With oil prices falling below $80 in early November, it may look like the rally in energy stocks is over. But rumors of oil’s demise may be greatly exaggerated. There is still time to look at energy stocks to buy for growth.
On November 7, 2023, the Energy Information Administration (EIA) slightly lowered its 2024 outlook for crude oil prices. The new number of $89.24 a barrel is 1.8% lower than the agency’s October forecast. The agency says prolonged concern over potential supply disruptions in the Middle East will keep a high floor on oil prices.
But there may be more to support a floor for oil above $80. Next year, analysts are calling for supply constraints of about one million barrels a day. That supply has to come from somewhere, but it won’t be from the OPEC+ nations. They have no intention of raising production output anytime soon.
On the other hand, if demand does fall, that would be a sign that the long-predicted recession is finally here. But in that scenario, it could prompt the Federal Reserve to cut interest rates, which would be bullish for oil demand.
There’s lots of uncertainty, but rather than turning away from energy stocks, this looks like a time to find energy stocks to buy for growth. Here are three candidates for your investment dollars.
Chevron (CVX)
Chevron (NYSE:CVX) stock is down 20% in 2023 and has plunged below its 200-day simple moving average. Several factors weigh on the stock. First, earnings in the company’s third quarter came in 20% below estimates at $3.05 per share. Some analysts are also concerned about the company’s planned acquisition of Hess (NYSE:HES) in a $53 billion all-stock deal that will be finalized in early 2024.
With all that said, this company has a strong balance sheet and a history of providing shareholder value through share buybacks and a dividend that currently pays investors $1.51 per share every quarter.
Chevron has already indicated that the dividend will likely be raised once the deal with Hess is complete. The company also says the annual capex spend for the combined company will be between $19 and $22 billion.
Trading near its 52-week low and at 10x forward earnings, Chevron appears attractively valued as one of the energy stocks to buy for growth.
Kinder Morgan (KMI)
The case for including Kinder Morgan (NYSE:KMI) on a list of energy stocks to buy for growth is simple. No matter how many barrels of oil are pumped, it has to reach a final destination. That’s where a midstream specialist like Kinder Morgan shines brightest.
The company’s network of pipelines spans 95,000 miles through the United States and Canada. And that network is going to grow. On November 6, 2023, Kinder Morgan announced it was acquiring the South Texas assets of NextEra Energy (NYSE:NEE) for $1.8 billion.
That should be enough to draw attention away from the company’s earnings miss in October. The stock is down 8% in 2023 but recently broke below its 200-day simple moving average and is trading around its 52-week low. And while investors wait for the stock to turn around, Kinder Morgan has an attractive dividend that currently has a yield of 6.83%.
SLB (SLB)
So far, this list has included one integrated oil company and one midstream company. SLB (NYSE:SLB) is an oil services company formerly known as Schlumberger. The company has rebranded itself as a global technology company. That hasn’t done much for SLB stock, which is flat for the year.
However, the company will likely benefit as companies like Exxon Mobil (NYSE:XOM) and Chevron increase their drilling and exploration investments. The company’s revenue and earnings will also get a boost from Saudi Arabia, which announced a $100 billion drilling budget between 2023 and 2025.
Like the other stocks on this list, putting a floor on revenue and earnings allows analysts to focus on the company’s improved balance sheet and increase its dividend after cutting it in 2020.
On the date of publication, Chris Markoch had a LONG position in CVX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
