published 9 December 2022
The best energy stocks had an impressive run in 2022. The energy sector is up roughly 50% for the year-to-date as of this writing – easily outperforming the broader equities market. What’s more, it is the only sector to post a double-digit percentage gain on the year.
But what’s in store for energy stocks and energy ETFs in 2023?
Globally, oil prices continue to be volatile due to geopolitical uncertainty and weakening oil demand, especially from China. As China takes action to contain rising COVID cases, demand for oil in that country is cooling – and that has pressured crude futures in recent weeks.
And as recession risks abound heading into the new year, “global oil demand should slow further,” says Francisco Blanch, head of Global Commodities and Derivatives Research at BofA Global Research. Still, Blanch sees “upside to oil prices from the European Union’s Russia oil embargo, a faster-than-projected China reopening, and a potential Fed pivot in the first quarter of 2023.”
As such, investors would be wise to keep a close eye on energy stocks heading into the new year. But not all are created equal.
Read on as we look at eight of the best energy stocks to buy now. To compile the list, we turned to the TipRanks database (opens in new tab). Each of the names featured here boasts either a Strong Buy or Moderate Buy rating from Wall Street analysts, and each offers major upside potential based on their consensus price targets.
Data is as of Dec. 8. Stocks are listed in reverse order of the amount of upside potential implied by TipRanks-surveyed analysts’ consensus price targets.
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Kinder Morgan Market value: $39.9 billionTipRanks consensus price target: $20.38 (14.7% upside potential)TipRanks consensus rating: Moderate BuyKinder Morgan (KMI (opens in new tab), $117.77) is a large energy infrastructure company in North America. The company owns an interest in or operates around 83,000 miles of pipelines, 141 terminals, and has 700 billion cubic feet of working natural gas storage capacity. KMI also has renewable natural gas generation capacity of approximately 2.2 billion cubic feet (Bcf) per year of gross production.
In the third quarter, while the company’s revenues grew, earnings fell short of estimates. KMI posted revenues of $5.2 billion, up 35.4% year-over-year. The company reported adjusted earnings per share (EPS) of 25 cents, up 14% year-over-year, but below the consensus estimate of 29 cents (opens in new tab).
KMI’s board of directors approved a quarterly cash dividend of 27.75 cents per share ($1.11 on an annualized basis), payable on Nov. 15 to stockholders of record as of the close of business on Oct. 31.
“During the quarter, we took several steps to increase value for our shareholders, including progressing expansion projects and selling a 25.5% equity interest in Elba Liquefaction Company (ELC) for approximately $565 million, which implies an approximately 13 times enterprise value to EBITDA [earnings before interest, taxes, depreciation and amortization] multiple,” said Kinder Morgan President Kim Dang (opens in new tab). “We used those proceeds to reduce short-term debt and create additional capacity for attractive investments, including opportunistic share repurchases.”
Following the Q3 results, Mizuho Securities analyst Gabe Moreen (opens in new tab) reiterated a Buy rating and a price target of $22 on the stock. “We believe some of the headwinds that challenged KMI in 3Q22, such as the Freeport LNG outage and a struggling commodity tape, will persist through the remainder of the year,” Moreen said. As a result, the analyst lowered his Q4 EBITDA budget estimates by $43 million, which brings his full-year estimate to $7,413 million.
The analyst pointed out that his Buy rating is based on “improving balance sheet and quality project backlog levered to gas macro.” Moreen’s price target implies upside potential of 22% to current levels.
Other analysts on Wall Street are cautiously optimistic about KMI, with three out of eight surveyed by TipRanks rating the stock a Buy. See what else the pros have to say about KMI on TipRanks (opens in new tab).
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Schlumberger Market value: $70.8 billionTipRanks consensus price target: $58.71 (17.6% upside potential)TipRanks consensus rating: Strong BuySchlumberger (SLB (opens in new tab), $49.92) is an oil exploration and production (E&P) company headquartered in Houston, Texas. The firm recently rebranded itself as SLB with a focus on decarbonization.
Shares of SLB have skyrocketed by more than 62% in the past year, driven by higher oil prices and solid third-quarter results.
