7 Energy Stocks to Buy as a New Bull Market Emerges
Energy prices remain volatile but have been trending upwards so far in 2023. The price of crude oil is currently hovering just above $80 a barrel. With China easing its Covid-19 restrictions, there is hope that global energy demand will strengthen in the coming months, potentially leading to a new bull market in oil and natural gas. While oil prices have come down over the last six months and remain sensitive to shifts in the global economy, there is optimism that energy stocks will again rally in 2023 as they did in 2022.
With that in mind, here are seven energy stocks to buy now as a new bull market looks poised to emerge.
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Houston-based Haliburton (NYSE:HAL) is the largest hydraulic fracturing company and the second biggest oil field services company in the world with operations in more than 70 countries. The company just delivered a strong fourth quarter earnings beat, as its Q4 earnings per share doubled to 72 cents from 36 cents a year ago.. HAL announced that it was raising its quarterly divided by 33% to 16 cents a share and also bought back $250 million of its own stock during the fourth quarter of 2022.
The positive earnings, dividend hikes, and stock buybacks came after HAL stock gained 30% over the last 12 months . The stock’s dividend yield now stands at 1.2%.
With oil companies all over the world maintaining high production levels, the demand for Haliburton’s oil field services should remain strong this year.
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Houston-based ConocoPhillips (NYSE:COP) is involved in oil and natural gas exploration as well as production. As with other energy companies, COP stock has boomed over the last year, as it has risen 38% during that period. And yet, its price-earnings ratio remains a modest 8.9.
Add in a dividend yield of 2%, and ConocoPhillips looks like a no-brainer when it comes to energy stocks to buy.
ConocoPhillips is also known for having a pristine balance sheet and taking a disciplined approach to capital allocation. That should help the company and COP stock weather any downturn in the energy sector that might occur in 2023.
ConocoPhillips is also returning profits to shareholders, having recently announced an 11% increase in its dividend. The company’s long-term debt of $6.5 billion is extremely low given its market capitalization of nearly $154 billion.
Occidental Petroleum (OXY)
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Houston-based Occidental Petroleum (NYSE:OXY) has got a lot going for it right now, including the backing of legendary investor Warren Buffett. It’s difficult to discuss OXY stock without mentioning Buffett who has been buying the company’s shares aggressively over the last year. At last tally, Buffett’s holding company, Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), owned 21% of Occidental Petroleum’s common stock, making Berkshire the company’s largest shareholder.
And the Oracle of Omaha has been granted permission to buy up to half of OXY stock, leading to speculation he might try to buy the company outright and add it to Berkshire’s stable of businesses. Like other investors, Buffett probably appreciates that Occidental Petroleum’s earnings have skyrocketed with the price of crude oil. The notorious dividend hound is probably also enticed by the fact that Occidental Petroleum has raised its quarterly dividend payment by 900% in the past year.
But even with the huge boost, OXY stock’s dividend yield is still only 0.8% or 13 cents a share each quarter. Still, Occidental Petroleum’s stock is up 78% in the last 12-months and its P/E ratio of 5.5 makes the stock look like a bargain.
Kinder Morgan (KMI)
Kinder Morgan (NYSE:KMI) is one of the largest energy infrastructure companies in North America, owning and operating 83,000 miles of pipelines and 143 oil and natural gas terminals, primarily in the U.S. and Canada. The stock has risen in the last year, though not as much as most oil and gas producers. Over the past 12 months, KMI stock has gained 5% . The share price is essentially flat looking back over five years. Part of the issue with the company and the stock is the challenges that it has faced with getting new pipelines approved.
While KMI’s gains have not been as large as those of most other energy companies, KMI stock still has a lot of worthwhile attributes, especially its 6% dividend yield . The company paid out nearly all of its $2.55 billion net income of shareholder dividends during 2022,. And its P/E ratio of 16 is reasonable and in line with the average among the stocks listed on the S&P 500 index.
Finally, analysts praise Kinder Morgan’s clean balance sheet and keeping a lid on itsits capital expenditures.
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California-based Chevron (NYSE:CVX) is the second largest oil company in the U.S. with a market capitalization approaching $350 billion. Few energy companies have benefitted as greatly from the run-up in crude oil prices over the past year as Chevron. At the end of last October, the company reported a net profit of $11.2 billion, the second-highest quarterly profit in its 144 year history.
Over the last 12-months, CVX stock has gained 35% to reach $178 a share. But even with the big run in its share price, Chevron’s stock retains a comparatively low price-earnings ratio of 10. On January 25 of this year, Chevron announced that it is raising its quarterly dividend to $1.51 per share from $1.42 and that its board of directors approved a new $75 billion stock buyback program that has no expiration date.
Diamondback Energy (FANG)
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Texas-based Diamondback Energy (NASDAQ:FANG) is one of the most active oil and natural gas companies in the energy rich Permian Basin that is spread across Texas and New Mexico. A smaller energy company with a $25 billion market cap, Diamondback Energy’s stock has gained 15% over the past year. Even with the increased share price, Diamondback Energy’s stock trades at a low P/E of 5.94.
Like the others on this list, FANG stock pays a dividend. Currently, its divided yield is 2.05%. The share price is currently 13% below its 52-week high as crude oil prices fluctuate, providing a nice entry point for investors. Diamondback Energy also recently set a new target to return 75% of its excess cash to shareholders in the form of a base dividend, variable dividends, and stock buybacks. The company repurchased more than $1 billion of its own stock in 2022.
Devon Energy (DVN)
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For an energy company with a monster dividend, look no further than Oklahoma City-based Devon Energy (NYSE:DVN). The leading oil and natural gas company offers shareholders a dividend yield of 8.4%. While the dividend is impressive, it is not the only reason to be bullish on DVN stock. The share price has increased 26% over the last year to $63. However, it is currently 19% below its 52-week high, presenting an opportunity for investors to grab shares on the pullback.
With the boom of crude prices last year, Devon Energy was able to produce $2.1 billion of free cash flow, the highest level in its 52-year history. The company also bought back $1.3 billion of stock, reducing its outstanding shares by 4% compared to 2021.
While some analysts worry aloud about the sustainability of Devon Energy’s dividend if oil prices slump, the company has given no indications that the payout is in jeopardy.
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.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
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