Just when investors think it is safe to come out from hiding, another big interest rate increase and some quite hawkish testimony from Federal Reserve Chair Jay Powell has put a lid back on the risk-off crowd. The message on Wednesday was higher for longer, and some indications that the Fed’s dot-plot for the terminal rate could be moved higher. The question now is what the path forward should be.
The only sector that has traded higher this year is energy, and it is a pretty solid bet that the outperformance will continue as demand looks to stay strong and output is hampered for numerous reasons. Between irrational government regulation, the war in Ukraine (now in its 10th month) and a host of additional problems, benchmark oil prices should continue to stay elevated. While they may not reach the highs hit in June, a move back over the $100 level from Brent and West Texas Intermediate crude seems likely.
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Big oil posted huge third-quarter results. While the fourth quarter may not be quite as magnificent, analysts remain positive on the large-cap leaders. We screened our 24/7 Wall St. energy research database looking for the top domestic leaders that pay dependable dividends and found five that make sense for growth and income investors. While these stocks are rated Buy across Wall Street, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
APA
This company was long considered an industry leader when it was known as Apache, and the stock is perhaps offering one of the best entry points in the sector. APA Corp. (NYSE: APA) explores for and produces oil and gas properties. It has operations in the United States, Egypt and the United Kingdom, as well as has exploration activities offshore Suriname. It also operates gathering, processing and transmission assets in West Texas, as well as holds ownership in four Permian-to-Gulf Coast pipelines.
The company is one of the largest U.S. exploration and production companies, with 2.3 billion barrels of oil equivalent of proven reserves (63% liquids). It is an explorer, acquirer and exploiter a fiscally conservative company that has grown its reserves and production consistently via acquisitions and organic projects.
Wednesday, APA reported third-quarter net income of $422 million, after reporting a loss in the same period a year earlier. The company said it had profit of $1.28 per share. Earnings, adjusted for non-recurring costs, were $1.97 per share, which topped Wall Street expectations for $1.92 per share.
Shareholders receive a 2.20% dividend. The Mizuho price target for APA stock is $52, and the consensus target is $53.81. Thursday’s close at $47.29 was a 7% gain for the day following the big earnings report.
24/7 Wall St.Chevron
This integrated giant remains a safer way for investors looking to get positioned in the energy sector. Chevron Corp. (NYSE: CVX) engages in integrated energy and chemicals operations worldwide.
Chevron’s Upstream segment is involved in the exploration, development, production and transportation of crude oil and natural gas; processing, liquefaction, transportation and regasification associated with LNG; transportation of crude oil through pipelines; and transportation, storage and marketing of natural gas, as well as operating a gas-to-liquids plant.
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The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil, refined products and lubricants; manufacturing and marketing of renewable fuels; transporting crude oil and refined products by pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. It is also involved in cash management and debt financing activities, insurance operations, real estate activities and technology businesses.
The company posted strong third-quarter results, driven by massive global demand for its oil and gas and rising production from its U.S. oilfields.
Chevron stock comes with a 3.15% dividend. Credit Suisse’s $202 target price is well above the $188.04 consensus target and Thursday’s close at $181.13.
ConocoPhillips
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 (LNG) and natural gas liquids (NGLs) worldwide.
Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects.
Many Wall Street analysts feel Conoco can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford with visibility on future growth from a sizable position in the Permian Basin.
The company posted a profit of $3.55 per share. Earnings, adjusted for non-recurring costs, came to $3.60 per share, which surpassed Wall Street expectations for of $3.41 per share.
Investors receive a 3.11% dividend. Bank of America Securities has a Wall Street high price target of $140. The consensus target for ConocoPhillips stock is $129.94, and shares closed almost 6% higher on Thursday at $133.82 on the strong earnings print.
Exxon Mobil
Despite the rally in oil this year, this mega-cap energy leader trades at a reasonable valuation and still offers investors an excellent entry point. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.
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Top Wall Street analysts expect Exxon to remain a key beneficiary in this higher oil price environment, and most remain strongly positive about the company’s sharp positive inflection in capital allocation strategy, upstream portfolio, and leverage to a further demand recovery, with Exxon Mobil offering greater downstream/chemicals exposure relative to peers.
The top U.S. oil producer reported a per-share profit of $4.68, exceeding the $3.89 consensus view, on a huge jump in natural gas earnings, continued high oil prices and strong fuel sales.
The dividend yield here is 3.28%. The $136 BofA Securities price target compares with a $114.64 consensus target. Exxon Mobil stock closed trading on Thursday at $111.10.
24/7 Wall St.Occidental Petroleum
Over the past year, Berkshire Hathaway has been buying the shares of the company in a massive way. Occidental Petroleum Corp. (NYSE: OXY) engages in the acquisition, exploration and development of oil and gas properties in the United States, the Middle East, Africa and Latin America.
Its Oil and Gas segment explores for, develops and produces oil and condensate, NGLs and natural gas. Its Midstream and Marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, carbon dioxide and power. This segment also trades around its assets, consisting of transportation and storage capacity, and it invests in entities.
The Chemical segment manufactures and markets basic chemicals, including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates and calcium chloride.
Earlier this year, Berkshire Hathaway received regulatory approval to buy up to 50% of the stock. The investment giant currently owns 194.4 million shares of Occidental, which is a 20.9% stake. Some reports have indicated Warren Buffet will not acquire a controlling stake. The company is expected to report third-quarter results next week.
Shareholders receive a 0.70% dividend. Occidental Petroleum stock has an $84 price target at Barclays. The $75.45 consensus target is closer to Thursday’s closing share price of $72.16.
Given the shaky geopolitical state of the world, we decided to focus on the mega-cap domestic sector leaders. Needless to say, if the current administration does not pivot at some point on the overregulation and energy policy mistakes, the current supply situation likely will get worse. Now is a good time to stay at home with energy leaders based in the United States.
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