Energy stocks have been the lone bright spot so far in 2022.
With markets sinking further into correction territory and many economists now forecasting a recession, stocks of oil producers have been among a select few securities to rise in recent months. Their ascent has been buoyed by high oil prices, which continue to fluctuate between $90 and $95 a barrel. But many energy analysts see them topping $100 per barrel this year amid global supply constraints, high demand, and military confrontations in eastern Europe.
At the same time, many of the largest oil companies continue to produce strong financial results, increase their dividend payments, and buyback their own stock, all of which is combining to send their share prices upwards.
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Here we look at three excellent energy stocks to buy as oil prices soar, all of which would make great additions to any portfolio.
- Chevron (NYSE:CVX)
- Devon Energy (NYSE:DVN)
- ExxonMobil (NYSE:XOM)
Energy Stocks to Buy: Chevron (CVX)
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Shares of San Ramon, California-based Chevron have been getting a lot of love lately. With crude oil prices as high as $95 a barrel, their loftiest peak since 2016, energy stocks have been one of the few bright spots in an otherwise volatile start to the year.
Chevron has been a clear beneficiary of the inflows into oil securities. Year-to-date, CVX stock gained 13%. That’s a big outperformance compared to the S&P 500 index that is now down nearly 9% on the year and entering correction territory.
A number of high-profile investors have been buying Chevron. Famed investor Warren Buffett increased his stake in Chevron by 33% in the final quarter of 2021. Buffett’s holding company, Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), now owns 38 million shares of Chevron worth about $4.5 billion. Chevron is the ninth-biggest holding in Berkshire Hathaway’s portfolio.
Other media reports show that Chevron has been a top buy among leading U.S. hedge funds in recent months. With global energy supplies constrained and many analysts forecasting crude oil prices will top $100 a barrel this year, Chevron will likely to continue running higher in the near term.
Devon Energy (DVN)
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Oklahoma City, Oklahoma-based Devon Energy is outperforming even more strongly than Chevron. Year-to-date shares of DVN are up 24%, bringing its six month gains to 118%.
The company’s fourth quarter results further rallied the bulls around the stock. Devon Energy reported Q4 earnings per share of $1.39, which was 15 cents better than what analysts had expected on average. The share price also got a boost from news that Devon Energy declared a quarterly dividend of $1 per share, payable on March 31. Wall Street analysts immediately raised their price targets on the stock following release of the fourth quarter numbers.
Credit Suisse, for one, hiked its price target on DVN stock to $60 from $58 while maintaining an “outperform” rating on the shares. With proven oil reserves of 752 million barrels, Devon Energy is well-positioned to perform strongly over the long term. And investors love that Devon Energy has said it plans to payout up to 50% of its excess cash in dividends each quarter after covering its capital expenses and fixed-rate quarterly dividend.
The company has also been aggressive about repurchasing its own stock having bought back $589 million worth last year, equal to 2% of its outstanding share count. Combine all this with high oil prices, and Devon Energy looks very attractive.
Energy Stocks to Buy: ExxonMobil (XOM)
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A direct descendent of John D. Rockefeller’s Standard Oil, Irving, Texas-based ExxonMobil is also benefitting greatly from elevated oil prices. XOM stock is up 27% year-to-date. That brings its six-month gains to 48%.
While the company has, for sure, been helped by higher oil prices, it has also gotten a lift from strong earnings. In the fourth quarter of last year, ExxonMobil reported EPS of $2.05, up from just 3 cents per share in the fourth quarter of 2020 when the pandemic was at its worst. During an earnings call with analysts, ExxonMobil said it plans to focus on reducing its debt and keeping capital expenditures under control.
Throughout 2021, ExxonMobil paid down $20 billion of debt. It has also started a $10 billion share repurchase program, which it expects to complete within two years. As with Devon Energy, ExxonMobil’s financial performance and stock buyback program have hit all the right notes with analysts and investors.
Additionally, shareholders of XOM stock benefit from the fact that ExxonMobil is a massive global conglomerate with highly diversified upstream and downstream operations. As such, the company’s fortunes, and its share price, are not as impacted by fluctuating oil prices. Among the oil majors, ExxonMobil is a solid long-term investment.
On the date of publication, Joel Baglole 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.
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