Looking ahead to the coming year, now may be the time to consider what are the top energy stocks to watch. Sure, crude oil prices at present are falling back. Concerns about slowing demand are once again outweighing geopolitical developments that have led to brief spikes in crude prices over the past few months.
But while it’s questionable whether crude oil prices will climb back to $90, $100, or even more per barrel, that doesn’t necessarily mean prices are en route to decline in the coming year. Per forecasts from the U.S. Energy Information Administration (or EIA), crude prices appear poised to remain at or near current levels.
Additional unforeseen geopolitical developments could arise over the next twelve months, leading to an unexpected jump in prices. Regardless of crude oil prices, surging natural gas prices could benefit natural gas-focused energy companies.
With this, let’s take a look at seven of the best energy stocks to watch. Whether from favorable price trends, or due to company-specific factors, each one of them has the potential to produce a gusher of gains in 2024.
Chord Energy (CHRD)
Chord Energy (NASDAQ:CHRD) is an independent oil and gas exploration and production (or E&P) company. Formed from the combination of Oasis Petroleum and Whiting Petroleum in 2022, Chord focuses on projects in the Williston Basin.
Rising oil and gas prices have resulted in a strong performance for CHRD stock. Shares have rallied more than 27% year-to-date. Add in Chord’s base and variable dividend payouts over the past ten months (totaling $9.38 per share, or around 5.67% of the current stock price), and shares have delivered very strong total returns in 2023.
In 2024, this performance may continue, given the potential for further gains in fossil fuel prices. Alongside this, on the heels of the recent “merger mania” in the oil patch, one analyst (Truist’s Neal Dingmann) has declared Chord Energy one of the top takeover targets among oil and gas stocks.
Vaalco Energy (EGY)
I’ve previously highlighted Vaalco Energy (NYSE:EGY) as being one of the energy stocks to watch. Largely, because of this E&P’s low valuation, high dividend yield, and the upside potential cost savings wrung out from its merger with TransGlobe Energy last year.
I’ll admit that EGY stock hasn’t exactly set the world on fire in terms of gains, compared to other names in the energy sector. Shares have accrued modest gains (5.18%) since January, although EGY’s 4.97% dividend has helped to boost total returns. However, in the future, Vaalco could produce much stronger returns for investors.
Why? Back in October, the company reported robust production volumes, from its energy projects in Gabon, Egypt, and Canada. A Seeking Alpha commentator also recently noted Vaalco has the potential for further production growth, from the assets acquired in the TransGlobe merger. All of this bodes well for EGY in 2024.
Matador Resources (MTDR)
Matador Resources (NYSE:MTDR) is primarily an E&P, but the company also has a midstream energy segment as well.
This midstream segment generates a small amount of revenue from third parties, and more importantly helps to enhance the profitability of Matador’s main business segment.
Last week, Matador released strong quarterly results and updates to guidance. Reporting record production during Q3 2023, management expects further production growth in 2024. Thanks to a high level of operating cash flow, the company is paying down debt, and in the earnings release announced plans to increase its quarterly fixed dividend, from 15 cents per share to 20 cents per share.
MTDR stock has delivered a mixed performance since this earnings release, yet this may be due largely to recent fossil fuel price action. As focus shifts back to company-specific developments, shares could soon be back on the move toward higher prices.
Obsidian Energy (OBE)
Based in Calgary, Canada, Obsidian Energy (NYSE:OBE) is focused on exploration and production efforts located in the Western Canada Sedimentary Basin.
OBE may be a bit of an under-the-radar play for stateside energy investors, but this may be one of the energy stocks to watch right now, before there is greater awareness of it.
Mostly, because of Obsidian’s production growth potential. In September, Obsidians’ management unveiled a three-year growth plan. By materially increasing production at its Peace River heavy oil project, the company forecasts that it can increase funds from operations.
In turn, this gusher of additional cash will result in a paydown of most of its outstanding debt, leading to a massive increase in free cash flow (from $36 million to $213 million). Achieving this would undoubtedly have a massive impact on OBE stock, given Obsidian’s current market cap is just $673.9 million.
Permian Resources (PR)
Permian Resources (NYSE:PR) is another of the E&Ps considered to be a top takeover candidate, but that’s not the sole reason you should look at this Permian-focused oil and gas firm.
Even if this company does not get acquired during the current hydrocarbon merger wave, PR (up by around 68.9% year-to-date) may continue to deliver strong gains for investors.
Mainly, thanks to its pending $4.5 billion all-stock merger with Earthstone Energy (NYSE:ESTE). Per an investor presentation discussing the merger, this deal is expected to be immediately accretive to all profitability metrics. It could produce estimated annual synergies of $175 million and help to scale up the company into one of the larger players in the Permian.
PR stock has rallied since the deal announcement, yet further upside likely remains, for those who buy and hold as the benefits from this merger take shape.
Vital Energy (VTLE)
Speaking of the Permian Basin, Vital Energy (NYSE:VTLE) is another E&P focused on this prominent oil producing region. Formerly known as Laredo Petroleum, the company took on its current moniker at the start of this year.
Like some of the other energy stocks listed above, Vital last month provided investors with promising updates.
In a press release discussing preliminary Q3 2023 results, management revealed that the company’s production during the quarter exceeded outlook. These better-than-expected production figures point to Vital’s quarterly results (set to be released post-market on Nov. 2) exceeding prior expectations.
With the stock trading at a heavily-discounted 2.7 times forward earnings, an earnings beat, plus further positive updates to guidance, may lead to a much-deserved re-rating for VTLE stock. Even a re-rating to, say, 5 times forward earnings (still a reasonable multiple for an E&P) would mean big gains for investors buying today.
Vitesse Energy (VTS)
In contrast to Vital, Vitesse Energy (NYSE:VTS) doesn’t sport a super low valuation. In fact, trading for 14.1 times forward earnings, shares may seem downright pricey compared to other names in the energy space. That said, Vitesse’s rich valuation is sustainable.
VTS stock seems expensive compared to current year results, but take into account expected earnings growth. In 2024, analysts forecast that earnings will rise from $1.72 to $2.60 per share. Production growth, plus recently announced acquisitions, points to these forecasts panning out. Well ahead of stronger results, analysts at Roth MKM have upgraded VTS, giving it a $30.50 per share price target.
That represents 28.75% upside compared to Vitesse’s current stock price. This oil and gas firm also offers investors high dividend payouts. Paying out a quarterly dividend of 50 cents per share, VTS has a forward dividend yield of around 8.44%.
On the date of publication, Thomas Niel 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.