The energy sector had an underwhelming month of June. The ongoing market rally, driven by the excitement surrounding artificial intelligence, has propelled tech stocks to new heights. But it has also shifted investor attention away from many high-quality energy stocks now trading at a discount.
That said, investors shouldn’t underestimate the potential of energy stocks. As global energy demands surge alongside technological advancements, energy stocks are poised to remain robust assets over the long term. This is evident in the current volatile geopolitical environment, where their critical importance comes to the forefront.
With many energy stocks recording declines in June, an opportunity has been created for those seeking value in the sector. In this article, I have selected three energy stocks that appear to present attractive buying opportunities at their current levels.
These stocks boast strong fundamentals and long-term growth potential, making their recent price declines particularly appealing.
Enbridge (ENB)
Enbridge (NYSE:ENB) has had a rather rough time in June thus far, sliding by roughly 3%. The Canada-based giant is one of the highest-quality players in the energy sector, with a massive asset base of pipelines and terminals in North America. Historically, the stock has proven to be an excellent buy during dips and this time should be no different.
Today, ENB stock appears particularly attractive given its dividend yield, which is at the upper range of its historical average, coupled with a valuation that sits near its historical lows. This combination not only offers substantial income potential but also provides a significant margin of safety against any potential further valuation compression.
Specifically, shares are currently attached to a hefty dividend yield of 7.67%, which is rather sizable even in today’s interest rate environment. In the meantime, the recent dip pushed Enbridge’s forward EV/EBITDA to just 10.7, which is one of the lowest multiples the stock has traded at in the last 20 years.
Combining these attractive traits with Enbridge’s several other qualities, including its tremendous 29-year-long dividend growth track record, it’s easy to see why the stock forms a compelling investment case here today.
Phillips 66 (PSX)
The second energy stock recording share price losses in June is Phillips 66 (NYSE:PSX). The stock has seen a prolonged decline since April, with the current share price of $137 marking a 19% drop from its 52-week highs.
Given this extended downturn, Phillips 66 presents a compelling opportunity for investors looking to boost their exposure to energy sector holdings following the recent sector dip.
I chose Phillips 66 over other oil refining giants, due to its strong position in the sector and easy prospects for capitalizing on higher oil prices. Given the ongoing geopolitical unrest — such as the current war in Ukraine, sustained conflicts like that between Israel and Hamas and escalating tensions in the Middle East exacerbated by the Houthis’ attacks effectively closing the Suez Canal — the potential for oil prices to surge in the short to medium term is compelling.
As an integrated energy company, Phillips 66 stands to benefit from potentially higher oil prices directly, a scenario that would notably strengthen its free cash flow.
Regardless, the stock remains attractively priced even at current oil price levels. Currently trading at 11.9 times and 10.0 times expected earnings for this year and the next, respectively, the stock’s earnings yield is strong. Further, the 3.3% dividend yield, while not the highest among its peers, should meaningfully contribute to the stock’s total return prospects.
Occidental Petroleum (OXY)
The third and final pick on my list of energy stocks to buy on June’s dip is Occidental Petroleum (NYSE:OXY). Just as with Phillips 66, Occidental’s recent share price decline presents a compelling opportunity in the face of potentially rising oil prices.
With a diverse asset portfolio, including major Permian Basin operations, Occidental is well-positioned to benefit from higher oil prices. In such a scenario, its earnings and free cash flow are set to surge.
However, there is another reason I really like Occidental on this dip. In particular, Warren Buffett’s endorsement strengthens my confidence in the oil and gas giant. The Oracle of Omaha has been increasing Berkshire Hathaway’s (NYSE:BRK-A, NYSE:BRK-B) stake in Occidental quarter after quarter since the first quarter of 2020. According to Berkshire’s most recent 13F filings, the conglomerate now holds about 26.5% of Occidental’s stock.
With Buffett continually increasing his stake, his vote of confidence in Occidental carries substantial weight.
Note that unlike many of its peers in the sector, Occidental’s dividend yield seems quite modest. With a yield of just 1.4%, the stock may not attract income-oriented investors, who typically favor energy stocks known for their higher dividend yields.
Occidental has opted instead to prioritize deleveraging, a strategy likely to prove more fruitful over the long term. After a few years of focusing on this strategy, I would expect rather notable dividend increases to follow.
On the date of publication, Nikolaos Sismanis did not hold (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.