With oil prices dipping below the $80 mark this month, it’s plausible to think that the energy stock rally has hit its peak. Yet, this could be a premature assumption. Energy stocks remain ripe for growth, especially with 2024 forecasts hinting at significant supply constraints, potentially reaching a shortfall of one million barrels daily. Interestingly, this supply won’t come from OPEC+ nations, as they haven’t shown any interest in boosting production.
Amidst these uncertainties, turning away from energy stocks doesn’t seem wise. In fact, now appears to be an opportune moment to explore energy stocks to buy on the dip, with healthy long-term upside potential.
Phillips 66 (PSX)
Phillips 66 (NYSE:PSX), is a downstream specialist involved in refining, marketing petrochemicals, and transportation services. Despite the headwinds though in the energy space, Phillips 66 continues to thrive on the operational front. Additionally, its appealing valuation at 0.34 time’s forward sales estimates adds significantly to its attractiveness.
Impressively, the company’s financial health remains robust, consistently recording net income. This strength translates into a promising forward yield of more than 3.5% while continuing to generate tremendous cash flows. In its most recent quarter, it generated a whopping $2.7 billion in operating cash flow ($2.4 billion excluding working capital).
Recently, Wolfe Research upgraded Phillips 66, anticipating a rise in shareholder returns. With a new target of $146, Wolfe analyst Sam Margolin highlights Phillips 66’s straightforward approach to boosting shareholder value
Enbridge (ENB)
Enbridge (NYSE:ENB) has established itself as a major force in energy transport and distribution, showcasing its impressive financial performance of late. Its most recent quarter showed a 3% increase in adjusted EBITDA, reaching $3.9 billion, along with a significant jump in operating cash flow from $2.1 billion to $3.1 billion year-over-year. These figures are a testament to Enbridge’s robust operational health.
In its pursuit of growth, Enbridge is making strategic moves in infrastructure development, particularly with the Rio Bravo pipeline construction. This pipeline is critical for supplying natural gas to the Rio Grande LNG project, underscoring Enbridge’s commitment to tapping into energy sector growth opportunities.
Looking to the future, the 2024 election outcome could be a pivotal factor for Enbridge. A Democratic win, with its potential impact on pipeline projects like Keystone XL, might inadvertently benefit Enbridge.
Clearway Energy (CWEN)
Clearway Energy (NYSE:CWEN) is a renewable energy company operating natural gas facilities, wind, and solar projects. It boasts a generation capacity of roughly 4.22 gigawatts, with ambitious plans to expand to 16.32 gigawatts by the conclusion of the current decade.
Clearway has posted relatively mixed results of late, with net income falling by more than 70% compared to the prior-year period. The decline was primarily due to lower earnings from natural gas, with the income from renewables remaining stable. Renewables are likely to be a key catalyst driving its business forward, with a noteworthy environmental goal to make 90% of its electricity production carbon-free by 2034.
The company’s stock trades at 3.49 times, trailing twelve-month cash flows, 53% lower than the industry average of 7.44 times. Moreover, its solid dividend payout, currently at an annual rate of 7.05% with an upcoming dividend of 40 cents per share, makes it an appealing choice for investors looking for value and sustainable growth in the renewable energy sphere.
NextEra Energy (NEE)
NextEra Energy (NYSE:NEE), a cornerstone in the utility sector, continues to play a crucial role in powering Florida’s energy landscape through its powerful energy generation and distribution capabilities. It symbolizes stability in an otherwise unpredictable market even amidst current business challenges.
In a recent move highlighting its commitment to shareholders, the company announced a notable quarterly dividend of 46 cents per share. This decision sustains an appealing forward yield of over 3.4%, with 27 years of payout growth, a strategic choice that efficiently resonates with dividend-focused investors. This step underlines NextEra’s dedication to delivering shareholder value, emphasizing its investor-friendly approach.
Furthermore, NextEra is strategically refining its operations. Its subsidiary successfully sold Florida City Gas to Chesapeake Utilities for a massive $923 million in cash. This transaction showcases NextEra’s commitment to optimizing its asset portfolio and strengthening its financial foundation. Such strategic maneuvers exemplify NextEra Energy’s foresight and adaptability.
Chevron (CVX)
Chevron (NYSE:CVX) stands out as a beacon for those eyeing investments in the oil and gas sector. Its stature is reinforced by an impressive $18.23 billion in levered free cash flow over the past 12 months, highlighting its financial prowess.
Moreover, despite the market’s lukewarm response to its acquisition of Hess (NYSE:HES), the implications of this deal are yet to unfold. Chevron’s strategy proves successful; Hess could significantly expand its business portfolio. However, Chevron’s stock experienced a setback in late October following its third quarter report. Although it went past revenue expectations with a $1.08 billion margin, its EPS fell short by 64 cents against analysts’ predictions.
This discrepancy raised eyebrows, but Chevron’s future still looks promising, especially considering the ongoing demand for fossil fuels. Moreover, the firm’s continued focus on exploration, production, and distribution positions it as a prime investment option in the energy sector.
Kinder Morgan (KMI)
With its vast pipeline network covering 95,000 miles in the United States and Canada, Kinder Morgan (NYSE:KMI) is on a stellar trajectory. The company’s recent announcement of acquiring South Texas assets from NextEra Energy for $1.8 billion is a testament to its growth strategy. This move couldn’t have come more at an opportune time, especially considering it might shift investor attention away from the company’s earnings miss in October.
Kinder Morgan presents an attractive dividend opportunity for investors, currently yielding 6.87%. This yield, akin to a utility firm’s, surpasses the returns typically offered by bonds or utility stocks. Investors considering Kinder Morgan should primarily focus on dividend income, given the firm’s stable and appealing yield. Moreover, it’s known for maintaining robust margins and profitability, earning a B+ profitability profile from Seeking Alpha. These financial strengths make it an appealing investment, especially for those prioritizing steady income and long-term stability in the energy sphere.
Schlumberger Limited (SLB)
Schlumberger Limited (NYSE:SLB), formerly known as one of the top oil services players, has recently rebranded itself as a global technology firm. Despite its impressive pedigree in exploration and production, SLB stock has remained relatively stagnant for over a year. As oil prices surge, Schlumberger’s focus on services over drilling might just be its ace in the hole.
Moreover, the firm is likely to benefit from increased investments by heavyweights including Exxon Mobil (NYSE:XOM) and Chevron in drilling and exploration. Additionally, Schlumberger’s top and bottom-line results are set to gain momentum from Saudi Arabia’s substantial $100 billion drilling budget planned for 2023 to 2025.
Financially, Schlumberger is on solid ground, with trailing twelve-month free cash flows surging 64.2%, easily covering its annual dividends of over $1.4 billion. This financial robustness, along with its plans to re-enter the US onshore services by 2025, solidifies Schlumberger’s standing in the sector.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
