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Buy these 3 Energy Stocks?

Many energy stocks had quite an amazing run over the last two years as oil and energy prices rebounded off their covid-induced lows.

Crude Oil prices have climbed back to around $87 a barrel but are still well off their highs of $123.70 and the average closing price of $98.24 this year.

While oil prices were bound for a correction, Oil and Energy is still the top-rated Zacks Sector, which might leave some investors wondering what to do with energy stocks.

Let’s take a look at three top rated energy stocks for a better answer. 

Devon Energy DVN

Devon Energy is an independent energy company engaged primarily in the exploration, development, and production of oil and natural gas.

DVN’s stock has become increasingly popular over the last year because of the special dividend it has been paying while business booms. For the current quarter, DVN announced an extra dividend payment of $1.37 a share to go along with its regular $0.18 a share dividend.

DVN currently lands a Zacks Rank #2 (Buy) with its Oil and Gas–Exploration and Production Industry in the top 9% of over 250 Zacks Industries. Devon Energy’s earnings are expected to climb an impressive 162% to $9.24 a share in 2022, based on Zacks estimates. Fiscal 2023 calls for another 14% earning growth. Top line growth is expected as well, with sales set to jump 66% this year and another 1% in FY23 to $20.15 billion. 

DVN is up +60% year to date to crush the S&P 500’s -21% and outperform its Zacks Subindustry and peer group at +43% and +48%, respectively. Even better, after the turnaround in oil prices, DVN is up +627% in the past two years to blast away the benchmark’s +13%. DVN has become an industry leader over the past two years as it also crushed its peer group’s stellar performance.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Devon Energy currently trades around $70 a share and roughly 10% off its 52-week highs. DVN has a forward P/E of 7.4X. This is slightly above the industry average of 5X but DVN’s earnings growth has solidified the company as an industry leader. Plus, it’s trading well below its high of 33.5X over the last two years and the median of 9.7X. This makes DVN attractive at current levels considering its performance during this time span.

NextEra Energy NEE

Another Energy stock that is well known for its dividend is NextEra Energy (NEE). NEE is considered a Dividend Aristocrat after raising its dividend for at least 25 consecutive years. NextEra Energy is a public utility company engaged in the generation, transmission, distribution, and sale of electric energy. NextEra has a good mix of solar and wind renewable energy capabilities as well.

Investors may want to consider NEE stock because the company is not directly affected by the price of oil. However, as part of the Utilities sector, NEE is still poised to benefit from energy consumption. NEE’s Utility-Electric Power industry is also in the top 36% of 251 Zacks Industries.

NextEra Energy is down -12% in 2022, but rising estimate revisions for this year and FY23 make the stock worth a look. NEE has a forward P/E of 28.6X, which is above the industry average of 17.7X. But from the nearby chart, we can see that NEE trades below its decade high of 36.8X.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

It is important to note that NEE is up +373% over the last 10 years, to crush the S&P 500’s +174%. This has also blasted its Utility-Electric Power Markets +36%. This year’s dip in NEE may be a buying opportunity for longer-term investors.

NEE earnings are expected to be up 13% this year and another 8% in FY23 at $3.13 a share. Sales are expected to rise 18% in 2022 and climb another 31% next year to $26.47 billion.

NEE’s growth and reliable dividend are reasons investors may want to consider buying the stock. NEE has a 2.05% dividend yield at $1.70 a share. While its yield is lower than the industry average, investors can rely on the company to keep its dividend steady during high inflationary periods. NEE currently lands a Zacks Rank #2 (Buy) and the average Zacks Price Target offers 16% upside from current levels.

Schlumberger SLB

Schlumberger (SLB) currently sports a Zacks Rank #1 (Strong Buy). Schlumberger is a leading oilfield services company, providing services to oil and gas explorers, and producers across the world.

Schlumberger helps locate oil and gas, drill, and evaluate hydrocarbon wells. SLB’s Oil and Gas-Field Services Industry is also in the top 9%.

SLB’s YTD performance has been stellar at +39% to crush the benchmark and its peer group’s +9%. Even better, SLB is up +166% over the last two years to outperform the benchmark’s +13% and its peer group’s +116%. And the average Zacks Price Target offers 22% upside from its current levels.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

From its price performance, Schlumberger appears to be an industry leader, with its peer group consisting of other quality companies like Haliburton HAL and Baker Hughes BKR.

This looks set to continue with earnings expected to climb 58% this year and another 37% in FY23 at $2.77 a share. Top line growth is expected to continue as well, with sales up 19% in 2022 and another 14% in FY23 to $31.24 billion.

Trading around $41 a share, SLB has a forward P/E of 19.4X. This is near the industry average of 18.7X and well below its high of 36.7X over the last two years. SLB also trades below the median of 24.2X during this time span. Even better, SLB trades at an even bigger discount to its 10-year high of 152.5X. and the median of 24.9X.

Bottom Line

Many of the Industry leaders in the Oil and Gas Sector and the Utilities sector are still experiencing growth and offer generous dividends. These stocks can also help a portfolio during the current economic downturn and rising inflation.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
NextEra Energy, Inc. (NEE) : Free Stock Analysis Report
 
Devon Energy Corporation (DVN) : Free Stock Analysis Report
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Halliburton Company (HAL) : Free Stock Analysis Report
 
Baker Hughes Company (BKR) : Free Stock Analysis Report
 
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Zacks Investment Research