The company reported Q3 revenues of $7.5 billion, up 28% year-over-year, driven by a jump in its international revenues, which grew 26%. Diluted earnings came in at 63 cents per share, an increase of 75% year-over-year and exceeding Street estimates of 55 cents per share (opens in new tab).
Moreover, SLB’s board of directors approved a quarterly cash dividend of 17.5 cents per share. In November, SLB announced that it intends to increase its quarterly cash dividend by 43% to 25 cents per share, beginning with the April 2023 payout.
While Schlumberger’s management acknowledged that macroeconomic concerns remained, “the urgency to restore balance [is] resulting in a supply-led upcycle, characterized by the decoupling of upstream investment from near-term demand volatility.”
“Furthermore, the need for sustained investments is reinforced by the long-term demand trajectory through the end of the decade and by OPEC+ decisions that are keeping commodity prices at supportive levels,” added Schlumberger CEO Olivier Le Peuch.
Wells Fargo’s top-rated analyst, Roger Read, is upbeat about SLB with a Buy rating. He also has a Street-high price target of $69 on the stock, representing implied upside of 38.6% from current levels.
Read commented on SLB’s Q3 results, “SLB posted positive EPS/EBITDA beats on impressive Well Construction and Production Systems performance supported by continued net pricing improvements,” Read said in reaction to SLB’s Q3 earnings. “Increased activity in the offshore and international markets presents upside for strong international servicers in our view, which is why SLB remains our top pick in the sector.”
The Street is also bullish on one of the best energy stocks for 2023, with a unanimous 18 Buys among analysts that have sounded off over the past three months. TipRanks offers up a full analyst rundown of SLB shares (opens in new tab).
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Phillips 66 Market value: $47.7 billionTipRanks consensus price target: $124.82 (23.7% upside potential)TipRanks consensus rating: Moderate BuyPhillips 66 (PSX (opens in new tab), $100.90) is a diversified energy company that processes and markets fuels worldwide. While the Houston, Texas-based firm’s fuel products primarily come from petroleum refining, it is also active in the natural gas trade and supplies chemicals and specialty products to global markets.
Shares of PSX have shot up by more than 40% in the past year, fueled by higher prices for commodities and strong Q3 results.
PSX posted revenues of $48.8 billion in Q3, a jump of 54.9% year-over-year. Adjusted earnings came in at $6.46 per share, exceeding Street estimates of $5.05 per share (opens in new tab).
More encouragingly, earlier this month, the company outlined plans to increase shareholder distributions to a range of $10 billion to $12 billion by the end of 2024 through stock buybacks and dividends. In addition, PSX’s board of directors approved a $5 billion increase to the company’s share repurchase program, which brings the total amount of stock buybacks authorized by the board since 2012 to $20 billion.
Phillips 66 also intends to ramp up its adjusted EBITDA by $3 billion over the next three years “through its proposed 87% interest in DCP Midstream, execution of Rodeo Renewed and other projects, as well as sustainable cost reductions from its Business Transformation.”
DCP Midstream is engaged in the business of gathering, processing, transporting, storing and marketing natural gas. In August, Phillips increased its economic interest in this venture from 28.3% to 43.3%. DCP Midstream is a master limited partnership between PSX and Enbridge.
Top-rated Jefferies analyst Lloyd Byrneis is sidelined on the stock with a Hold rating, but recently raised its price target to $120 from $105. The analyst expects that PSX is likely to generate free cash flows of approximately $16 billion from 2023 to 2025 and return around $10.5 billion to stockholders in the same period.
Byrne believes that the upside to his estimates depends on the “successful execution on renewable fuels projects, including Rodeo conversion, and acquisition of publicly held units of DCP at an attractive price.”
Most Wall Street analysts are cautiously optimistic about the energy stock with a consensu rating of Moderate Buy based on nine Buys and four Holds. See the full rundown of analyst ratings for PSX on TipRanks (opens in new tab).
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Pioneer Natural Resources Market value: $52.6 billionTipRanks consensus price target: $285.27 (24.4% upside potential)TipRanks consensus rating: Moderate BuyPioneer Natural Resources (PXD (opens in new tab), $221.28) is an oil exploration and production company with its headquarters in Irving, Texas. The company’s exploration projects include the Permian Basin, Eagle Ford Shale, Rockies and West Panhandle projects.
