Energy stocks are a bright spot for a bleak 2022.
In 2022, Wall Street was feeling the heat and it was the toughest year in more than a decade. Investors were on edge, worried that the Federal Reserve’s efforts to tackle inflation would backfire and send the economy into a tailspin, and that’s not to mention the Ukraine-Russia conflict.
Despite these challenges, savvy investors were able to find opportunities and make the best of a tough situation. One such opportunity is the energy sector, with several companies demonstrating substantial growth, contributing to the overall overperformance of the sector.
Exxon Mobil even got an earful from the White House, after posting record profits in their most recent earnings call! According to the government, it’s almost unthinkable that the common people are suffering from surging fuel prices, while these companies are lining up their pockets with record profits!
But what can they do? It’s so easy for them to make money!
Although there are concerns about high inflation and sluggish economic growth, these worries have been outweighed by factors such as the market’s limited excess capacity, China’s easing of COVID-19 restrictions, a strained refining system, and the conservative production approach maintained by OPEC, a powerful group of oil exporting nations.
While the energy sector has provided cause for optimism among investors in 2022, it has not kept pace with the strong overall market performance at the beginning of 2023. The question remains whether these darling companies last year will continue to perform well in 2023, or eventually lose their steam.
It is true though, in whatever we do, energy is an integral part of our daily lives, making it imperative that one consider investing in the energy sector. Don’t worry, I made it easy for you by making this list of must-have energy stocks!
Occidental Petroleum Corporation, a favorite of Warren Buffet
Occidental Petroleum Corporation and its subsidiaries engage in the acquisition, exploration, and development of oil and gas properties in the United States and internationally.
It is no secret that OXY shares have become one of Warren Buffett’s favorite energy investments.
According to Berkshire Hathaway’s most recent 13F filing, Warren Buffet bought Occidental Petroleum shares between $55 and $62 during the third quarter.
Although OXY has fallen from recent highs in the mid-70s, given its historically high volatility, it can easily return to those highs.
Occidental Petroleum has achieved increased production from its valuable assets, and has profited from its acquisition of Anadarko.
The company has also boosted its capital expenditure, while enjoying a growing profit margin.
Currently, Occidental’s ROCE (Return On Capital Employed) of 23.23%, is significantly higher than the industry average of 14.1%.
The company’s revenue for the first three quarters of 2022 was remarkable, jumping by 57% to reach over $28.4 billion, with earnings per share rising by 19 cents.
Despite some gloomy economic outlook, it is widely believed that Occidental will continue to thrive in 2023, making OXY an excellent addition to anyone’s portfolio.
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Exxon Mobil, Hovering at All-time Highs!
Exxon Mobil is a massive energy company, with a market value of nearly $470 billion. It has a history of strong profitability, and steady cash flow generation.
Even with the fluctuations in oil prices, the company’s diversified operations and cost management strategies have enabled it to maintain operations and give solid dividend payments.
Recently, the company revealed a major $50 billion stock repurchase program as part of its new corporate plan.
Despite the stock price sitting at all-time high levels, XOM is still seen as cheap by most analysts, considering it is only 9 times its earnings, and 10 times its free cash flow.
Exxon Mobil is also not slowing down, as the company plans to invest between $20 billion and $25 billion annually on capital expenditures to maintain its daily production of around 3.7 million barrels of oil equivalent.
Based on an assumed price of $60 per barrel of oil, Exxon projects that its profits and cash flows will double by 2027.
With a long history of increasing its dividends over the past 40 years, investors can expect sustained growth, capital appreciation, and income-generating potential, making XOM a no-brainer choice in the Energy sector.
Chevron Corporation Just Gave an Attractive Entry Point!
Chevron’s stock fell last week, after the company reported lower-than-expected results in the fourth quarter. However, despite failing to meet analyst expectations, investors had plenty to cheer about, including record full-year profits, and a $75 billion share repurchase program.
This makes the dip in share price a fantastic opportunity to get in!
Despite missing bottom-line targets, Chevron’s fourth-quarter earnings were mostly good. Revenue for the quarter was an outstanding $54.5 billion, exceeding expectations of $52.7 billion. Furthermore, Chevron’s top-line success has been astounding in recent years, with a 15.5% compounded annual growth rate (CAGR), and a 37% EBITDA CAGR.
In addition, the company’s extraordinary $75 billion share repurchase plan shows tremendous confidence, and underscores the company’s commitment to repaying shareholders.
The plan potentially allows it to repurchase more than one-fifth of its outstanding shares, based on its current market valuation.
Chevron’s outstanding performance in 2022, demonstrates the company’s strength and durability, as one of the nation’s largest oil producers.
Its earnings more than doubled from the previous year, and has surpassed its previous high of $10 billion established in 2011.
Despite some obstacles from increasing costs and lower oil prices, Chevron managed to maximize returns across all its businesses, to finish the year on a strong note.
This makes CVX an appealing choice in the energy industry.
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Still, Take Note of These Headwinds
While we continue to see long-term potential for the energy sector, the near-term outlook is very complex.
An abnormally mild winter in Europe is providing headwinds for the industry, just as the world’s central banks are still dedicated to lowering inflation.
Rate hikes, despite current projections calling for slower increases, have increased the dangers of a recession, which will likely reduce demand for oil and other commodities.
At the same time, despite persistent tensions between Russia and the European Union over natural gas supplies, natural gas prices are down 65% from their August peak, which could lower earnings guidance for the rest of 2023.
Still, it is crucial to remember that Energy stocks were one of the few bright spots in the bleak 2022.
Indeed, energy was the only sector in the S&P 500 to actually go up last year, rising nearly 65%, while the entire market lost more than 19%. And if the bad times return, this sector is a good place to be defensive.
Energy may not lead the markets for the rest of the year, but at least you can be assured that if the proverbial sh*t hits the fan, you won’t find your money flushed down the drain. Might only get a bit sticky though.
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