Oil and natural gas stocks shot higher in the days after former President Donald Trump regained the White House.
The Energy Select Sector SPDR Fund (ticker: XLE) gapped higher at the open during the first trading day after his election and finished the day 3.8% higher on expectations that Trump will be friendlier to the oil and gas industry than President Joe Biden.
It was just the latest bout of volatility in an industry known for its cyclical nature based on economic cycles as well as short-term moves based on geopolitics.
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“The oil and gas industry has faced significant volatility in recent months, with no signs of stabilizing soon,” says Michael Martin, vice president of market strategy at online brokerage and trading technology company TradingBlock. “Geopolitical tensions, OPEC production cuts and a slowing Chinese economy have all contributed to the energy sector’s fluctuations.”
That’s a lot to keep track of, on top of individual company fundamentals, which means some investors may want to spread out the risk with an exchange traded fund (ETF) like XLE, Martin’s favorite oil and gas ETF.
“With the continued volatility likely in 2025, a well-diversified account may be your best asset when approaching the energy sector,” he says.
A downside to ETFs, though, is that they aren’t likely to perform as well as an individual company when its stock is hot. So, for those who want to pick stocks, here’s a look at seven top oil and gas stocks to buy that also happen to make up the seven biggest holdings in the XLE fund:
| Stock | Forward dividend yield |
| Exxon Mobil Corp. (XOM) | 3.3% |
| Chevron Corp. (CVX) | 4.2% |
| ConocoPhillips (COP) | 2.8% |
| Williams Cos. Inc. (WMB) | 3.4% |
| Schlumberger Ltd. (SLB) | 2.5% |
| EOG Resources Inc. (EOG) | 2.9% |
| Oneok Inc. (OKE) | 3.8% |
Exxon Mobil Corp. (XOM)
This oil and gas supermajor is the fund’s top holding, making up 22.8% of XLE.
Exxon Mobil expanded in May with the acquisition of Pioneer Natural Resources, more than doubling its production volume in the key Permian Basin.
Located mostly in Texas, with some acreage in New Mexico, the Permian is the highest-producing oil patch in the U.S.
After the deal, Exxon had 1.3 million barrels of oil equivalent (BOE) per day in the Permian, based on 2023 volumes, and the company expects that to increase its output there to 2 million BOE per day.
When it comes to the energy transition, Exxon has deep pockets to spend on new technologies.
It has focused on carbon capture and storage, hydrogen, lower-emission fuels, and lithium, a key mineral for electric vehicle batteries and grid storage.
Still, 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)
This supermajor comes in as XLE’s No. 2 holding, at more than 15% of the fund.
Like Exxon, Chevron is a vertically integrated major oil and gas company, meaning it extracts 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.
ConocoPhillips (COP)
This exploration and production company rounds out the top three holdings in XLE, at 7.6% of the fund.
In addition to exploration and production, the company transports and markets crude oil, natural gas and liquified natural gas, a super-chilled version of the fuel that can be transported around the globe on specialized ships or in containers similar to other cargo.
Last year, ConocoPhillips returned $11 billion to shareholders in the form of dividends and share buybacks. ConocoPhillips says it is committed to returning more than 30% of cash from operations.
In recent years, the dividend and buyback strategy has been important to investors who in the past got fed up with oil and gas companies focusing more on drilling and producing more oil, even if it was at diminishing returns during lower-oil-price environments.
Williams Cos. Inc. (WMB)
This energy infrastructure company comes in at No. 4 in XLE, at 4.8%.
The world can’t just switch to renewable energy overnight because there isn’t enough storage capacity online to even things out when the wind isn’t blowing or the sun isn’t shining.
That means natural gas will stick around as a transition fuel that is cleaner than coal but still contributes a significant amount of planet-warming gases.
Within the U.S., natural gas is often transported by pipeline, and Williams operates one of the largest pipeline networks in the nation.
On Nov. 6, Williams reported record adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, of $1.7 billion in Q3 2024, up 3% year over year. The higher EBITDA was driven primarily by natural gas transmission expansions and Gulf Coast storage acquisition.
[READ: 6 Natural Gas ETFs and Funds to Buy in 2024]
Schlumberger Ltd. (SLB)
This oilfield services company makes up 4.4% of the fund, putting it in fifth place.
Schlumberger is active in more than 120 countries — including Russia, controversially — helping oil and gas companies run their operations. It is involved in drilling, well completion, reservoir mapping and pipelines, along with services and technology to help companies reduce emissions.
The company’s shares have been in a downtrend recently, but they popped sharply after Election Day.
According to stock market research and data firm GuruFocus, the average analyst price target for Schlumberger is $57.82, with a high estimate of $68 and a low estimate of $49. That’s based on one-year price targets offered by 28 analysts.
SLB shares closed at $43.24 on Nov. 7, meaning there could be room for growth even at the low end of the analyst estimates.
EOG Resources Inc. (EOG)
This crude oil and natural gas exploration and production company clocks in at No. 6 in the XLE fund, at 4.3%.
Like other oil and gas companies, EOG has been actively buying back stock in an effort to keep shareholders happy.
During the second quarter, the company repurchased $690 million worth of shares. At the end of June, the company had $2.6 billion remaining in its share buyback authorization. The company aims to return 70% of free cash flow to shareholders.
Another way EOG shows its commitment to returning cash to shareholders is through its dividend payout, which has been on the rise for seven straight years. The stock currently yields 2.9%.
Oneok Inc. (OKE)
Rounding out the top seven holdings in XLE, this energy infrastructure company makes up 4.3% of the fund.
As a midstream company, Oneok operates pipelines that connect supply basins to markets. With more than 50,000 miles of pipelines in its network, the company transports natural gas, natural gas liquids, refined products and crude oil. It also has access to nearly half of the refining capacity in the U.S.
The company has recently been acquisitive in the Permian Basin, which makes sense given the oil patch’s prolific nature and expectations that oil production there will continue expanding.
Buying fossil fuel transportation assets adds cash flow to the company faster than trying to build them itself, which can prove time consuming and controversial, depending on where the pipelines are planned.
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7 Best Oil and Gas Stocks to Buy in 2024 originally appeared on usnews.com
Update 11/08/24: This story was previously published at an earlier date and has been updated with new information.
