- These are some of the best energy stocks to buy that offer strong upside potential.
- Devon Energy (DVN): Efficient capital management and a dazzling dividend yield of over 7.39%.
- NextEra Energy (NEE): Clean energy giant with an incredible growth runway ahead.
- Antero Resources (AR): Upstream natural gas play should benefit immensely from Europe’s move away from Russian-supplied natural gas.
- Enbridge (ENB): Unique midstream asset portfolio of renewables and non-renewables.
- Kinder Morgan (KMI): Growing cash flow base with a remarkable 5.72% dividend yield.
- Occidental Petroleum (OXY): Robust liquidity with a 750% increase in free cash flows.
- VAALCO Energy (EGY): Top oil and gas penny stock growing at above-average rates.
Energy stocks have cratered during the past couple of years due to the historical decline in demand at the pandemic’s onset. However, demand increased substantially last year as businesses started opening up again. Additionally, oil prices are soaring since Russia’s invasion of Ukraine, which bodes incredibly well for energy stocks to buy.
Some areas of China are still under Covid-19 restrictions, but the robustness of crude oil continues to impress. Moreover, the economic bounce-back could be the next potential catalyst for the industry. Additionally, with the tightening supply, we could see elevated oil prices throughout 2022.
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Traditional and renewable energy stocks can be remarkably lucrative investments in terms of capital appreciation and dividend growth. However, it would be prudent to wait for pullbacks and dips before investing in this red-hot sector. Let’s dive into seven of the top energy stocks to buy on the dips.
Devon Energy (DVN)
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Devon Energy (NYSE:DVN) is one of the most attractive oil and gas plays in the market, boasting industry-leading margins. Moreover, with an astonishing portfolio of assets, the company will continue generating strong returns for its shareholders.
It also offers an eye-catching dividend yield of 7.3% and a payout ratio of 50%. This makes it one of the best picks in the sector for income-oriented investors.
DVN stock has been an efficient capital allocator, with its profitability significantly higher than its peers across multiple metrics. For instance, its trailing-12-month (TTM) gross and EBITDA margins are at 58.2% and 44.5%, respectively, which exceed the industry average.
A lot of this had to do with its stellar operational performance last year, when its sales shot up more than 190%. With the current conducive environment for the oil and gas sector, expect DVN stock to notch up another rock-solid performance this year.
NextEra Energy (NEE)
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NextEra Energy (NYSE:NEE) has benefitted immensely from the transition to clean energy, with NEE stock generating more than 400% total returns in the past decade. Its solar and wind energy business has propelled it to become the largest utility company in the U.S.
The word going around these days is that the fossil fuel industry will perhaps take center stage in the energy sector again, which seems to be a far-fetched idea. In fact, in the past few years, wind and solar energy have contributed the most to U.S. power generation additions.
Earnings growth has lagged of late primarily due to hedging transactions, which is meaningful and doesn’t constitute a real loss. Nevertheless, the TTM gross and EBITDA margins have grown by double-digit percentages.
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This year, the company expects its adjusted earnings per share (EPS) to fall in the range of $2.75 to $2.85 compared with the $2.81 consensus. Moreover, from 2023 to 2025, it expects a healthy 6% to 8% growth per year from its anticipated 2022 EPS. Therefore, it has a bright outlook ahead and should offer a healthy upside in the future.
Antero Resources (AR)
Antero Resources (NYSE:AR) is a leading upstream natural gas production and exploration business. It’s coming off a superb year, when its free cash flow (FCF) grew more than 120%. Looking ahead, it expects to generate FCF growth of roughly 50%. Moreover, it paid off a truckload of debt in the past few months and is likely to increase returns to shareholders.
The company owns a 29% stake in Antero Midstream, which gives it the transportation pipelines needed for liquefied natural gas (LNG) dissemination in the U.S. LNG exports are set to grow dramatically as European countries reduce their dependence on Russian-supplied natural gas. Hence, we could be looking at massive revenue expansion.
Additionally, Antero repurchased a whopping $100 million in shares during the first quarter at an average price of $27.11 each. This practice should continue for the foreseeable future.
Source: JHVEPhoto / Shutterstock.com
Enbridge (NYSE:ENB) owns one of the most unique midstream asset portfolios that includes both renewables and non-renewables. It’s building up a gigantic utility business supported by the growing population in the Toronto, Ontario region.
Over the years, it has been a stable performer, consistently growing its revenue and margins. Last year, it delivered above-average growth due to sector tailwinds, which should continue playing a factor this year. Moreover, it offers an amazing dividend yield of roughly 6% and a payout ratio of more than 100%.
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The company’s financials have been remarkable, with its adjusted EBITDA rising to 4.1 billion CAD from 3.7 billion CAD in its first quarter. Moreover, it reiterated its adjusted EBITDA of 15 billion CAD to 15.6 billion CAD this year, a substantial increase from the 14 billion CAD it saw last year. It also plans to sanction close to $1 billion in development projects to expand its asset base.
Kinder Morgan (KMI)
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Kinder Morgan (NYSE:KMI) is the creme-de-la-creme of the energy infrastructure business, which includes multiple assets, pipelines and terminals. The firm has done well to generate healthy cash flows for its investors, but last year’s lackluster performance has investors turning away.
However, its management expects a strong showing this year, with over $5.1 billion in distributable cash flows. Though it is significantly lower than the $5.7 billion, if adjusted for the one-time benefit it received due to Winter Storm Uri, it would’ve ended with $4.6 billion. Perhaps the best thing about the stock is its commitment to rewarding its shareholders. The dividend yield is spectacularly 5.72% as the stock trades at under three times forward sales.
Occidental Petroleum (OXY)
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Occidental Petroleum (NYSE:OXY) is a U.S.-based natural gas and oil properties developer. It operates a geographically diverse operation, covering U.S., Middle East, Latin America and Africa with its properties. Over the past several years, it has been a consistent performer, returning a healthy amount of cash to shareholders.
In the past year, its FCF balance surged more than 750%, which helped lower its debt load. It plans to reduce its debt balance by a whopping $20 billion.
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Conservative estimates suggest the business could generate upwards of $12 billion in FCF, an impeccable number compared to previous years. No wonder the Oracle of Omaha, Warren Buffet, has been loading up on the stock at a frantic pace.
VAALCO Energy (EGY)
VAALCO Energy (NYSE:EGY) is one of the most attractive low-priced oil and gas stocks. Last year, the business grew at an enviable pace, with EGY stock increasing more than 145% in value. During its first quarter this year, oil production is at 8,051 barrels per day, up significantly over last year.
Moreover, sales came in at $68.7 million for the first quarter compared to $39.8 million for the same period last year. Oil prices reached a terrific average above $100 per barrel in Q1.
Additionally, it ended the quarter with a fabulous $18.9 billion in cash equivalents with zero debt, making it a highly flexible enterprise. Moreover, EGY stock trades at just 1.7 times forward sales, a throwaway valuation.
On the date of publication, Muslim Farooque 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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