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All Contents © 2019The Kiplinger Washington Editors
By Laura Hoy
| June 23, 2017
It’s been nearly three years since the energy sector has had any kind of a meaningful recovery, and rightly so as crude oil prices have been hammered to about half of their 2014 prices. For that reason, energy stocks have been a risky bunch over the past few years because their share prices suffer with every new oil woe.
However, as master investors Warren Buffett once said, “be greedy only when others are fearful.” That is certainly the case when it comes to picking energy stocks to buy in the oil patch.
If you have a long-term view, now is the time to add energy stocks to your portfolio. That’s because there are quite a few solid companies out there going for bargain-basement prices.
Chevron Corporation (CVX), EOG Resources Inc (EOG), and Pioneer Natural Resources (PDX) are three such companies that have all lost ground so far this year after the much awaited oil recovery was a flop. Just don’t expect them to stay that way for long.
Prices and data are from the original InvestorPlace story published on June 21, 2017. Click on ticker-symbol links in each slide for current prices and more.
CVX is a good oil stock to add to your portfolio because the company has proven itself to be resilient even during tough times.
Chevron Corp is a dividend aristocrat, meaning that it has raised its dividend every year for more than 25, even when crude oil prices were down around $30 per barrel. The firm’s cost-cutting measures have helped the company keep shareholders happy and the stock buoyant.
With a dividend yield of 4%, CVX is a good stock to keep around and even if crude prices remain near $50 per barrel for some time, Chevron’s management is likely to do everything it can to maintain its dividend aristocrat status.
The future is looking bright for CVX — the company’s most recent earnings results suggested that the company is in rebound mode and investors who jump on board now will be able to reap the benefits.
EOG is another great oil stock in the energy sector because the firm is profitable now. Unlike many of its peers, EOG spent the past three years overhauling its operations to ensure that the company could make money, even with crude prices low.
Its premium wells are able to produce much more oil for a far lower cost, meaning oil prices of $50 per barrel are still a boon for EOG.
The benefit of this is that EOG is able to spend on the future while other companies are trying to cut down. Management is planning to up production by 18% this year and the company has been spending its excess cash on premium wells because of their outstanding profitability.
That makes EOG one of the safer bets in the energy space, because the company is able to operate smoothly even if prices remain at their current levels, but an increase would mean more cash in EOG’s coffers.
PXD is another pretty safe bet in the energy space because management has said the firm would be able to break even at just $20 per barrel. Furthermore, PXD is able to turn out a substantial profit at just $40 per barrel.
With crude prices hovering at around $45 at the moment, that’s a huge leg up on the competition. Not only is the company able to operate successfully in the current environment, but there’s a pretty thick cushion in case prices drop even further.
Additionally, PXD has been working to hold on to its cash flow to avoid needing additional lines of credit to finance operations.
That’s a big deal in the industry, because most of PXD’s peers have had to take out loans to keep themselves afloat.
This article is from Laura Hoy of InvestorPlace. As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
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