Two of the top six stocks by percentage weight in Warren Buffett’s Berkshire Hathaway Inc. (ticker: BRK.A, BRK.B) holding company are in the oil and gas industry. Berkshire had 5.9% of its investment portfolio in Chevron Corp. (CVX) and 4.9% in Occidental Petroleum Corp. (OXY), according to a regulatory filing in May.
If the Oracle of Omaha thinks fossil fuel companies are worth his dime, investors without particular environmental, social and governance, or ESG, scruples may want to consider them, too.
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Despite the progress that has been made in renewable energy, experts think oil and gas demand will continue increasing in coming years and then plateau and decline slowly for some time. Still, the disdain for fossil fuels among some investors in the short term, and the reality that oil and gas will eventually be phased out, is a risk for the industry.
“From the perspective of equity valuations in the energy sector, in spite of positive performance over the last few years, energy companies are in general still trading at attractive valuations,” says Davide Accomazzo, finance instructor with Pepperdine University. “To some extent, this may be due to a general dislike from investors for a sector that shows significant volatility and is stained by the ‘bad boy’ characterization in the climate change narrative.”
Even though valuations for fossil-fuel related companies may never again reach as high as in the past, he says the industry contains profitable businesses that are often cash cows.
“The energy sector offers investors double-digit free cash flow yields that are at least double the free cash flow yield of the S&P 500,” says Rob Thummel, senior portfolio manager with Tortoise Capital Advisors. “The dividend yields delivered by companies in the energy sector are two to four times higher than the dividend yield of the S&P 500.” He adds that the valuations of many stocks that operate in the energy sector are “still at a discount to historical norms compared to the overall market.”
With that in mind, here’s a look at seven top oil and gas stocks to consider:
| Stock | Forward Dividend Yield |
| Exxon Mobil Corp. (XOM) | 3.3% |
| Chevron Corp. (CVX) | 4.1% |
| TotalEnergies SE (TTE) | 4.8% |
| Shell PLC (SHEL) | 3.9% |
| Williams Cos. Inc. (WMB) | 4.7% |
| Energy Transfer LP (ET) | 8.2% |
| EQT Corp. (EQT) | 1.5% |
Exxon Mobil Corp. (XOM)
In May, sustainable investing expert Maria Jelescu Dreyfus joined the board of this oil and gas supermajor. Her appointment comes after Exxon bought Pioneer Natural Resources Co. (PXD), which had added Dreyfus to its board in 2021 as it sought to boost its status among investors concerned with ESG criteria.
That seems to be the reason Exxon has added Dreyfus to its own board, as she comes with credentials as CEO and founder of Ardinall Investment Management, which says it focuses on investing in companies “benefiting from an unfolding sustainability transformation.”
Amid that energy transition, Exxon has focused on carbon capture and storage, hydrogen, lower-emission fuels and lithium, while European counterparts have been investing in renewable energy such as solar and wind generation.
But all of the supermajors remain oil and gas companies at heart, as they try to straddle the push for decarbonization with continued demand for their core fossil fuel products.
Chevron Corp. (CVX)
Like Exxon, Chevron is a vertically integrated major oil and gas company, meaning it extracts those fossil fuels from the ground, transports petroleum products, and refines and sells products.
Also like Exxon, Chevron has favored investing in lower-carbon solutions over renewable power generation. Both companies have the deep pockets needed to spend big to get into cleaner technologies, if pressure from their boards, investors and the public can persuade them to do so more than they already are.
That strategy would seem to make sense, as experts predict that oil and gas will continue to be in demand for decades even as solar, wind and other projects such as hydrogen and carbon capture advance.
TotalEnergies SE (TTE)
Unlike its U.S. counterparts, this French supermajor has been investing heavily in renewable power generation capacity.
The company used to simply be called Total, but it rebranded in 2021 in an indication of its plan to be a company that incorporated renewable energy into its mix alongside fossil fuels.
This week, the company announced a joint venture in which it had signed a memorandum of understanding with Tunisia to study how a large green hydrogen project might be implemented.
TotalEnergies aims to have 100 gigawatts of gross installed renewable power generation capacity by 2030. At the end of the first quarter, the company’s capacity stood at 23.5 gigawatts, up by more than 1 gigawatt from the previous quarter.
Shell PLC (SHEL)
U.K.-based Shell is another Big Oil offering that is investing in renewable energy amid the long-term energy transition away from oil and gas.
At the beginning of this year, the company had about 2.5 gigawatts of renewable capacity in operation, 4.1 gigawatts under construction or contract, and roughly 40.2 gigawatts of potential capacity, including utility-scale solar, offshore wind projects and hydrogen projects.
The company last year closed a deal for Nature Energy Biogas, which makes renewable natural gas. It also invested in Verdagy, which is in the green hydrogen industry.
“Mergers and acquisitions will play a vital role in enabling global oil and gas leaders to re-shape their portfolios, incorporating both renewables and low-carbon energy solutions to help make their net-zero ambitions a reality,” according to a posting from White & Case, an international law firm with an energy practice.
In its 2024 energy transition strategy, Shell confirmed that it plans to invest $10 billion to $15 billion between 2023 and 2025 in low-carbon energy solutions.
Williams Cos. Inc. (WMB)
Natural gas is expected to be the bridge fuel between coal and renewable sources of energy such as solar, wind, nuclear and hydrogen.
“We expect natural gas to play an increasing role in delivering low-cost, reliable, low-carbon energy to customers in the U.S. as well as across the world,” says Thummel.
As an operator of natural gas pipelines in the U.S., Williams seems well positioned to take advantage of that future.
“Williams’ pipeline network is tens of thousands of mainly underground pipelines that would be extremely expensive to replicate in the current regulatory environment,” Thummel says. “The value of Williams’ existing natural gas pipeline network is not fully appreciated by investors.”
Energy Transfer LP (ET)
Energy Transfer is a pipeline company that focuses on transporting, storing and terminaling natural gas, crude oil and refined products.
“ET operates a diversified set of energy infrastructure assets that are essential for everyday activities and economic growth,” Thummel says. “ET will also benefit from the increasing role of the U.S. as an energy exporter.”
The U.S. is the biggest exporter of liquefied natural gas, or LNG, in the world, in addition to exporting other natural gas in pipelines to Mexico. The U.S. is also a major oil exporter.
“We expect increased demand for U.S. exports in the future that will benefit companies like Energy Transfer,” Thummel says.
EQT Corp. (EQT)
This company is the biggest natural gas producer in the U.S., giving it exposure to the main bridge fuel of the energy transition. EQT is a proponent of U.S. LNG exports, so it can sell more natural gas that ends up being burned internationally rather than coal.
“Natural gas prices have been low; so many producers have temporarily reduced natural gas production volumes to balance supply and demand,” Thummel says. “We expect natural gas prices to increase and for EQT to directly benefit from higher natural gas prices.”
He says the more fundamental reason to own EQT shares is the development of artificial intelligence.
“The increase in U.S. data centers that support the development of AI will need a consistent power supply,” Thummel says. “Natural gas serves as a reliable energy supply source that will help provide data centers with electricity 24 hours a day, seven days a week.”
Between LNG exports and demand from AI data centers, demand for U.S. natural gas could rise by double digits between now and 2030, Thummel says.
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7 Best Oil and Gas Stocks to Buy in 2024 originally appeared on usnews.com
Update 05/31/24: This story was published at an earlier date and has been updated with new information.
