The party in energy stocks looks to be over. In 2022, oil and natural gas stocks were the only market segment that saw gains, as the price of crude oil surged to $122 per barrel. Now, with oil trading below $70 a barrel, the S&P 500 Energy Index is down 15% since the end of January.
The share prices of the largest oil producers in the world are in retreat as a result, and energy stocks are once again trailing mega-cap tech stocks in terms of returns. Oil companies experienced a sharp reversal after posting record profits, raising dividends, and increasing stock buybacks in 2022.
The current situation is unlikely to change soon, given the weakening global economy and softening energy demand, particularly in key markets like China. With the good times now at an end, we look at three energy stocks that have big investors running for the exit.
Devon Energy (DVN)
One of the mighty oil stocks that has gotten its comeuppance this year is Devon Energy (NYSE:DVN). The company’s share price is down 17% year-to-date and 39% below its 52-week high. Over the past five years, DVN stock is now up less than 10%.
The company’s share price has declined sharply since last November as investors sell energy stocks in droves. Even a sky-high dividend yield of 9.38%, or $1.13 a share per quarter, hasn’t been enough to keep investors holding on.
Despite its low price-earnings ratio of five-times, DVN stock has been adversely affected by falling crude oil prices and weakening global demand. Despite having a dividend payment three-times higher than most stocks, Devon Energy has recently cut its dividend for three consecutive quarters. This indicates a period of retrenchment.
Unfortunately, this makes Devon an energy stock to avoid right now.
Chevron (CVX)
It’s never a good sign when legendary investor Warren Buffett cuts his holding of a stock. After buying energy stocks hand over fist in 2022, Buffett appears to now be having second thoughts. In this year’s first quarter, Buffett’s holding company, Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B), trimmed its stake in U.S. oil giant Chevron (NYSE:CVX) by 20%.
Prior to the cut, CVX stock had been Berkshire Hathaway’s third-largest position behind Apple (NASDAQ:AAPL) and Bank of America (NYSE:BAC).
Now, Chevron is Berkshire’s fifth-largest holding and its stake in the oil company has been reduced by about $6 billion. The 20% cut to Berkshire’s CVX stock holding came as a surprise given how aggressively Buffett had built his position in Chevron. In 2019, just before the Covid-19 pandemic, Buffett didn’t own any shares in Chevron.
Buffett’s decision to sell Chevron suggests a lack of confidence in the company, and the stock has dropped accordingly. This year, CVX stock is down approximately 11%, and is down 20% from its peak.
ConocoPhillips (COP)
Hedge funds have been piling out of energy stocks this year, and one of the names they’re selling the most is ConocoPhillips (NYSE:COP). COP stock is down 11% year-to-date, and is 27% below its 52-week high, despite the market rebounding.
COP stock has a low price-earnings ratio of 8-times and offers a dividend yield of 5.2% ($1.32 per share per quarter). But these benefits have not been enough to entice investors, especially big-time money managers.
Investors worry about ConocoPhillips’ $3 billion acquisition of the remaining stake in the Surmont oil sands facility amid declining demand and oil prices. The acquisition raises concerns with respect to ConocoPhillips’ financial situation. The company has said the deal, expected to close in this year’s second half, will add $600 million in free cash flow by next year. Currently, investors seem unconvinced.
On the date of publication, Joel Baglole held long positions in AAPL and BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
