The price of oil has declined significantly since last summer when it hit a multi-year high of $122 per barrel. Today, West Texas Intermediate (WTI) crude oil, the U.S. standard, is trading at $74 a barrel. Brent crude oil, the international benchmark, currently trades for $78 per barrel. The decline in crude oil has led to a pullback in the share prices of major oil companies in recent months following a stampeding bull run throughout much of 2022. On the backs of record profits, dividend increases and share buybacks, oil stocks were the best stocks to buy in 2022. Many leading energy companies saw their share price more than double. Now, the stocks of oil and natural gas companies are again in retreat as prices for crude normalize.
So, should investors buy the dip or wait to see where oil prices settle before starting a new position? The consensus view of analysts seems to be for investors to take advantage of the current retreat and buy shares in energy companies. Here are the three best oil stocks to buy now.
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U.S. energy giant Chevron (NYSE:CVX) is increasing its oil footprint by acquiring shale producer PDC Energy (NASDAQ:PDCE). The takeover of PDC will enable Chevron to increase its U.S. production, capital expenditures and cash flow. Simultaneously, Chevron will start to scale back in other parts of the world over geopolitical issues such as Russia’s invasion of Ukraine and civil war in Africa.
Many analysts praise the PDC Energy acquisition and say it should help elevate CVX stock. HSBC (NYSE:HSBC) raised its price target on Chevron’s stock to $198 and maintained a “hold” rating on the shares. Investment bank Morgan Stanley (NYSE:MS) kept its $198 price target, but lifted its recommendation to a “buy” rating. After a big run up in the first half of last year, CVX stock has pulled back 15% in the past six months, presenting a decent entry point for investors. A dividend that yields 3.84% is attractive too.
Occidental Petroleum (OXY)
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Famed investor Warren Buffett keeps on buying shares of Occidental Petroleum (NYSE:OXY). The latest regulatory disclosure shows that Buffett bought more OXY stock this year as the price has slumped. The Oracle of Omaha purchased 3.46 million Occidental shares in May, paying just over $200 million for them. Buffett now owns 24.4% of the U.S. oil company worth a total of $12.7 billion. He seems to start buying the stock each time its price dips below $60 per share.
At this year’s annual meeting of his holding company, Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), Buffett threw cold water on the rumors that he is planning to take majority control of Occidental Petroleum. He told the assembled crowd that “We’re not going to buy control… We wouldn’t know what to do with it.” As with Chevron, OXY stock has retreated over the past six months. It declined 15% after the share price more than doubled in 2022, with its dividend currently yielding 1.20%.
British Petroleum (BP)
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European energy giant British Petroleum (NYSE:BP), commonly known as “BP,” saw its share price dip recently after it announced plans to slow its pace of stock buybacks. The news arrived as BP reported a $5 billion profit in this year’s first quarter due largely to successful oil and gas trading by the company. However, BP stock dipped more than 8% on the news that the company plans to repurchase $1.75 billion worth of shares in this year’s second quarter, down from $2.75 billion in the previous quarter.
Despite the post-earnings dip, BP stock has increased 4% in the last six months as most of its peers have seen their share prices decline. The company has avoided a slump in its stock, thanks to its ability to continue generating strong profits even as the price of oil retreats. Plus, many investors are attracted to BP’s hefty quarterly dividend payment, which currently yields 4.36%. In 2022, BP posted record annual profits of $27.7 billion — more than double its profits in 2021. The company’s previous record profit was $26.3 billion back in 2008.
On the date of publication, Joel Baglole held a long position in MS. 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.