In Q3, PXD reported revenues of $6.09 billion, up 36.5% year-over-year. The company generated strong free cash flows of $1.7 billion in the third quarter, while adjusted income came in at $7.48 per share, exceeding Street estimates of $7.25 (opens in new tab).
The oil giant bought $500 million worth of shares during the third quarter. For Q4, the company’s board of directors declared a quarterly base-plus-variable dividend of $5.71 per share. This includes a $1.10 base dividend and a $4.61 variable dividend. This dividend indicates a total annualized dividend yield (opens in new tab) of approximately 9% for PXD.
Higher commodity prices have benefitted PXD, and the stock has jumped by around 22% in 2022.
For the full fiscal year, Pioneer Natural Resources expects its capital expenditures to range between $3.6 billion and $3.8 billion and anticipates this to be fully funded by its fiscal cash flows of more than $12 billion.
The company has forecasted full-year oil production to range from 350 to 365 thousand barrels of oil per day (MBOPD) and total production of 623 to 648 thousand barrels of oil equivalent per day (MBOEPD).
For Siebert Williams Shank analyst Gabriele Sorbara, PXD’s fourth-quarter production guidance remains a concern. In Q4, Pioneer Natural Resources has guided for oil production to average between 346.5 and 361.5 MBOPD, and total production is expected to average between 655 to 680 MBOEPD.
Sorbara sees this guidance as “a wash with oil production guidance set slightly below expectations on a lower‐than‐expected implied capex guidance.”
Still, the analyst is upbeat about PXD’s “peer leading capital returns framework which drove $1.86 billion of base‐plus‐variable dividends and buybacks based on the third quarter of 2022.”
While Sorbara has a Hold rating on the stock, other Wall Street analysts are cautiously optimistic. PXD has a Moderate Buy consensus rating based on eight Buys, six Holds and one Sell. Check out Wall Street’s average, highest and lowest price targets for PXD on TipRanks. (opens in new tab)
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EOG Resources Market value: $73.2 billionTipRanks consensus price target: $157.45 (26.4% upside potential)TipRanks consensus rating: Strong BuyEOG Resources (EOG (opens in new tab), $124.57) is an American company engaged in the exploration, development, production and marketing of crude oil, natural gas and natural gas liquids (NGLs). The firm has reserves in the U.S. and Trinidad, and as of Dec. 31, 2021, it had net proved reserves of 3.7 million barrels of oil equivalent (MMboe). These reserves were made up of 41% crude oil and condensate, 22% NGLs and 37% natural gas.
EOG posted revenues of $7.6 billion in Q3, a jump of 59.3% year-over-year. Adjusted earnings came in at $3.71 per share versus $2.16 in the same period a year ago. Analysts were expecting adjusted EPS of $3.74 (opens in new tab).
The company continued to generate strong free cash flows of $2.3 billion in Q3 versus $1.36 billion in the same period last year.
In addition, EOG declared a quarterly dividend of 82.5 cents per share, a rise of 10% with an annualized dividend of $3.30 per share.
Top-rated analyst Gabriele Sorbara from Siebert Williams Shank is upbeat about EOG’s Q3 results and estimates that based on the company’s base plus special dividend of $2.325 per share and its Q3 results, EOG Resources will ” return $1.36 billion to shareholders via its base‐plus‐special dividend, representing 59.8% of its third-quarter free cash flow and a 6.7% dividend yield.”
The analyst adds that EOG “has a long track record of exceeding its guidance on both production and capex.”
Indeed, even in Q3, EOG’s production of oil, natural gas and natural gas liquids was well above its midpoint guidance. However, capital expenditures of $1.16 billion was below the midpoint of its outlook.
Sorbara is also positive about EOG’s new position in the Ohio-Utica Combo play by acquiring 395,000 net acres with a combined cost of entry of less than $500 million.
As a result, the analyst maintained a Buy rating on the stock with a price target of $160. Sorbara believes that EOG’s “track record of execution and shareholder returns with its cash-rich balance sheet” provides “differentiation and optionality, in our view.”
Investors share Sorbara’s optimism, as the stock has shot up more than 40% in 2022.
