The upcoming summer driving season and last month’s soft inflation report warrant a look at the energy stocks to explode as oil prices soar.
Energy markets have been incredibly volatile since the start of the year. Oil prices have taken a hit on the back of high-interest rates, seasonal weaknesses, and the slowdown in economic growth.
Oil prices could be in for sustained growth ahead which should have investors thinking over the best energy stock picks for oil price rally. The next interest rate hike could arguably be the last from the Federal Reserve as the macro indicators point to a marked slowdown in economic growth.
The summer driving season could lift oil prices past the average $76.5 per barrel it’s been trading at since the start of the year.
Moreover, based on demand and supply factors, Jay Hatfield, CEO of Infrastructure Capital Management, believes the oil prices could fall in the $75-$95 range this year.
Therefore, with plenty of upside ahead, it’s an ideal time to cash in on the best energy stock opportunities from oil price boom.
| EPM | Evolution Petroleum | $7.02 |
| XOM | Exxon Mobil | $105.78 |
| PBR | Petroleo Brasileiro | $11.86 |
| KLXE | KLX Energy Services | $11.04 |
| OXY | Occidental Petroleum | $58.09 |
| CVX | Chevron | $156.62 |
| VIST | Vista Energy | $1.42 |
Evolution Petroleum (EPM)
Houston-based energy firm Evolution Petroleum (NYSEAMERICAN:EPM) is one the best bets in the oil and gas sphere, focusing on acquiring and investing in onshore oil and natural gas properties across the U.S.
This innovative company is essentially a low-risk investment alternative, delivering robust dividends and emphasizing free cash flow (FCF) growth.
Its growth numbers across both lines are staggering, with revenue and EBITDA numbers racing past its 5-year averages. Despite the slowdown in energy prices, it delivered another revenue and earnings beats in its most recent quarter.
As we advance, tits upward trajectory seems sustainable, with its significant acquisitions in the past year.
For instance, the firm seized a working interest in 73 lucrative oil-producing wells in the Williston Basin. Hence, with its proactive approach, EPM is positioned to continue offering investors a refreshing opportunity for steady returns.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) racked up another solid quarter, marked by a record-breaking first-quarter net income of $11.4 billion.
The energy giant’s massive success is attributable to its unshakeable commitment to cutting costs and strategic adjustments to its upstream portfolio.
Its colossal refining operation cannot be overlooked either, with The Bank of America proclaiming the beginning of a “Golden Age” for oil refining.
As crack spreads are expected to hold steady in the upcoming quarters, the energy behemoth’s refining operation will bolster its performance.
The firm is quickly moving towards a dividend aristocrat status, having grown its payouts for 20 consecutive years. Its 4-year average dividend yield is over 5.6%, trumping the sector median by more than 20%. Also, FCF yields are growing by double-digit margins, which suggests that its dividend is safe for the foreseeable future.
Petroleo Brasileiro (PBR)
Petroleo Brasileiro (NYSE:PBR), commonly known as Petrobras, might not be the safest oil and gas pick but might be worth investing in for speculative investors.
A lot of the negativity surrounding the stock is linked to the election of President Luiz Inacio Lula da Silva, whose administration is looking to push for renewable energy expansion in the country.
However, CEO Jean-Paul Prates recently assured investors that Petrobras remains steadfast in prioritizing oil output while modestly renewable energy options.
On the downside, it will be looking to strike a balance between rewarding shareholders and capital investments. Though dividend payouts may be impacted, the investment in renewables will invariably lead to higher cash flows in the future.
Additionally, PBR stock trades at just 0.5 times trailing twelve-month sales, roughly 85% lower than its 5-year average.
KLX Energy Services (KLXE)
KLX Energy Services (NASDAQ:KLXE) is a leading Houston-based energy firm offering oilfield services, technology, and equipment to oil companies.
It operates in prominent shale basins, including the Permian, Bakken, and Marcellus, demonstrating its robust presence in the sector.
KLX Energy is coming off a stellar year, and despite posting a $3.1 million loss, it’s likely to break even in 2023.
It recently announced the completion of an all-stock acquisition of Greene’s Energy Group, which will probably boost earnings and FCF immediately. The company has a proven track record of seamlessly integrating new businesses, and with oil prices holding strong, the company is likely to generate substantial FCF.
The move should help effectively de-lever its balance sheet, delivering solid shareholder returns. Also, its shares are trading at just 0.1 times trailing-twelve-month sales, roughly 88% lower than the sector median.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) is one of the leading oil and gas plays, which delivered another stunning performance in its first quarter despite the slowdown in energy prices.
It generated a whopping FCF of $1.7 billion during the quarter, which amounts to a 13% to 14% annualized yield. It remains on an upward trajectory and will probably reward its stockholders with higher buybacks and dividend payouts.
It bought back $750 million worth of shares during the quarter and could limit capital expenditures to enable buybacks if needed.
It remains committed to repaying its debt burden, having paid down $10.5 billion last year. Its year-over-year FCF margin is a mind-boggling 28%, more than 360% higher than the sector median. The stock could have more upside ahead as we advance, with Tiprank’s analyst expecting a 26% bump from current prices.
Chevron (CVX)
Chevron (NYSE:CVX) is a global powerhouse in the integrated oil and gas sphere, involved in the exploration, production, refining, and distribution of oil and natural gas.
A substantial portion of its earnings stems from international markets, positioning it in an enviable spot to capitalize on the surging energy demand beyond U.S. borders effectively.
Chevron remains committed to raising dividends for 35 consecutive years, having recently upped its stock buyback guidance to between $10 billion and $20 billion annually.
Even if oil prices drop to $50 per barrel, the company can repurchase $10 billion worth of stock while reinvesting in its growth.
The energy titan is one of the top smart money investments, with billionaires like Ray Dalio and Warren Buffett having major stakes in the business.
The appeal lies in its company’s robust business foundation. It closed out last year with a whopping $18 billion in cash, needing just $5 billion annually to operate.
Vista Energy (VIST)
Vista Energy (NYSE:VIST) is the third-largest oil producer in Argentina, holding a prominent position in the country’s thriving energy industry.
Because of the firm’s exceptional cash generation and execution capabilities, it remains the best Argentinian energy player. Its cash from operations balance has swelled over $735.7 million, 205% higher than its 5-year average. Moreover, its levered free cash flow margin is at 8.3%, resulting in a record FCF per share at 2.33.
The firm recently unveiled impressive first-quarter results on April 25, reporting a staggering 46% jump in revenue to $303 million compared to the previous year. Also, adjusted net income rose by 84% to $72 million.
Despite its strong stock market showing last year, Vista Energy’s shares harbor untapped upside potential. The Argentinian government’s pro-oil stance fuels this growth, robust exposure to the Vaca Muerta shale, and surging international oil prices.
On the date of publication, Muslim Farooque 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.