Stock Market

The 2022 bear market saw oil stocks shining due to rising oil prices spurred by inflation and geopolitical events.

However, 2023 has seen oil prices halve from their 2022 highs, impacting oil stocks negatively. While the best oil stocks have faced volatility, their modest declines showcase their enduring stability compared to trendier energy investments.

Crude oil hit record lows during the pandemic, then soared above $100 per barrel. Recently, it dropped to $63 per barrel due to growing economic worries tied to tighter monetary policies. Plenty of potential for continued growth is the primary driver for those considering top oil stocks.

Let’s explore the reasons these fundamentally robust companies are a smart choice for investors.

Devon Energy (DVN)

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Devon Energy (NYSE:DVN) posts robust Q2 oil production, targeting 330,000 barrels per day in Q3.

Aggressive buybacks and debt reduction boost shareholder value. With an 8% dividend yield, DVN offers a mix of income and growth potential. True, it carries higher risk and reward, dropping 13% this year but showing a recent 1% decline. This could be hinting at a possible bullish turnaround at a low valuation of 6.9-times earnings.

Moreover, Brent crude and XOP ETF surged over 3 months, but DVN stock lagged due to a minor earnings miss and reduced dividend. Still, DVN shows rebound potential, with maintained full-year production at 643,000 to 663,000 BOE per day. Crude, at 2023 highs, signals increased revenue ahead. Management anticipates lower Q3 capital spending, potentially boosting shareholder returns.

Occidental Petroleum (OXY)

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Warren Buffett’s top pick, Occidental Petroleum (NYSE:OXY), now accounts for over 25% of his portfolio. With a 1.12% dividend yield, OXY offers promise.

It boasts valuable assets in Rockies, Permian Basin, and Gulf of Mexico. Q2 2023 showed $1 billion in free cash flows, with potential for over $5 billion annually as oil prices rise.

Buffett, similar to his view on Bank of America (NYSE:BAC), approves of Occidental Petroleum’s management and growth strategy. The business plan involves acquisitions, and following record profits last year, Occidental is actively buying companies. It recently announced a $1.1 billion acquisition of Carbon Engineering to address carbon dioxide removal from the atmosphere.

The Oracle of Omaha invested in Occidental for its Permian Basin strength, but recent data shows three months of declining production due to costly deep well drilling. Shorter wells may impact revenue, but cost savings could protect profits.

Chevron (CVX)

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Chevron (NYSE:CVX) is a buy now with rising gas prices, strong cash position, and shares near Wall Street’s low target. The recent gas price increase bodes well for Chevron as post-Labor Day demand typically softens.

With a strong balance sheet, Chevron’s equity-to-asset ratio at 0.63x outperforms most in its industry. It has a consistent history of revenue growth and solid net margins. Despite pandemic challenges, Chevron remains profitable, albeit with a slightly higher forward earnings multiple. Investors bet on its remarkable stability.

As Chevron benefits from its record 2022 financial success, it distributed a record $7.2 billion to shareholders in Q2 through dividends and buybacks. Q2 earnings were $6.01 billion, surpassing Wall Street’s expectations, despite being 48% lower than 2022. CVX stock has risen 38% in the past five years, with a substantial 3.61% dividend yield.

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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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