Clearly, 2021 has been a banner year for equities, with the S&P 500 up a stunning 25%. While the going was pretty easy by historical standards, with only one 5% drop year to date, there is a good chance that 2022 could bring some tougher sledding. The tapering of the quantitative easing program, which was designed to keep interest rates low, starts this month, and some feel that the Federal Reserve may be forced to raise interest rates earlier than expected due to the surge in inflation.
Given the potential for a more difficult 2022, the equity strategists at BofA Securities are focusing on three top sectors to own for 2022. The one with some of the biggest upside potential is energy. In a new research report, they make the case that energy stocks will be solid 2022 picks, as they offer the highest free-cash-flow inflation-protected yield among the S&P 500 sectors and are actually an inflation beneficiary.
In addition, energy stocks can rise when oil goes higher, regardless of whether it is driven by demand or supply. We screened the BofA Securities energy research universe and found four stocks rated Buy that pay outstanding and reliable dividends. While the four top stocks look like very solid ideas for 2022, and all are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This integrated giant is a safer way for investors looking to stay or get long in the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas, and liquefied natural gas. Some analysts estimate the company will have a compound annual growth rate of over 5% for the next five years.
With the strongest financial base of the majors, coupled with an attractive relative asset base, many on Wall Street feel that Chevron offers the most straightforwardly positive risk/reward. Although current conditions do not warrant a large focus on production growth, Chevron possesses numerous medium-term drivers that should support production levels in the coming years.
The analysts feel comfortable the 4.50% dividend will remain at current levels. BofA Securities has a $135 price target on Chevron stock. That compares with a consensus target of $128.15. The shares recently closed at $117.19 apiece.
This is another large cap company that offers strong value for investors. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids worldwide.