The 7 Best Oil Stocks to Buy Now
Finding the best oil stocks to buy isn’t as easy as it was a few months ago. The price of crude oil ran up to a multiyear high of $120 a barrel shortly after Russia invaded Ukraine and again in mid-June as demand peaked with the summer driving season. However, oil prices have steadily fallen in recent months as concerns grow about the prospects of a global recession, and the impact that anti-Covid-19 lockdowns in China will have on energy demand.
The price of West Texas Intermediate (WTI) crude oil, the U.S. standard, is trading below $80 a barrel after the Organization of Petroleum Exporting Countries and its allies announced that they plan to cut oil output by as much as 2 million barrels a day, and the European Union imposed a $60 per barrel price cap on imports of Russian oil. As of this writing, WTI crude oilis trading at $77 a barrel, down from more than $90 per barrel at the start of November. Brent crude oil, the international benchmark, is hovering near $83 per barrel.
Oil stocks, which also declined over the summer, are now trading sideways or trending lower along with oil prices. This presents a potential buying opportunity for investors who are looking to ride oil stocks higher as we head into the New Year.
Nonetheless, geopolitical tensions, continued easing of Chinese lockdowns, and/or an economic rebound could boost oil prices next year. Here are seven of the best oil stocks to buy for 2023.
Best Oil Stocks to Buy for 2023: ExxonMobil (XOM)
ExxonMobil (NYSE:XOM) has benefitted from elevated energy prices throughout 2022. On Oct. 28, the integrated oil and natural gas company reported a record profit for this year’s third-quarter, causing analysts and investors to cheer. The Texas-based company said it earned a record $18.7 billion in Q3, up 177% from the same period a year earlier. Its earnings per share of $4.45 blew past analysts’ average $3.79 forecast, according to Refinitiv’s data.
The Q3 print was the latest in a string of record-breaking earnings for America’s largest oil company. The outperformance has sent XOM stock up 68% in 2022 to $105 a share. The stock is currently trading near its 52-week high of $114.66. If the company manages to keep its quarterly profits flowing, the upward momentum of its stock should continue as well.
Another great attribute of XOM stock is that it is a Dividend Aristocrat. Specifically, ExxonMobil has increased its dividend payout to shareholders for 39 consecutive years. The company currently pays a quarterly dividend of 91 cents per share, and its current yield stands at 3.40%.
Devon Energy (DVN)
Oklahoma City-based Devon Energy (NYSE:DVN) is a good pick right now because the company is not just a leading oil company, but it is also a major producer of natural gas and natural gas liquids at a time when those energy products are in high demand, particularly in Europe.
The U.S. struck a deal with the European Union earlier this year aimed at reducing the bloc’s reliance on natural gas from Russia. The U.S. has promised to provide Europe with at least 15 billion cubic meters more of liquified natural gas by year’s end. The goal of the deal is to wean European countries such as Germany and France, off natural gas that comes from Russia. Previously, about 40% of Europe’s energy came from Russia.
The new pact focused on natural gas is good news for Devon Energy. At the end of last year, natural gas liquids accounted for 27% of the company’s reserves, with natural gas accounting for another 29%. Natural gas prices have risen along with crude oil prices, with gas prices up more than 50% in 2022. And analysts are calling for continued increases in gas prices now that winter is here and the demand for gas to heat homes and businesses is expected to peak.
DVN stock is up 45% on the year but currently sits 17% below its 52-week high of $79.40. Buy the dip before the share price recovers.
There are a couple of reasons for investors to consider buying the shares of California-based Chevron (NYSE:CVX). First, the company recently reported a net profit for the third quarter of $11.2 billion, its second-highest quarterly profit ever.
Second, while CVX stock is up 48% on the year at $175, the shares still do not look overvalued with a price-earnings ratio of only 10.04 and a market capitalization of $338 billion. Lastly, the company pays a quarterly dividend of $1.42 a share for an attractive 3.22% yield.
Chevron’s Q3 net profit of $11.2 billion equaled $5.78 per share, nearly double the $6.1 billion that it achieved in the same quarter of 2021, and ahead of the average Wall Street EPS estimate of $4.86.
