Well, it’s been a rather incredible year for energy stocks. That’s perhaps putting it lightly.
Indeed, through the end of May, the energy sector was the only S&P 500 sector claiming significant gains. Most were either sideways or down, as the market battled a series of strong headwinds, many of which continue to proliferate today.
Surging inflation has led to high input prices. Many commodities saw short-term surges that were unfathomable during the depths of the pandemic. Among the largest gainers were energy-related commodities – bad for most companies, but good for energy producers.
Interestingly, the pandemic forced oil prices into negative territory for the first time ever, forcing energy producers to cut back on spending and incorporate significant capital discipline. The deleveraging of balance sheets that took place, and the focus on high-quality projects, led to very profitable organizations in this rising oil price environment.
Accordingly, there are plenty of highly-profitable options to consider in the energy patch today. Here are seven top energy stocks I think are worth a look right now.
|VLO||Valero Energy Corporation||$104.02|
|OXY||Occidental Petroleum Corporation||$61.06|
|MRO||Marathon Oil Corporation||$21.75|
|WMB||The Williams Companies, Inc.||$32.34|
|EOG||EOG Resources, Inc.||$101.00|
Top Energy Stocks to Buy: ConocoPhillips (COP)
ConocoPhillips (NYSE:COP) is an oil exploration and production organization with headquarters located in Houston. This oil giant operates in 13 countries, with total assets of $93 billion.
The company delivered solid results in the first quarter with adjusted earnings of $3.27 per share in comparison to 69 cents for a share in the same period of 2021. When it comes to returning cash to its shareholders, COP is one of the best energy stocks in the market.
The CEO and chairman of ConocoPhillips, Ryan Lance, pointed out on the first quarter earnings call that the organization boasts a track record of more than five years when it comes to returning more than 30% of its profits to shareholders.
In the first quarter, ConocoPhillips paid variable return of cash (VROC) payments and ordinary dividends worth $900 million. Additionally, the company repurchased $1.4 billion in shares. These factors provide a solid fundamental thesis for investors looking for capital return to consider COP stock.
Unlike many oil producers on this list, Schlumberger (NYSE:SLB) is a massive player in offshore drilling. This energy services provider has seen impressive year-to-date growth, appreciating nearly 40% as of mid-June.
Even with oil prices dropping as of late, SLB stock is up 17% so far in 2022.
Indeed, the energy sector is a volatile one, and Schlumberger is a great example of a higher-beta play in this space. Yes, oil prices are coming down. And yes, concerns about a recession are pertinent in this present environment.
However, longer-term energy security goals require continued drilling of existing wells, as well as ongoing maintenance services. Schlumberger continues to be the U.S. leader in this regard. Accordingly, investors looking for high-leverage plays on this sector may want to consider this energy stock, particularly at these levels.
Valero Energy (VLO)
Valero Energy (NYSE:VLO) is an American oil refinery which markets and manufactures petrochemical products, including transportation fuels. This company has a diversified refinery base that is situated throughout Canada, the U.K. and the U.S.
Wall Street is very bullish on Valero Energy, due in part to this stock’s impressive performance this year. This stock is still up approximately 38% on a year-to-date basis, despite giving up roughly one-half of its gains at its peak.
The thesis for Valero is simple. Refining margins have surged, due to a number of fundamental factors. New refineries aren’t being built, meaning existing infrastructure (much of which is owned by Valero) is needed to handle said demand. Operating near capacity, Valero is pumping out maximum volume, at some of its most profitable prices ever. For investors, this is a great thing. For consumers, not so much.
Crack spreads have come down somewhat of late, leading to a sell-off among refining-related stocks. However, given this company’s profitability right now, it’s cheap. Valero trades around 16x earnings, paying investors a healthy yield of 3.8%. In this environment, that’s not shabby at all.
Top Energy Stocks to Buy: Occidental Petroleum (OXY)
Any list of top energy stocks would be remiss to ignore Occidental Petroleum (NYSE:OXY). A high-profile addition of Warren Buffett, Occidental has been an outstanding stock this year. Indeed, anything the Oracle of Omaha goes heavy into is likely to have some strong tailwinds.
Occidental is a company that’s been around for more than a century, headquartered in Houston. This company boasts significant exposure to energy exploration and production, operating via three segments – Chemical, Midstream and Marketing and Oil and Gas.
As mentioned, Buffett’s recent additions of Occidental Petroleum has sparked interest in this stock. However, what’s sparked more discussion than Buffett’s original stake, is the fact that he continues to add to his position. Buffett recently bought more, resulting in a stake that’s now nearly one-fifth of the entire company.
Occidental’s recent results speak for themselves, and Buffett appears to have many a great investment. Those looking to follow in his footsteps may want to keep this stock on the radar right now.
Marathon Oil (MRO)
Marathon Oil (NYSE:MRO) is an interesting U.S.-listed energy company based, again, in Houston. However, this company’s focus is on the integrated gas business in Equatorial Guinea, and other top resource plays in the United States.
This company posted solid Q1 results, with adjusted earnings of $1.02 per share, beating analysts’ consensus expectations by a significant margin. The company earned adjusted free cash flow of $940 million for the past quarter, and reported a reinvestment rate of 27%. Despite this, the company has managed to pay investors a respectable yield of 1.5% while also buying back significant amounts of stock. This past quarter, the company bought nearly $600 million of stock back from the market.
Indeed, for investors looking for capital return, Marathon Oil is an intriguing option. This is a company that has returned roughly 60% of its cash from operations back to investors. In this defensive environment, these are the kinds of energy stocks investors will want to keep an eye on.
The Williams Companies (WMB)
The Williams Companies (NYSE:WMB), an Oklahoma-based energy infrastructure company, is another interesting energy stock to keep on the radar. This pipeline operator has more than 30,000 miles of pipe laid across the country. For those bullish on the long-term sustainability of America’s energy infrastructure, this is about as stable a stock as one can look at in this environment.
Unlike other companies on this list, higher oil prices don’t directly impact WMB stock the way they do producers. However, higher oil prices do mean stronger counterparties and greater pricing power. For Williams, this is a good thing.
This past quarter, the company posted remarkable results. Williams brought in adjusted earnings of 41 cents per share. This represented a 17% increase year-over-year, and allowed the company to invest more in upgrading its infrastructure. Among the biggest projects underway is a $212.5 million project to upgrade the company’s Transco pipeline. Over time, this upgrade should provide greater capacity, and therefore profitability, to investors.
Top Energy Stocks to Buy: EOG Resources (EOG)
EOG Resources (NYSE:EOG) is an American organization that engages in developing, exploring, marketing and producing natural gas, natural gas liquids and crude oil.
EOG boasts a solid history of cash return. Ever since EOG began trading as an independent organization in 1999, it has delivered a sustainable, increasing regular dividend. There has never been a suspension or cut to its distribution. Additionally, the company has provided investors with a 23-year compounded annual growth rate of 22%. That’s really outstanding, for any company.
Like other energy stocks on this list, EOG has given up nearly all of its annual gains of late. Lower oil futures have reduced expectations of where the company’s profitability may be in the medium-term. However, as far as long-term holdings in the energy sector go, EOG remains an outlier. I think that long-term investors taking a multi-year or decade-plus view of this space may want to consider EOG stock as a primary option in this environment.
On the date of publication, Chris MacDonald 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.