With summer just around the corner, it’s time to look at some of the top energy stocks to own now. For one, we have driving season ahead of us, with AAA predicting Memorial Day weekend will be the third busiest auto travel time since 2000. Coupled with tight U.S. gasoline stock, we could easily see higher oil prices. Two, Saudi Arabia just said, “Short sellers – those betting prices will fall – should ‘watch out’ for pain.” While we’re not exactly sure what that means just yet, some take it to mean we could see OPEC output cuts at the group’s June 4 meeting.
“OPEC+ output cuts and a rebound in China’s demand will likely offset slower demand elsewhere … Therefore, we expect prices to bottom out soon,” added financial services company, ANZ, as quoted by CNBC. That being said, it’s time to load up on these top energy stocks ahead of a possible oil gush.
Energy Select Sector SPDR Fund
SPDR Oil & Gas Exploration & Production ETF
Devon Energy (DVN)
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Devon (NYSE:DVN), an independent oil and gas company focused on U.S. drilling, fell by about 13% this year. All thanks to declining oil prices. However, with oil set to gush, and a dividend yield of 9.42%, it’s time to take another look. Insiders are just as bullish, with President and CEO, Richard Muncrief, for example, buying another 7,500 shares for $377.250 in March. Management likes the stock here, expanding its share buyback program by 25% to $2 billion. Even better, according to the CEO, “We continue to see attractive value in repurchasing our shares, which we believe traded a significant discount to our intrinsic value.”
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Halliburton (NYSE:HAL) caught my attention because of Goldman Sachs’ recent interest. Analysts Neil Mehta sees the pullback in HAL as an opportunity to buy at a discount. In its most recent quarter, the company pulled in revenues of $5.7 billion, which came in $210 million above expectations. It was also up 33% year over year. EPS came in at 72 cents, which was five cents better than estimates. That was also up about 100% year over year. Better, according to Chairman and CEO, Jeff Miller, “My Halliburton outlook – for both the current year and the long-term- is strong.” Plus, analysts at TD Cowen just raised its price target on HAL to $48 from $46, with an outperform rating.
Occidental Petroleum (OXY)
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Many times, when Occidental Petroleum (NYSE:OXY) drops, Warren Buffett’s Berkshire Hathaway steps up to buy more. In March, Berkshire Hathaway bought another 5.8 million shares of OXY, paying between $59.80. and $61.90. Also, in March, the firm would buy another 3.7 million shares for $218 million. Last week, it was announced the firm bought another $130 million worth of OXY stock. That now brings the firm’s holdings in OXY to 213.9 million shares, valued at over $12 billion.
Even better, OXY pays out a dividend yield of 1.22%, and its CEO said the company plans to use excess free cash flow to buy back shares. In fact, according to Reuters, the company will “continue allocating excess free cash flow towards share repurchases.”
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Or, take a look at Chevron (NYSE:CVX). Currently sitting at triple bottom support dating back to Oct., I’d like to see the CVX stock rally back to $170 shortly. Analysts like the stock here, too. Mizuho, for example, just raised its price target to $202 from $196. Morgan Stanley also raised its target to $198 from $192 a share. Even HSBC just upgraded CVX to a buy rating, with a price target of $189 a share. Analyst Kim Fustier added, CVX could offer “an attractive distribution yield following the stock’s recent underperformance,” as noted by Investors’ Business Daily.
SPDR Energy Select Sector ETF (XLE)
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Or, we can look at ETFs for better diversification at a low cost. Look at the SPDR Energy Select Sector ETF (NYSEARCA:XLE), for example. With an expense ratio of 0.12%, the XLE ETF provides exposure to companies in the oil, gas, and consumable fuel, energy equipment, and services industries, as noted by State Street SPDR. Not only does an ETF allow for diversification, you can buy it for less than a single one of its holdings.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
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There’s also the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA:XOP). With an expense ratio of 0.35%, the ETF provides exposure to oil and gas exploration and production stocks, including Integrated Oil & Gas, Oil & Gas Exploration & Production, and Oil & Gas Refining & Marketing, as noted by State Street SPDR. Some of its top holdings include Callon Petroleum, Devon Energy Corporation, EOG Resources, and ConocoPhillips, for example.
NextEra Energy (NEE)
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While it’s not an oil stock, NextEra Energy (NYSE:NEE) is still an interesting, inexpensive bet on an energy market rebound. Just last year, the company announced Real Zero, committing the company to eliminate emissions from its operations no later than 2045. It also created the Zero Carbon Blueprint, which outlines plans to increase renewable energy deployment and help lead a $4 trillion effort to decarbonize the U.S. economy. NEE also carries a yield of about 2.4%, with plans to increase its dividend by about 10% a year through 2024.
Better, the company is still growing nicely. It released its 2022 earnings report, which continued to show the company’s strong double-digit growth across several key metrics. And it had another solid year in terms of development, signing 8,000 megawatts of new projects. NEE last traded at $75.44 after finding strong support dating back to early 2022. I’d like to see it challenge $85 again shortly.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.
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