The blockbuster earnings have led analysts across Wall Street to revise their forecasts and ratings on CVX stock throughout the year. Credit Suisse (NYSE:CS), for example, maintains an “outperform” rating on the stock and a price target of $202, implying 15% gains from the stock’s current levels. Chevron has also boosted its share buybacks this year, lifting them to $15 billion.
Occidental Petroleum (OXY)
Houston-based Occidental Petroleum (NYSE:OXY) has gotten a lot of attention this year as the new favorite stock of famed value investor Warren Buffett. A relentless deal hunter, Buffett says he is always on the lookout for strong businesses and undervalued stocks, and, when he finds the right combination, he buys shares with a purpose.
Well, Buffett seems to like what he sees from OXY stock. The Oracle of Omaha has been buying shares of the U.S. oil company hand over fist since the spring. His total investment now stands at 188.4 million shares, or 20.2% of the company, worth $11.3 billion.
Buffett no doubt likes that OXY stock has more than doubled in 2022, up 114% in 2022, making it one of the best-performing stocks in the S&P 500. He also certainly likes Occidental Petroleum’s low P/E ratio of 5.4.
While the quarterly dividend yields a skimpy 0.78%, Buffett probably likes that Occidental reinvests its profits in its business in the same way that his holding company, Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), does. (Buffett’s company does not pay a dividend to its shareholders).
Also like Berkshire, Occidental Petroleum is using its profits to buy back its own stock, announcing a $3 billion share repurchase program.
British Petroleum (BP)
British Petroleum (NYSE:BP) is another oil producer whose stock is looking very attractive right now. Its shares are up 27% on the year and trading at $34.75. The stock has a dividend yield of 3.8% and an ultra-low forward P/E ratio of 5.5.
Based in London, England, BP is one of the energy “supermajors” with trailing annual revenue of more than $200 billion, 60,000 employees, and a market capitalization of $105 billion.
BP hiked its quarterly dividend to 36 cents per share following its exceptional earnings. The company announced that its Q3 net profit this year more than doubled from a year earlier to $8.2 billion.
In addition to hiking its dividend, BP has been buying back stock with a vengeance, recently announcing that it is boosting its share buybacks by $2.5 billion to further reward shareholders.
Suncor Energy (SU)
Canadian company Suncor Energy (NYSE:SU) has attracted activist investor Elliott Management, which took a stake in the oil producer earlier this year and promptly called for changes at the company. To appease Elliott Management, which is run by hedge fund titan Paul Singer, Suncor announced in July that it would expand its board of directors and undertake a strategic review of its retail business, which includes 1,500 gas stations across Canada, with a view to selling that part of its business estimated to be worth about 11 billion CAD ($8.09 billion).
In July, Suncor Energy fired then-CEO Mark Little, who was replaced on an interim basis by the Executive Vice President for Downstream Operations Kris Smith. Mark Little’s departure came after Elliott Management raised concerns about safety and operational problems at Suncor, noting that there have been 12 fatalities at the company’s oil sites since 2014.
In terms of its stock, Suncor Energy’s share price is up 22% year-to-date at $30.50 per share. It has a thrifty P/E ratio of 7.4 and a solid dividend that yields 4.85% or 39 cents a share per quarter. Between January and May of this year, Suncor bought back $1.3 billion of its common stock.
Marathon Oil (MRO)
A truly diversified energy company that deals in natural gas as well as oil products, Marathon Oil (NYSE:MRO) is a direct descendant of John D. Rockefeller’s Standard Oil Company. Houston-based Marathon Oil is one of America’s preeminent energy companies.
Its shares have skyrocketed 60% to $28 this year as the price of crude oil has risen and global demand for natural gas has surged. In addition to the share price appreciation, other reasons to like MRO stock include its 1.2% dividend yield, $3 billion stock buyback program, and low P/E ratio of 5.4. Plus, Wall Street analysts, on average, forecast that the company’s earnings will more than triple this year, pushed higher by oil and natural gas prices that are expected to rise throughout the winter.
Marathon Oil’s latest earnings certainly didn’t disappoint anyone on Wall Street. The company announced Q3 net income of $832 million, or $1.24 per share, up 168% from $310 million, or 39 cents a share, a year earlier. Analysts’ average forecast called for earnings of $1.19 per share, according to Refinitiv data.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. 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.
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