3 Top Energy Stocks With Impressive Upside Potential in 2023

Investors assessing how various sectors will perform in 2023 certainly have their hands full. There are plenty of uncertainties to consider, from central bank-related macro concerns to geopolitical issues and a slowing global economy. What this portends for energy stocks in particular is going to be difficult to ascertain.

That said, I think there’s good reason for investors to consider adding some exposure to energy stocks right now. This is a sector that’s given back much of its gains from last year. However, many of the same catalysts that drove energy stocks higher remain in play.

Thus, for those looking to hedge against market uncertainty this year, the three energy stocks below are among the best in the sector with regard to fundamental strength, industry outlook and financial position.

Marathon Oil (MRO)

Marathon Oil (NYSE:MRO) is one of North America’s leading oil and gas exploration and production companies. Its oil and gas portfolio is well-positioned to benefit from the anticipated improvement in market conditions in 2023.

This is one of the energy stocks I’ve had my eye on for some time as a high-growth play. MRO is off to a slow start in 2023, up just 2.5%. And that includes Friday’s 6.2% pop as oil prices jumped on news Russia plans to cut its oil output by 500,000 barrels a day next month. However, the stock delivered a 67% gain in 2022.

Marathon is scheduled to report fourth-quarter and full-year earnings on Feb. 15. Analysts are calling for EPS of 85 cents, a 10.4% increase over the year-ago quarter. However, I think the company could exceed analysts’ earnings expectations, as it has done in each of the past four quarters. If it does, the stock could see bullish momentum pick up.

For the full year, analysts are forecasting a 44% jump in revenue and for earnings to nearly triple to $4.57 per share. Revenue is expected to decline in 2023, though only by 0.5%, while earnings are estimated to contract by 18.6%.

However, the company recently disclosed that it had successfully completed the acquisition of Ensign Natural Resources’ Eagle Ford assets for a total cash consideration of $3 billion. This is a key driver of bottom-line growth I think the market has yet to price in.

Occidental Petroleum (OXY)

Occidental Petroleum (NYSE:OXY) is another major player in the oil and gas production and exploration space and a favorite of Warren Buffett.

The stock is up 4.2% so far this year, less than the 6.5% gain in the S&P 500. But shares surged 119% in 2022, no doubt helped by the clout of the world’s best-known investor throwing his weight behind the company. In July, Berkshire gained the approval of the Federal Energy Regulatory Commission to buy up to 50% of the oil company’s common stock. Currently, Berkshire owns more than 194 million OXY shares for a 21.4% stake worth approximately $12.8 billion.

Occidental is expected to report fourth-quarter and full-year results at the end of the month. For 2022, analysts are predicting revenue will increase by 41% to $37.2 billion. Earnings per share are estimated to surge 280% to $9.69. As these forecasts show, the company benefited greatly from last year’s elevated energy prices. And while analysts are predicting revenue and earnings will decline this year, Occidental is still expected to earn $6.84 a share on $33.3 billion in revenue.

Analysts’ average 12-month target price of $75.36 is 15% above where shares currently trade. That’s not as impressive as the 53% return over the past 12 months. However, with Buffett in the company’s corner, more upside may be in the cards.

Exxon Mobil (XOM)

Shares of Houston-based Exxon Mobil (NYSE:XOM) are up 8% so far in 2023, marking the best year-to-date performance among today’s top energy stocks.  Over the past year, XOM has gained 53%.

In addition to producing, transporting and selling petroleum products, Exxon is involved in manufacturing synthetic rubber, plastics and other items that will remain in high demand regardless of short-term oil price fluctuations. Moreover, its control over the entire value chain enables Exxon to retain a larger share of the profits it generates than many of its competitors.

On Jan. 31, the company reported a record $56 billion in net profits for 2022. As news organizations were quick to point out, that translates to $6.3 million an hour, or more than $100,000 a minute.

While revenue and earnings are projected to decline this year on lower oil prices,  I think the company will continue to deliver for investors due to its vertically integrated business model and the recent progress with the $8 billion Coral South floating liquified natural gas project in Mozambique. Exxon said the project produced its first LNG cargo in November. 

While XOM may not deliver gains as large as the other energy stocks on this list, it is an excellent option for long-term investors. In addition to producing long-term capital gains, the company pays an attractive dividend for a 3.1% yield. Exxon has raised that dividend in each of the past 40 years.

On the date of publication, Chris MacDonald 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.