Although prices for crude oil and natural gas have moderated in recent days, they remain at their highest levels in more than five years and energy stocks remain the best performing securities of 2022. The S&P 500 Energy Sector Index is up nearly 40% on the year compared to a year-to-date loss of 3% for the broader S&P 500 index.
Energy stocks continue to benefit from crude oil prices that remain above $105 a barrel, their highest level since 2014, as well as elevated natural gas prices.
With no immediate end in sight to the war in Ukraine and the Organization of the Petroleum Exporting Countries and its allies (OPEC+) indicating that they plan to keep oil production at current levels despite global supply constraints, oil prices are expected to remain aloft for several more months. Many analysts continue to forecast that oil prices will exceed $150 a barrel this year.
While bad news for consumers, the higher prices are helping oil companies and their share prices recover from the ravages of the global pandemic. Here are three top oil stock picks for investors to consider buying.
Top Oil Stocks Right Now: Devon Energy (DVN)
Oklahoma City-based Devon Energy is a good pick right now because the company is not just a leading oil company, it is also a major producer of natural gas and natural gas liquids at a time when those energy products are in high demand.
The U.S. just struck a deal with the European Union (E.U.) aimed at reducing the continent’s reliance on natural gas from Russia. The U.S. has promised to provide Europe with at least 15 billion cubic meters more of liquified natural gas (LNG) by year’s end. The goal is to wean European countries such as Germany and France off natural gas that comes from Russia. Currently, Russia provides 40% of Europe’s energy needs.
The new pact focused on natural gas is good news for Devon Energy as 27% of the company’s reserves are concentrated in natural gas liquids, with another 29% in pure natural gas. At the same time, natural gas prices have followed prices for crude oil higher. Year-to-date, natural gas prices have risen 58% with analysts calling for a continued rise leading into the warm summer months.
CNBC host Jim Cramer recently said that owning DVN stock is an “insurance policy against continued geopolitical chaos.” Devon Energy’s share price is up 38% year to date at $60.80. It has moved higher alongside rising oil and natural gas prices since January.
Marathon Oil (MRO)
Another diversified energy company that deals in natural gas as well as oil products is Houston, Texas-based Marathon Oil. A direct descendant of John D. Rockefeller’s Standard Oil Company, Marathon Oil today is one of the preeminent energy companies in America.
Its stock has skyrocketed this year as the price of crude oil has surpassed $100 a barrel and global demand for natural gas has surged. So far in 2022, MRO stock has gained 57% to now trade at $25.75. Over the past 12 months, Marathon Oil’s share price has increased 134%, making it one of the best performing stocks.
In addition to the company’s huge share price appreciation, other reasons to like MRO stock are its 1.12% dividend yield, $3 billion stock buyback program and a price-to-earnings (P/E) ratio of less than 10, which is comparatively low when measured against its peers. Plus, Wall Street analysts forecast that the company’s earnings will about double this year, pushed higher by oil and natural gas prices that are expected to remain elevated leading into summer.
If there is one caution for investors, it is that Marathon Oil’s stock is currently trading near its 52-week high of $26.22. A pullback in the near-term might occur. However, long-term, this remains a top energy pick.
Top Oil Stocks Right Now: Occidental Petroleum (OXY)
The oil stock that has arguably gotten the most attention and had the best run so far this year is Houston-based Occidental Petroleum. That is owing, in large part, to the massive investment that Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, BRK.B) holding company has made in Occidental Petroleum.
OXY stock was sharply higher prior to news of Buffett taking a stake, but has gained even more since it was revealed in mid-March that Berkshire Hathaway has purchased 136.4 million common shares of the oil major valued at $7.2 billion. Berkshire Hathaway now owns 13% of Occidental Petroleum’s shares.
Through the year’s first quarter, OXY stock has risen 103% to now change hands at $56.79 per share. Over the last year, the share price is up 115%.
Aside from Berkshire Hathaway buying shares hand over fist, the company’s stock has also benefitted from the successful conclusion of its acquisition of energy company Anadarko, which was first announced in 2019. While the Anadarko purchase left Occidental Petroleum with $30 billion of long-term debt, the company is working aggressively to pay that debt down, announcing plans to get it down below $25 billion by April of this year. Tightening up its balance sheet should only serve to further lift Occidental Petroleum’s stock in coming years.
On the date of publication, Joel Baglole 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.
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