Amidst the volatility, crude oil has mainly remained sideways in the last 12 months. The reason is macroeconomic headwinds. However, oil prices have found support around $80 per barrel due to geopolitical tensions and production cuts. I am bullish on energy prices for the next 12 to 24 months. I would, therefore, look at some of the best oil and gas stocks to buy.
The most important reason for being bullish on energy prices is impending rate cuts. First, expansionary policies are positive for risk asset classes and oil and commodities should trend higher. Further, rate cuts will support GDP growth, and oil demand will likely gradually increase.
Some of the best oil and gas stocks have been depressed and trade at attractive levels. Given the bullish outlook for energy prices, let’s discuss three oil and gas stocks to buy for stellar returns.
Chevron (CVX)
Chevron (NYSE:CVX) stock is among the best oil & gas stocks to buy for robust returns. After remaining sideways for the last 12 months, CVX stock seems poised for a breakout rally. The stock also offers an attractive dividend yield of 4%.
An important point is that even with relatively depressed oil prices, Chevron reported an operating cash flow of $6.8 billion. This would imply an annual OCF potential of $26 billion. Chevron can deliver an OCF of more than $35 billion if the oil trend is higher.
Low break-even assets are a big positive, with cash flows likely to swell. Chevron has raised the annual buyback guidance to $10 to $20 billion. At the same time, the company expects a 2024 capital investment of $16 billion.
Aggressive capital investments would translate into healthy reserve replacement and steady production growth. With all these positives, CVX stock will likely be a value creator.
Occidental Petroleum (OXY)
When Warren Buffett increased its stake, Occidental Petroleum’s (NYSE:OXY) stock was in the limelight. After consolidation in the broad range of $55 to $65, expect a strong rally in the coming quarters. OXY stock offers a dividend yield of 1.35%, and I expect healthy dividend growth in the next few years.
Last year was important for Occidental as it regained and reaffirmed its investment grade rating. With healthy cash flows, deleveraging will continue along with dividends and share repurchases.
It’s important to mention that Occidental ended 2023 with proven reserves of four billion barrels of oil equivalent. Further, reserve replacement during the year was 137%. With $6.5 billion in capital investments for the year, the reserve replacement ratio will likely remain robust. At the same time, Occidental has steady production visibility and a quality asset base.
Aker BP ASA (AKRBF)
Aker BP ASA (OTCMKTS:AKRBF) stock trades on the OTC exchange; therefore, the visibility is low. However, the company has immense growth potential, and it would not be a surprise if AKRBF’s stock delivers 3x to 5x returns in the next five years. Besides trading at attractive valuations, the stock also offers a dividend yield of 9.2%.
Aker BP ASA is focused on oil and gas assets in the Norwegian Continental Shelf. As of 2023, the company reported 2P and 2C reserves of 1,716mmboe and 809mmboe, respectively. A solid reserve base provides production upside visibility beyond the decade.
At the same time, Aker BP has a portfolio break-even of $35 to $40 per barrel. Even if oil trades in the range of $90 to $100 per barrel, there is visibility for robust cash flows. Aker BP has an investment-grade balance sheet. The company has grown through a series of mergers and acquisitions. Financial flexibility remains high to pursue inorganic growth.
On the date of publication, Faisal Humayun did not hold (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.
