Oil prices retreat a bit amid recession fears but stay elevated.
You probably wouldn’t know it from filling up your car at the gas station, but oil prices have been falling recently. Investors appear to be worried that the Federal Reserve‘s campaign to fight inflation could tip the economy into recession, or at least dent demand for crude. But if you look back, oil prices, as well as those for natural gas, are still well above where they were a year ago, as demand has snapped back from the pandemic but supply hasn’t kept pace. Russia’s war in Ukraine has also roiled the energy markets, pushing prices for natural gas and oil higher. With that backdrop, and keeping in mind the longer-term push for an energy transition to less greenhouse gas-intensive fuels, here are 10 energy stocks to consider buying this year.
Marathon Oil Corp. (ticker: MRO)
Over the next four weeks, Tyler Tucci, head of research at SynerAI, expects oil and shares of the companies that produce it to be flat to negative as the pendulum swings back from the “outsized move higher from the turn of the year.” But in the longer term, with crude demand around 2019 levels even though China and India have not fully opened their economies from the pandemic, there “remains pressure for demand that should keep oil above pre-COVID levels,” he says. In this environment, he likes Marathon Oil. “MRO has done a good job of tightening its belt during the last several years, and has delivered by paying down debt and is currently engaged in buying back the stock,” he says.
EQT Corp. (EQT)
Beyond the shorter-term supply-and-demand considerations, Rob Thummel, portfolio manager at Tortoise, says energy security and decarbonization will drive the global energy sector for decades. Decarbonization will require increased consumption of shale natural gas as a replacement for coal, he says. “The world needs more U.S. natural gas to decarbonize as well as to bolster energy security,” he says. “Higher natural gas prices will benefit EQT.” Thummel describes the company’s CEO, as “excellent,” saying he is “more passionate about the U.S. energy sector than me, and I didn’t think that was possible.”
Cheniere Energy Inc. (LNG)
This exporter of U.S. liquefied natural gas is benefiting from Europe’s need for non-Russian sources of LNG, and in its first-quarter earnings release raised its earnings guidance because of increased processing capacity and higher margins for the commodity. Although it reported a loss for the quarter because of non-cash changes in the value of some financial instruments, the company still did better than analysts were expecting. “Not a lot of companies in other sectors are beating and raising guidance right now, but Cheniere is,” Thummel says. In May and June, the company announced long-term LNG sale and purchase agreements with a steel trading and energy developing subsidiary of South Korea’s Posco Holdings Inc. (PKX), Norwegian energy company Equinor ASA (EQNR), and Chevron Corp. (CVX).
Enbridge Inc. (ENB)
This energy infrastructure company says it moves about 30% of the crude oil produced in North America and transports nearly 20% of the natural gas consumed in the U.S. It also operates a large natural gas utility, giving it some cushion against fluctuations in oil and natural gas prices. The company has paid dividends for more than 67 years, and over the past 27 years its dividend has grown at an average compound annual rate of 10%. Its dividend yield was 6.6% as of June 28. “Energy infrastructure offers investors high income right now, with growing dividends that protect against inflation,” Thummel says.
Plains All American Pipeline LP (PAA)
Another energy infrastructure company that Thummel likes is PAA, which owns pipeline, transportation, terminal, and storage and gathering assets for crude oil, natural gas liquids and natural gas. It’s one of the largest oil producers in the Permian Basin, a fossil fuel-producing area in Texas and New Mexico that has growth potential. As a beneficiary of high oil prices, the company has been returning capital to shareholders primarily through a dividend, Thummel notes. The company’s shares were yielding more than 8.6% as of June 28. The company in May increased its 2022 guidance for earnings before interest, taxes, depreciation and amortization, or EBITDA, by $75 million, to about $2.3 billion.
Williams Cos. Inc. (WMB)
This natural gas gathering, processing and transportation business is another way “for investors to benefit from high income from energy infrastructure investments,” Thummel says. It was yielding 5.6% as of June 28. In a press release announcing its first-quarter financial results, Williams raised its 2022 earnings guidance, saying it expects EBITDA of $5.9 billion to $6.2 billion, a $250 million midpoint boost from guidance issued in February. “As the world moves to a low-carbon future, Williams is well positioned to leverage its natural gas-focused strategy while continuing to deliver consistently stable returns for shareholders,” the company stated in a fact sheet for investors.
Shell PLC (SHEL)
Turning to what is considered an oil and gas “supermajor,” Thummel points to Shell’s dividend yield and “significant exposure to global LNG markets.” He says that the company is a leader in decarbonization activities. Its shares were yielding 3.5% as of June 28. In the first quarter of this year, the company sold 18.3 million metric tons of liquefied natural gas, up from 15.8 million metric tons in the prior-year quarter. As for renewable energy, the company has more than 1 gigawatt of solar generation capacity, four wind farms in the U.S. powering about 97,000 homes, and two offshore wind farms under development that are expected to generate more than 4 gigawatts combined.
Chevron Corp. (CVX)
Thummel notes that the dividend of another supermajor, Chevron, is more than twice that of the S&P 500, at nearly 4%. He likes that the company is growing U.S. oil production volumes in the Permian Basin and actively investing in decarbonization activities such as renewable natural gas and renewable diesel. While Chevron is one of the largest producers of fossil fuels in the world, it is also investing in carbon capture and storage technology. “An all-of-the-above approach to global decarbonization that includes more natural gas, more wind and solar, more renewable fuels and increased R&D on hydrogen and carbon capture will accelerate the pace of decarbonization,” Thummel says.
Western Midstream Partners LP (WES)
Here’s another energy company “benefiting from growth in the Permian,” Thummel says. It’s also another energy company that has raised its guidance, increasing 2022 adjusted EBITDA expectations to $2.1 billion to $2.2 billion, a boost of $200 million from the midpoint of its prior guidance. “Increased producer activity levels, continued commercial success and strong commodity prices have all contributed to the increase in expected 2022 adjusted EBITDA,” CEO Michael Ure said in a press release announcing the company’s first-quarter results. “Additionally, we expect continued successes as our engineering and operations teams continue to focus on cost and capital efficiencies during the current inflationary environment.”
Valero Energy Corp. (VLO)
Thummel expects Valero, a refiner that turns crude oil into petroleum products such as gasoline, propane and asphalt, to post a large earnings beat in the second quarter because of its high refining margin. Its first-quarter results exceeded analyst expectations with sales of more than $38 billion and net income of $905 million. It had posted a loss in the prior-year quarter on sales of more than $20 billion. Its refining margin in the first quarter was more than $3.2 billion compared with the prior-year quarter’s less than $1.5 billion. The company reports next on July 28.
10 of the best energy stocks to buy in 2022:
— Marathon Oil Corp. (MRO)
— EQT Corp. (EQT)
— Cheniere Energy Inc. (LNG)
— Enbridge Inc. (ENB)
— Plains All American Pipeline LP (PAA)
— Williams Cos. Inc. (WMB)
— Shell PLC (SHEL)
— Chevron Corp. (CVX)
— Western Midstream Partners LP (WES)
— Valero Energy Corp. (VLO)
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10 of the Best Energy Stocks to Buy for 2022 originally appeared on usnews.com
Update 06/29/22: This story was published at an earlier date and has been updated with new information.
