With crude oil prices surging back above $80 per barrel, you may be wondering which oil and gas equities to invest in. A further rise in spot petroleum prices might trigger a further rally in energy equities, which have risen after falling in early 2023.
Some may argue that oil’s recent gain, fueled by unexpected news of OPEC+ output curbs, will not endure. Yet, numerous analysts have maintained that, with the likelihood of additional OPEC+ supply cutbacks and a revival in Chinese demand, oil prices have more room to run.
If factors such as a further economic slowdown in the United States and Europe offset this, crude prices may be able to maintain constant. Instead, energy stocks could continue to rise as the market re-rating the sector to a higher value as concerns about a return to pre-2020 oil prices fade.
If you’re optimistic about the sector, here are seven of the finest oil and gas stocks to purchase right now, ranging from familiar brands to off-the-radar bets.
EGY VAALCO Energy $4.93
EPM Evolution Petroleum $6.62
MRO Marathon Oil $25.69
OXY Occidental Petroleum $64.57
PBR Petroleo Brasileiro $10.87
STR Sitio Royalties $24.37
XOM Exxon Mobil $116.99
1. VAALCO Energy (EGY)
Before we look at some of the greatest large-cap oil and gas stocks to buy, consider a smaller independent exploration and production (E&P) firm. Apart from the current increase in oil prices, Houston-based VAALCO Energy (NYSE:EGY) is attractive for three reasons.
Secondly, EGY stock trades at a low value of 4.3 times earnings, suggesting that multiple expansion is possible. As I previously stated, VAALCO’s merger with Canada’s TransGlobe Energy last year increased the company’s geographical diversification. This might lead to investors re-rating the company to a higher earnings multiple, somewhere in the mid to high single digits, over time.
Second, even if multiple expansion isn’t in the cards, shares could rise in tandem with earnings growth driven by cost-cutting synergies. Third, overall gains may be improved by EGY’s newly increased dividend, which now yields 5.5%.
2. Evolution Petroleum (EPM)
Another minor independent E&P business is Evolution Petroleum (NYSEAMERICAN:EPM).
While this microcap energy stock does not have a significant following, it has piqued the interest of many investors looking for high dividends.
The dividend yield on the stock is 7.1%. This distribution, with a payout ratio of 36%, is likely to be sustainable if energy costs remain stable. Nevertheless, EPM’s above-average yield isn’t the only reason to be enthusiastic. There is also the possibility of significant price appreciation, regardless of whether crude oil returns to $100 per barrel or trades sideways from here.
According to the company’s February investor presentation, management is committed to increasing shareholder value through dividends and accretive acquisitions of high-quality, low-risk energy assets.
3. Marathon Oil (MRO)
After looking at two lesser E&P names, let’s move on to a more well-known name that is one of the greatest oil and gas stocks to invest in. Marathon Oil (NYSE:MRO) made a strong comeback during the 2021 oil recovery. It received a further boost when Russia’s invasion of Ukraine caused oil prices to skyrocket in early 2022.
Nonetheless, MRO stock has been trading sideways since then. Yet, while it may appear that oil and gas prices must return to last year’s highs for Marathon to provide big returns, this may not be the case.
Via aggressive return-of-capital efforts, MRO might yet generate significant long-term returns. Marathon repurchased 15% of its outstanding stock last year and increased its dividend three times. Management intends to continue returning at least 40% of free cash flow to shareholders.
4. Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) has recently made headlines for reasons other than the crude oil spike. Shares of this E&P behemoth have become a favorite of famed investor Warren Buffett, as you may know.
Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) has owned preferred stock in OXY since 2019, when it paid $10 billion for it. Berkshire has been purchasing common shares of OXY stock since then. Berkshire now owns 23.5% of the company following its recent share purchase last month.
However, OXY is more than just riding on Buffett’s coattails. Occidental, in addition to being one of the highest-quality oil stocks available, has a significant “green” catalyst. According to CEO Vicki Hollub, the company’s carbon capture business might be a significant addition to OXY’s bottom line a decade from now.
5. Petroleo Brasileiro (PBR)
Due to political uncertainty, Petroleo Brasileiro (NYSE:PBR), also known as Petrobras, may not appear to be one of the finest oil and gas stocks to buy. The election of Luiz Inacio Lula da Silva (or Lula) as President of Brazil last year weighed on the shares of this state-controlled integrated oil firm.
Early last month, pressure on PBR stock increased as Lula (a leftist, particularly on economic matters) chastised Petrobras for focusing on dividends rather than capital projects that would benefit Brazil’s economy. While there are jurisdictional risks with PBR, this does not necessarily mean you should avoid it.
Negative sentiment has pushed shares to a bargain-basement valuation of less than 2 times earnings. Management has also promised investors that the company will maintain paying “robust” dividends. If you are aware of the hazards, taking a tiny, speculative position may be worthwhile.
6. Sitio Royalties (STR)
Sitio Royalties (NYSE:STR) is a high-yielding investment that I’ve been praising in recent months. In a word, this company acquires mineral and royalty interests in oil and gas.
With management more focused on producing shareholder value than on developing an energy empire, STR stock might provide substantial returns if oil prices remain stable, and especially if they rise from here. Sitio, like Evolution Petroleum, is skilled at making accretive purchases of energy assets. This could result in continuing cash flow increases.
Sitio will reinvest some of this cash flow in new acquisitions, but the majority of it will be returned to shareholders, mostly in the form of dividends. STR’s distributions are variable, but if oil prices continue to rise, STR is likely to maintain a double-digit dividend yield.
7. Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) is perhaps the first oil stock that comes to mind for most investors, as well as the general public. Nevertheless, there is more to the argument for XOM being one of the top oil and gas companies to purchase than just “buy what you know.”
For one thing, as InvestorPlace’s Louis Navellier has explained, the legendary integrated oil company is in the midst of a cost-cutting drive. With cost reductions flowing directly to the bottom line, the valuation of XOM stock is expected to rise further. Exxon Mobil’s buyback and dividend operations will be aided by the improved cash flow.
Not only that, but XOM, like Occidental, has a decarbonization catalyst at work. Indeed, CEO Darren Woods recently warned that the company’s burgeoning decarbonization section might begin supplanting its heritage business in a decade.
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