What more can we say about energy stocks at this point? Despite the carnage in growth stocks, the volatility in cryptocurrencies and the weakness in the broader stock market, the energy sector continues to perform incredibly well.
Over the past month, there’s hardly one sector in positive territory; Aside from energy stocks, obviously. In fact, the sector is up 2.5% over the past month and is the best-performing group over the last three, six and 12 months.
A big part of the reason why? Energy prices! As oil, gasoline and natural gas prices rise, so do the revenue and profit figures for most energy companies. Aside from geopolitical tensions driving oil prices higher, a return to normal is also helping to drive oil prices higher as demand rebounds.
So, if oil prices continue to rise, this group of energy stocks should get your attention.
- Exxon Mobil (NYSE:XOM)
- Chevron (NYSE:CVX)
- Halliburton (NYSE:HAL)
- Pioneer Natural Resources (NYSE:PXD)
- Occidental Petroleum (NYSE:OXY)
- EOG Resources (NYSE:EOG)
- Devon Energy (NYSE:DVN)
Now, let’s dive in and take a closer look at each one.
Energy Stocks to Buy If Oil Prices Rise: Exxon Mobil (XOM)
How can we start with any company other than Exxon Mobil? It’s a behemoth in the energy space, commanding a market capitalization of nearly $330 billion. For those looking at the Energy Select Sector SPDR ETF (NYSEARCA:XLE), realize that Exxon makes up roughly 24% of the ETF.
Actually, more than 40% of the ETF is made up of the first two stocks on this list.
In any regard, Exxon Mobil is doing its best to capitalize on the rebound in the energy market. The company recently reported earnings in January, triggering an even larger rally.
When Exxon reported, it not only beat earnings expectations, it also reported impressive cash flows for the year.
Now, we look forward to 2022 and the outlook still remains pretty rosy. Analysts expect about 18% revenue growth and earnings growth of 23%. Despite this strong growth (and Exxon’s 4.6% dividend), shares trade at just over 12 times 2022 earnings.
As previously mentioned, Chevron also makes up a huge portion of the XLE ETF. Given its market cap of nearly $260 billion, though, it’s hardly a surprise. The company has its hands in all levels of energy production and consumption. It’s like Exxon in that regard.
That’s why a continued increase in oil prices — and more broadly, energy prices — will be such a benefit to these companies.
I listed Exxon first because it was the bigger of the two, but it’s also been the better performer between the two stocks. That said, Chevron has performed pretty well, up 18.6% this year, 42.3% over the past six months and 34.9% over the past year.
It helps that, like Exxon, forecasts for next year remain so favorable. Consensus expectations currently call for about 8% revenue growth this year, but for more than 30% earnings growth.
Additionally, investors can also collect a 4.2% dividend yield as they wait for this growth to occur.
Energy Stocks to Buy If Oil Prices Rise: Halliburton (HAL)
I do a lot of screening for top stocks, and it’s no surprise it’s been littered with energy stocks for the past few months. However, one of the strongest names on that list has been Halliburton.
Shares are nearly 58% over the past six months and more than 38% so far this year. So unless energy prices correct lower, this will likely remain a buy-on-dips candidate.
With a market cap of “just” $29 billion, this company is significantly smaller than Exxon and Chevron. Yet, it’s going to be a major beneficiary if we see higher oil prices. Even without a big spike in oil, Halliburton stock has quality attractions to it.
Specifically, analysts expect double-digit revenue growth both this year and in 2023. Furthermore, consensus expectations call for 63% and 33% earnings growth in 2022 and 2023, respectively.
For that type of growth alone, I think it’s worth keeping an eye on Halliburton this year.
Pioneer Natural Resources (PXD)
Pioneer Natural Resources has always been on my radar, because of where it owns land in the Permian Basin. According to the company:
“This vast patch of rugged terrain in West Texas is home to the world’s second-largest oilfield. Decades ago, Pioneer first staked its claim to those legacy wells that hiccupped just 10 or 12 barrels of oil a day. We stayed, and now that commitment is paying off.
Today, some estimates hold that the untapped resources spindled deep below the Permian Basin’s surface could rival the supply of what’s now considered the world’s largest oilfield in Saudi Arabia.”
That’s pretty impressive, and it’s what’s allowed PXD stock to grow into a market cap of almost $57 billion.
Moreover, analysts expect more than 60% earnings growth this year despite the stock only trading at bit more than 11 times forward earnings estimates. With a 1.4% dividend yield to boot, this one is at least worth a look.
Energy Stocks to Buy If Oil Prices Rise: EOG Resources (EOG)
EOG Resources just reported earnings on Feb. 25, and the company delivered a top- and bottom-line earnings beat, with the revenue of $6.04 billion coming in almost $500 million ahead of estimates. That’s a huge beat!
That allowed for full-year earnings growth of roughly 500% for the year, which goes along with 69% revenue growth for 2021.
Analysts currently expect revenue to grow about 14% in 2022, along with 22% earnings growth. With that in mind, an increase in oil prices will only push those expectations higher. With EOG producing so much oil domestically as well, it helps insulate it from the geopolitical issues in Eastern Europe.
Moreover, energy stocks are attractive because of their mix of low valuations and strong growth. In some cases, there are also solid dividend yields and it’s worth noting EOG pays out a 2.8% yield. However, the premise of higher oil prices will increase the likelihood of future growth, which should bode well for current stock prices.
Occidental Petroleum (OXY)
Like EOG, Occidental just reported earnings in late February and delivered a great beat.
Earnings of $1.48 per share blew past estimates of $1.10 a share, while revenue of $8.01 billion beat expectations by more than $600 million. Not to mention, Occidental increased its dividend by 1,200% — although it still yields just under 1.5%.
In 2022, estimates call for another round of big growth, with earnings estimates calling for 62% growth. The stock trades at roughly 11 times 2022 earnings expectations and if oil continues higher, those growth estimates will likely tiptoe higher.
Unlike Pioneer Natural Resources which is leveraging a specific region, Occidental operates all over the globe. While that creates additional risk, it also creates opportunity:
“Oxy operates world-class energy and chemical assets around the globe, including in the United States, Middle East, Africa and Latin America. Over our 100-year history, we have built a vast infrastructure of integrated operations around the world that deliver reliable energy and essential products.”
Energy Stocks to Buy If Oil Prices Rise: Devon Energy (DVN)
Devon Energy is one of the mid-sized energy stocks we’re focused on. The company boasts a dividend yield north of 7%, which would typically be a red flag. However, because business is improving so much, investors are looking past this risk.
That’s clear with the stock at 52-week highs, up almost 24% on the year and up almost 40% from the December low. Clearly, investors are looking at Devon Energy as an opportunity.
That’s as revenue estimates are calling for growth of roughly 20% this year. With shares trading at less than 10 times this year’s earnings expectations, analysts also expect Devon to grow the bottom line by more than 65%. With outsized earnings growth vs. revenue growth, it points to margin expansion and a nice boost in cash flow.
On the date of publication, Bret Kenwell 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.
Bret Kenwell is the manager and author of ‘Future Blue Chips and is on Twitter @BretKenwell.