ago, fossil fuels represented 80% of worldwide energy production. In 2022, due largely to surging demand for coal in China, Europe Indonesia, India and the U.S., fossil fuels are now expected to rise to 84% of worldwide energy production.
Increased demand for fossil fuels all but ensures that energy prices will remain elevated – and that energy stocks will continue to achieve accelerating earnings momentum.
For calendar year 2022, the S&P 500 is expected to achieve full-year earnings growth of 5.1%. The energy sector is anticipated to achieve 151.7% average earnings growth for 2022. Without the energy sector, the S&P 500 would actually announce a 1.8% drop in earnings for 2022.
Folks, this is why I’m so confident that energy stocks will account for 30% of the S&P 500.
The tracking manager crowd (i.e., closet indexers) will be systematically forced to buy more energy stocks as leading technology stocks falter. Amazon.com, Inc. (AMZN), Alphabet, Inc. (GOOG), Meta Platforms, Inc. (META) and even Microsoft Corporation (MSFT) are posting weak earnings, while leading energy companies are announcing great earnings – and their stocks continue to steadily rise.
Just to put everything into perspective: Energy accounted for less than 2% of the S&P 500 over a year ago, while technology accounted for about 48%. I predict that energy stocks will account for 30% of the S&P 500 in early 2025, as technology stocks fall to about 32%.
In other words, asset managers who stay close to the benchmark index will be a net buyer of energy stocks (given their strong earnings momentum) and a net seller of technology stocks as the sector weights in the S&P 500 change.
That means a lot of Wall Street money will be flowing into oil and gas stocks.
The bottom line: We are still in the early innings of an incredible rally in energy stocks that should last for at least the next couple of years. To ensure that you’re invested in the crème de la crème, I’d like to share with you my top seven energy stocks for 2023.
Take a look…
Top Energy Stock No. 1: Cactus, Inc.
Cactus, Inc. (WHD) primarily develops and manufactures wellhead and pressure control equipment for onshore unconventional oil and gas wells. The company offers a line of Cactus SafeDrill Wellhead Systems and a line of conventional API 6A wellhead products, as well as fracking valve product line, production valves and flow control devices. All of its products, especially its wellheads when properly installed, are cost-effective, safer and quick to install.
Along with its products, which are vital to oil and gas wells, Cactus provides 24-hour service crews to help install, maintain and handle its wellhead and pressure control equipment. The company also offers repair services for all of the equipment that is bought or rented from it.
For full-year 2023, earnings and sales are expected to come in at $2.69 per share and $823.6 million, respectively.
Top Energy Stock No. 2: ConocoPhillips
ConocoPhillips (COP) is one of the largest independent exploration and production companies in the world. When it comes to crude oil and natural gas, the company does a little bit of everything – from extraction to production to transportation. ConocoPhillips employs technologies for hydraulic fracturing and horizontal drilling onshore, as well as operates offshore platforms. The company also uses special extraction methods to recover oil in large oil sand reserves.
ConocoPhillips deals in natural gas liquids and bitumen, which is used for road surfacing and roofing. ConocoPhillips has an extensive energy portfolio, spanning 14 countries – and it transports oil and natural gas around the world through pipelines, as well as tankers, trucks and rail.
For full-year 2023, analysts expect earnings of $12.23 per share on revenue of $68.55 billion.
Top Energy Stock No. 3: Global Partners LP
Armed with more than 75 years of experience, Global Partners LP (GLP) operates a network of gas stations, terminals and retail locations that provide gasoline, crude oil, heating oil, renewable fuels, kerosene, butane, diesel and propane.
With operations primarily in the Northeast U.S., the company has nearly 1,600 gas stations and 24 bulk terminals with the capacity to store 10 million barrels. Global Partners boasts that 1 million cars fill up at its pumps each day. Also, included at its gas stations are nearly 350 convenience stores under the Alltown, Alltown Fresh, XtraMart, Honey Farms and Jiffy Mart brands. And its terminal networks in New England and New York primarily distribute products to commercial, wholesale and retail customers.
For full-year 2023, the analyst community is calling for earnings of $3.20 per share and revenue of $17.79 billion.
Top Energy Stock No. 4: Marathon Petroleum Corporation
Over the past 135 years, Marathon Petroleum Corporation (MPC) has done its part to help fuel America. In fact, from its humble beginnings in 1887 as The Ohio Oil Company when a few smaller oil companies joined forces, Marathon Petroleum has grown to operate the biggest refining system in the United States, with 13 refineries capable of refining about 2.9 million barrels per day.
