7 Energy Stocks to Buy on the Historic OPEC Production Cuts
The Organization of the Petroleum Exporting Countries (OPEC) and its non-member allies (OPEC+) cut crude oil production by two million barrels per day. Naturally, this action imposes supply flow disruptions that sent prices higher. That also helped create our list of top energy stocks to buy.
Politically, the matter imposes significant consequences. Earlier this year, President Joe Biden met with Saudi Arabia’s royal family in a bid to raise global oil production. Therefore, not only did the Biden administration not get what it wanted, the U.S. lost face from the OPEC+ decision. In addition, Biden himself faced criticism for ignoring Saudi Arabia’s human rights violations. Thus, the backdrop for energy stocks to buy remains contentious.
Still, the net impact for the sector should be positive because of inelastic demand at the baseline of consumption. In other words, people need to get from point A to point B. So they must consume a minimum of fuel. Irrespective of economic factors, then, energy stocks to buy should remain holistically relevant.
Below are some important names to consider.
Exxon Mobil (XOM)
One of the top energy stocks to buy is Exxon Mobil (NYSE:XOM), which is a relatively safe choice. A stout company, Exxon features a massive fiscal profile covering multiple relevant segments in the oil and gas industry. As a result, the company brings to the table a forward yield of nearly 3.5%. It features a 39-year history of consecutive dividend increases so don’t expect that to change anytime soon.
On paper, Gurufocus.com rates XOM stock as fairly valued. I’m not going to complain about that though against cynically bullish fundamentals on the horizon, Exxon may run slightly undervalued. Its strong points include a robust balance sheet, featuring a 0.26 debt-to-equity ratio. This ranks favorably lower than 66% of the energy sector. As well, it prints solid metrics in terms of profitability.
Overall, analysts carry a favorable view of XOM as one of the energy stocks to buy. Among 11 analysts, eight view Exxon as a buy while three view it as a hold.
Another global giant in the hydrocarbon space, Shell (NYSE:SHEL) commands a similar relatively safe profile among energy stocks to buy. Shell gains some props for looking ahead, with the company investing in a renewable hydrogen plant in the Netherlands. As well, Shell provides a forward yield of 3.85% though it lacks a consecutive dividend-increase history.
According to Gurufocus.com, Shell features a modestly undervalued business. For one thing, the company carries a decently stable balance sheet, with a debt-to-EBITDA ratio of 1.06. This ranks favorably below more than 65% of the industry. Second, the company features solid profitability metrics. For instance, its net margin of 11.2% rates above the industry median of 4%.
Also, analysts carry an enthusiastic view of SHEL. Among four experts, three of them rate SHEL a buy while the other rates it a hold. The average price target is $66.25, representing 27.5% upside from the price at time of writing.
One of the most infrastructurally important names among energy stocks to buy, Enbridge (NYSE:ENB) is a midstream specialist. This segment of the industry deals with matters such as storage and transportation of critical commodities and resources. Per its website, Enbridge operates the world’s longest and most complex crude oil and liquids transportation system.
According to Gurufocus.com, ENB rates as modestly undervalued. Although more than a few of its financial figures could use some improvement, the company delivers in terms of profitability. For instance, Enbridge features an operating margin of 14.2%, ranking better than nearly 62% of the competition. As well, the company features at least 10 years of profitability, providing a canvas of reliability.
Per TipRanks, covering analysts feature a consensus moderate buy rating for ENB. Among nine experts, six of them view Enbridge as a buy, with the others calling it a hold. The average price target is $43.68, representing nearly 18% upside from the time of writing.
DT Midstream (DTM)
Another midstream specialist, DT Midstream (NYSE:DTM) is a premier natural gas pipeline, storage and gathering provider. Per a recent press release, DT Midstream “transports clean natural gas for electric and gas utilities, power plants, marketers, large industrial customers, and energy producers across the Southern, Northeastern and Midwestern United States and Canada.”
While the immediate focus on energy stocks to buy centers on crude oil, it’s important to realize that global demand shocks tend to impact both oil and gas. Therefore, it’s worthwhile to broaden your horizon with DTM.
Per Gurufocus.com, the company is heavily oriented toward a growth framework. For instance, its three-year revenue growth rate stands at 20.1%. This stat ranks better than over 86% of other potential energy stocks to buy. However, DT Midstream features slightly less than average ratings for balance sheet stability and profitability.
In other words, if you want to gamble a bit regarding energy stocks to buy, DTM could be compelling. If not, the majors could offer a safer alternative.
Phillips 66 (PSX)
A downstream specialist, Phillips 66 (NYSE:PSX) covers areas such as refining and marketing. Essentially, if the product goes into your car, it’s downstream. However, Phillips 66 also owns midstream assets, providing for a balanced approach to energy stocks to buy. As well, the company provides a forward yield of 4.19%, although there’s only two years of dividend increase history.
According to Gurufocus.com, Phillips 66 features a modestly undervalued business. To get the bad news out of the way first, the company doesn’t exactly have the greatest growth profile. However, a potential increase in demand from further social normalization could benefit PSX stock.
On the positive realm, Phillips 66 enjoys solid strengths in the balance sheet. As well, it features decent profitability. For instance, its return on equity pings at 26.6%, rated higher than almost 79% of the competition.
Perhaps best of all, Wall Street loves PSX stock. Among 10 analysts, eight of them carry a buy rating on the company. The others have a hold rating. Finally, the average price target for PSX stands at $116.11, representing almost 26% upside.
Another downstream player among energy stocks to buy, Delek (NYSE:DK) focuses on refining petroleum. Here, the case for DK centers on the speculative notion of strength begetting strength. On a year-to-date basis, DK gained nearly 86%. However, it’s still down from the peak of this year so some upside room theoretically exists. As well, the fundamentals of the OPEC+ cuts may bode well for Delek in profitability terms.
Fundamentally as well, DK carries a speculative profile. For instance, the company features solid profitability metrics, with a return on equity of over 37%. This rates higher than 86% of the oil and gas industry. However, Gurufocus.com states that Delek is significantly overvalued on paper. In this case, it’s a matter of how much you believe the OPEC+ cuts will positively impact the energy sector.
Historically, DK responds well to investor emotions, which is why it’s on this list of energy stocks to buy. As a parting note, Wall Street is somewhat mixed on Delek. Among 10 analysts, five hold a buy rating, three have it as hold and two rate it as a sell.
Enservco (NYSEAMERICA:ENSV) is one of the top energy stocks to buy on speculation; I repeat, for speculation. Priced at only $1.54 at time of writing, arguably most experts would label ENSV as a penny stock. Here, the narrative focuses on banking on human emotions, not dissimilar to the meme-trade argument.
To be clear, Enservco shares jumped over 69% so far this year. Thus, it’s hardly what you call a complete unknown commodity. At the same time, in the trailing six months, shares declined 17%. Therefore, with the OPEC+ cuts in mind, it could swing higher as discount divers target the opportunity.
Nevertheless, I must stress again the gambling aspect of Enservco. While the business is relevant – the company provides well enhancement and fluid management services to the onshore oil and natural gas industry in the U.S. – its financials lag. Indeed, Gurufocus.com labels ENSV significantly overvalued. However, it ranks incredibly high for technical momentum.
If you’re feeling feisty with money you can afford to lose, take a look at ENSV. Otherwise, the other energy stocks to buy may afford a more reasonable profile.
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On the date of publication, Josh Enomoto 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.