Stock Market Crash Alert: 3 Must-Buy Energy Stocks When Prices Plunge

Stocks to buy

Energy stocks provide investors with an opportunity to diversify their portfolios. A particularly good time to look for energy stocks to buy is during times of inflation. Rising oil and gas prices allow these stocks to act as a hedge.

That dynamic can be seen in the performance of the iShares U.S. Oil & Gas Exploration ETF (CBOE:IEO). The index has an average return of 16.65% in the last five years compared to the 14.6% return of the S&P 500 index. And in 2024, the IEO index is up 16.8%, with the S&P 500 up just 7.5%. (CBOE:IEO). The index has an average return of 16.2% in the last five years compared to the 14.6% return of the S&P 500 index. And in 2024, the IEO index is up 16%, with the S&P 500 up just 7.5%. 

Much of the S&P’s underperformance has come in April. But with some leading economic indicators projecting the possibility of a period of higher-than-normal inflation, with slowing economic growth (i.e., stagflation) energy stocks are likely to outperform the market for the rest of the year. 

That means it’s not too late to get in on the energy trade. Here are three energy stocks to buy with the potential for significant upside coupled with attractive dividend yields.

Chevron (CVX)

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Chevron (NYSE:CVX) is an integrated oil and gas company that appears to be only at the beginning of a bullish rally. The company delivered its first-quarter earnings report on April 26. Earnings were down year-over-year (YOY) due to slimmer margins on the company’s refined product sales and lower natural gas prices. That was partially offset by increased U.S. oil production, which is why profits were still higher than analysts’ forecast.

Chevron continues to have a fortress balance sheet, which generated $6.8 billion in cash flow from operations in its most recent quarter. The oil and gas giant also rewarded shareholders with $3 billion in share buybacks and an equal amount in dividends. That dividend has a yield of 3.93% and has been growing for 37 consecutive years.

CVX stock is down 1.1% in the last 12 months but is up 11% year-to-date. Analysts are projecting an additional 15% increase in the stock price at the high end. At a forward P/E ratio of 13.02x, the stock still trades at a significant value to the broader market.

Kinder Morgan (KMI)

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Kinder Morgan (NYSE:KMI) is a midstream oil company. That means it’s responsible for moving products such as crude oil and natural gas through a network of pipelines. One reason to own KMI stock is that the company owns one of the largest networks of pipelines in North America. 

Those agreements come with large, multi-year contracts that ensure consistent revenue. However, the company’s profitability relies in large part on the price of the underlying commodity. That’s a reason KMI stock has been range-bound for much of the last five years.

Kinder Morgan is heavily focused on natural gas. As the company made note of in its conference call, utility companies throughout the United States are warning of significant natural gas demand, largely coming from data centers that will need to meet the demands of artificial intelligence (AI).

That demand wasn’t reflected in Kinder Morgan’s most recent earnings report. Analysts have yet to weigh on the earnings report. But with KMI stock already up 5.5% for the year, bullish analyst sentiment combined with increased natural gas demand will make this one of the energy stocks to buy to beat the market. 

SLB (SLB)

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SLB (NYSE:SLB) is the company formerly known as Schlumberger. The company provides products and services for the upstream oil and gas industry. One of the company’s specialties is providing assistance for offshore oil drilling. It is a more environmentally friendly way to extract oil.

And despite OPEC’s pledge to cut oil production, SLB expects to see increased demand in 2024 for offshore drilling in Saudi Arabia. The company has also scored some additional wins in the form of three new contracts from Petrobras (NYSE:PBR).

That bullish outlook should allow investors to focus on SLB stock, which looks fundamentally undervalued. In the company’s first quarter 2024 earnings report, it reported a 13% year-over-year (YOY) increase in revenue, and a 19% YOY increase in earnings per share (EPS). Since the earnings report, analysts are weighing in with ratings and average price targets that support a potential 28% upside in the stock.

On the date of publication, Chris Markoch had a long position in CVX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.

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