In addition to its refining business, Marathon also operates a network of pipelines, terminals and barges. Its midstream business is primarily the operations of its master limited partnership MPLX, which distributes, markets, stores and transports crude oil and refined products, as well as processes and transports natural gas and natural gas liquids.
Marathon’s products, especially its gasoline and diesel, are offered across the U.S. and Northern Mexico at its Marathon brand and ARCO retail locations. Moreover, Marathon Petroleum produces asphalt, feedstocks and petrochemicals.
For full-year 2023, the analyst community is projecting MPC to post earnings per share of $16.25 and revenue of $140.33 billion.
Top Energy Stock No. 5: Occidental Petroleum Corporation
With more than 100 years of experience, Occidental Petroleum Corporation (OXY) has been at the forefront of energy exploration and petrochemical manufacturing – and it has an extensive infrastructure that stretches around the world. Occidental Petroleum has energy and chemical assets in Africa, Latin America, the Middle East and the United States.
The Houston-based company operates three main businesses…
Performance Production: Occidental Petroleum is one of the biggest oil and natural gas producers in the U.S., with operations primarily in the Permian Basin and the Rocky Mountains. Offshore, the company is the fourth-largest oil and gas producer in the Gulf of Mexico, with 10 deepwater production facilities. OXY also has exploration blocks in Oman, interests in the United Arab Emirates (UAE) natural gas developments, partnerships with Algerian oil companies and a 24.5% interest in the Dolphin Gas Project in Qatar.
Essential Chemistry: Occidental is a top-tier producer of chemicals here in the United States and around the world. It provides several product families, including chlor-alkali, vinyl, chlorinated organics and other chemicals that range from swimming pool treatments to potassium carbonate.
Carbon Innovation: Occidental is to help industries decarbonize. The company is focused on developing solutions that can capture and eliminate CO2 emissions, as well as use CO2 to develop products like net-zero and low-carbon oil, ethylene and polyvinyl chloride (PVC).
For full-year 2023, the company is expected to report earnings of $7 per share, while revenue is forecast to come in at $33.54 billion.
Top Energy Stock No. 6: PBF Energy, Inc.
PBF Energy, Inc. (PBF) is a leading refiner and provider of petroleum products in the United States and Canada. The company operates six U.S. refineries: Delaware City, Delaware; Paulsboro, New Jersey; Toledo, Ohio; New Orleans; Torrance, California; and Martinez, California.
Through these facilities, PBF Energy produces gasoline, diesel fuel, jet fuel, kerosene, liquified petroleum gases (LPGs), asphalt, coke, sulfur, distillates, specialty chemicals, petrochemicals, heating oil and lubricants. To ensure those products reach its customers, PBF also operates logistics assets at each refinery, including pipelines, barges, tankers, trucks, rail, ships and distribution terminals.
For full-year 2023, analysts are calling for earnings of $9.94 per share and revenue of $36.1 billion.
Top Energy Stock No. 7: Valero Energy Corporation
Valero Energy Corporation (VLO) was originally founded in 1980, and it constructed the last grassroots refinery in the United States in 1984. Over the past 42 years, Valero Energy has expanded through strategic mergers and acquisitions, building its portfolio with refineries throughout the U.S. Today, Valero is the biggest independent petroleum refiner worldwide and a top producer of renewable fuels in North America.
The San Antonio-based company currently owns 15 petroleum refineries in the United States, Canada and the United Kingdom, with capacity to produce about 3.2 million barrels per day. It is the second-largest producer of corn ethanol in the world, with 12 plants in the U.S. with the capacity of 1.6 billion gallons annually. I should add that Valero Energy is a joint venture member in a renewable diesel plant in the Gulf Coast that produces 700 million gallons of renewable diesel, and it operates 33 wind turbines in the U.S.
Part of the company’s success is that Valero knows how to refine heavy sour crude oil and how to make “oxygenated gasoline” that California, Illinois and other states require during the winter months. The transition to these winter fuels can sometimes create windfall profits for major refiners because refineries often have to be shut down for maintenance when making winter fuels. So, some shortages of refined product can materialize.
For full-year 2023, VLO is expected to report earnings of $18.67 per share and revenue of $153.77 billion.
The Silver Lining, Critical Path to Follow
2022 was the year of the energy sector… and I expect energy stocks to remain as the market leaders in 2023.
The reality is tech stocks are struggling (and will continue to do so for the time being), so energy remains the market’s silver lining… the critical path to follow. Investors should flock to energy stocks that are positioned to prosper in the current market environment – and these seven stocks should be at the top of investors’ lists.
I hope you find my Top 7 Energy Stocks for 2023 report helpful. In addition to this free report, you’re now also a member of my free Market 360 newsletter.
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