While it might not seem plausible at first glance, the narrative of oil stocks to buy is making a comeback. True, the Federal Reserve and its largely aggressive measures to tackle inflation through raising the benchmark interest rate in principle drive down the price of commodities, including hydrocarbon products. However, a few factors contribute to the sector’s rise.
First, the revenge travel phenomenon that dominated business headlines in 2022 continues to play a strong role this year. Some of it has to do with Asian countries opening up near the back half of 2022 to early 2023. Therefore, even with the Fed’s hawkish policy, energy stocks have ticked higher recently. Second, the return-to-office pivot will likely undergird oil and gas stocks. It’s at a point now where big corporations like Amazon (NASDAQ:AMZN) are warning their employees about ignoring in-office mandates. It’s almost certain that worker bees will acquiesce because they don’t have unlimited funds.
So, whether we like it or not, oil and gas stocks may continue to rise throughout this year. Below are some names to consider.
An integrated play among oil stocks to buy, Chevron (NYSE:CVX) deals with all components of the energy value chain: upstream (exploration and production), midstream (storage and transportation), and downstream (refining and marketing). Since the start of the year, CVX slipped about 6%, which doesn’t seem encouraging. However, in the trailing month, it’s up nearly 3%.
Fundamentally, Chevron offers relatively stable exposure for those seeking energy stocks. Aside from a blip in 2016 and, of course, in 2020, the company is consistently profitable. It commands a trailing-year net margin of 14.09%, beating out almost 68% of its peers. As well, it features a return on asset (ROA) of 11.76%, outflanking 78.81% of sector rivals.
Currently, Wall Street analysts peg CVX as a consensus moderate buy. This assessment breaks down as 11 buys, six holds and zero sells. Further, the experts’ average price target lands at $188.06, implying almost 15% upside potential.
Kinder Morgan (KMI)
A specialist in the midstream component of the energy value chain, Kinder Morgan (NYSE:KMI) offers a vital connection between enterprises that produce raw hydrocarbons and entities that refine the material for use in various applications, including into our combustion-powered vehicles. From a year-to-date perspective, KMI doesn’t seem that impressive, down more than 1%. However, in the past month, it’s shown modest signs of life.
Fundamentally, this framework should improve, especially if more cars are on the road due to social normalization protocols (such as the return to the office). To be fair, it’s a bit riskier than other oil stocks to buy. For example, shares trade at a forward multiple of 15.26, which is quite overvalued. However, investors shouldn’t ignore that it’s been consistently profitable over the past decade.
That’s not surprising given the relevance of midstream operators. Presently, analysts peg KMI as a consensus moderate buy. This assessment breaks down as three buys, six holds and zero sells. Also, the average expert price target lands at $20.88, implying over 17% upside potential.
Phillips 66 (PSX)
A downstream specialist, Phillips 66 (NYSE:PSX) deserves closer consideration regarding oil stocks to buy. Data from the U.S. Federal Highway Administration shows that vehicle miles traveled have been steadily increasing since the doldrums of the Covid-19 pandemic. It’s not quite to the levels seen prior to the public health crisis. But that’s also the upside opportunity for PSX stock.
Basically, the underlying company’s total addressable market should theoretically only rise from here. That’s not a guarantee, to be clear. However, social trends point to the normalization of pre-pandemic standards, not to what we believe the post-pandemic paradigm should be. Therefore, the downstream component of energy stocks should warrant closer investigation.
Notably, Wall Street analysts aren’t waiting around for retail investors to wake up. Presently, they tag PSX as a consensus moderate buy. This assessment breaks down as eight buys, three holds and zero sells. Also, the average price target comes in at $125.70, implying almost 8% upside potential.
Devon Energy (DVN)
An independent entity among oil and gas stocks, Devon Energy (NYSE:DVN) offers investors a higher-risk, higher-reward profile. For example, DVN slipped more than 13% since the beginning of this year. Obviously, that’s not a great look, especially compared to the supermajors. However, Devon is attempting to claw back from its hole. In the trailing one-month period, shares have “only” lost a little more than 1%.
Again, that’s not necessarily an encouraging look for risk-intolerant investors. However, should you believe in the pivoting fundamentals to a bullish outlook, DVN should offer substantially more upside. In the meantime, prospective buyers of oil stocks may consider the value proposition. For instance, DVN trades at a trailing multiple of 6.9. As a discount to earnings, Devon ranks better than 60% of other energy stocks.
Looking at Wall Street, analysts peg DVN as a moderate buy. This assessment breaks down as eight buys and seven holds. Further, the average price target hits $61.87, implying nearly 23% upside potential.
One of the biggest oilfield services companies, Halliburton (NYSE:HAL) provides products and services for the ever-evolving needs of the energy industry, per its website. While market participants often focus on “direct” plays regarding oil stocks to buy, an enterprise like Halliburton deserves closer attention. After all, if demand for hydrocarbons picks up, sector-related services firms will likely ride coattails.
Notably, HAL gained slightly over 8% since the beginning of this year. In the trailing one-month period, shares swung up over 7%. Given the fundamental rise in energy stocks, Halliburton may have more room to run. Therefore, I’m not particularly worried about its earnings multiples, which admittedly run on the high side. Instead, I’m focused on compelling metrics, such as stronger-than-average operating and net margins.
Also, the Street has spoken, with HAL earning a unanimous strong buy. And that’s not a cheap unanimous vote as it’s among 15 experts. Further, their average price target stands at $45.50, implying nearly 12% upside potential.
Unquestionably one of the hottest names among oil stocks to buy, Transocean (NYSE:RIG) is the world’s largest offshore drilling contractor based on revenue, per its public profile. On a technical level, RIG has acutely felt the bullish pivot in the hydrocarbon space. Since the start of the year, shares have nearly doubled in value. They continue to impress, with shares gaining over 7% in the past 30 (calendar) days.
Fundamentally, Transocean symbolizes the dramatic sentiment shift in the offshore oil space. During the worst of the Covid-19 pandemic, offshore oil drillers ranked among the worst investments of 2020. Now, it’s one of the best plays. Further, despite their significantly overvalued profile (based on commonly gauged valuation metrics), there could be more upside remaining.
Basically, normalization trends will continue to positively undergird energy stocks. And you know what? Analysts agree, pegging RIG a moderate buy. As well, the high-side price target of $12 calls for almost 40% upside potential.
Pioneer Natural Resources (PXD)
One of the top independent oil and gas stocks, Pioneer Natural Resources (NYSE:PXD) is off to a solid start compared to sector rivals. Since the beginning of this year, PXD gained almost 8%. Most impressively, in the trailing one-month period, shares swung up nearly 10%. For those that want a more adventurous idea in the hydrocarbon space, PXD could fill this niche.
Financially, Pioneer offers a well-balanced profile. Overall, it commands solid fiscal stability, as evidenced by its Altman Z-Score of 3.92. Operationally, Pioneer prints a three-year revenue growth rate (per-share basis) of 18.7%, beating out 67.41% of its peers. Further, its net margin clocks in at 28.39%, above 80.23% of the competition.
Lastly, analysts are generally enthusiastic about PXD, although some doubters exist. Overall, the consensus view is a moderate buy. This rating breaks down as eight buys, nine holds and two sells. Finally, the average price target comes out to $252.11, implying over 6% upside.
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.