EOG is another of the Strong Buy-rated energy stocks featured here, thanks to 18 Buys and just two Holds among analysts who have released notes over the past three months. Check out other analysts’ price targets and analysis for EOG at TipRanks. (opens in new tab)
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ConocoPhillips Market value: $143.1 billionTipRanks consensus price target: $142.82 (26.8% upside potential)TipRanks consensus rating: Strong BuyConocoPhillips (COP (opens in new tab), $112.60) is an oil E&P company, with its headquarters in Houston, Texas. COP has operations in 13 countries and total assets worth $95 billion. In the first nine months of this year, its production averaged 1,731 million barrels of oil equivalent on a daily basis.
The oil giant reported solid Q3 results, with revenues of $21.6 billion, soaring 86.1% year-over-year. ConocoPhillips posted adjusted earnings of $3.60 per share, more than double its earnings of $1.77 in the same period last year. This exceeded Street earnings estimates of $3.41 per share (opens in new tab).
“ConocoPhillips distributed $4.3 billion to our shareholders in the third quarter and announced an increase to our ordinary dividend effective in the fourth quarter,” said Ryan Lance, CEO of ConocoPhillips, in the company’s press release. “Our Lower 48 business unit accomplished record production of more than 1 million barrels of oil equivalent per day.”
The company also upped its quarterly dividend by 11% to 51 cents per share and raised its existing share buyback authorization by $20 billion.
COP anticipates full-year oil production to be 1.74 million barrels of oil equivalent a day. However, the company raised its capex guidance to $8.1 billion from $7.8 billion, “reflecting inflationary impacts and partner-operated well mix in the Lower 48.”
The Lower 48 is COP’s largest business segment based on oil production, with 10.8 million net acres.
COP has been one of the best energy stocks this year, with shares up nearly 60%.
Neal Dingmann, Truist’s top-rated analyst, is bullish on the stock, with a Buy rating and a Street-high price target of $167. The analyst considers COP to be in an “enviable financial and operational position with nearly no debt, record production, and sizable, quality inventory.” And while Dingmann concedes that he has “received some investor pushback that has focused on the company’s stock hitting a recent all-time high, we point out that the valuation still looks very reasonable with the shares trading at a ~15% free cash flow yield and ~4.4x earnings basis; both 20%+ discounts to its closest peers.”
Of the 18 analysts who have sounded off on COP stock over the past three months, 15 say it’s a Buy. TipRanks offers a full analyst rundown of COP shares (opens in new tab).
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Valero Energy Market value: $46.3 billionTipRanks consensus price target: $150.30 (28.6% upside potential)TipRanks consensus rating: Strong BuyValero Energy (VLO (opens in new tab), $116.90) is an American oil refinery that manufactures and markets transportation fuels and other petrochemical products. The company’s diversified refinery base is located throughout the U.S., Canada and the U.K.
The company posted revenues of $44.5 billion in Q3, up 50.6% year-over-year. Adjusted earnings came in at $7.14 per share, more than quadrupling earnings of $1.33 from the year-ago period and handily beating analysts’ estimates of $6.80 (opens in new tab).
“Refining fundamentals remain strong as product demand through our system has surpassed 2019 levels, while global product supply remains constrained due to capacity reductions and high natural gas prices in Europe are setting a higher floor on margins,” said Joe Gorder, Valero’s chairman and CEO.
Valero is also aggressively reducing its debt, slashing it by $1.3 billion in September. Since the second half of 2021, the company has reduced debt on its balance sheet by around $3.6 billion.
At the end of Q3, the oil refinery had a total debt of $9.6 billion and cash and cash equivalents of $4 billion, with a debt to capitalization ratio, net of cash and cash equivalents of approximately 24%. In contrast, the company had a debt-to-capitalization ratio of 40% as of March 31, 2021.
Valero declared a quarterly cash dividend of 98 cents per share payable on Dec. 8 to holders of record at the close of business on Nov. 17, 2022.
Following the positive Q3 results, top-rated analyst Ryan Todd from Piper Sandler lifted his price target to a Street-high $177 from $147. The analyst’s new price target implies upside potential of 47.3% to current levels – even after one of the Street’s best energy stocks has seen a strong rally of nearly 70% this past year.
Todd pointed out that the recent third quarter results from independent refiners and “persistent systemic tightness have made it abundantly clear that global tightness in refined product markets is likely to persist for quite some time.”
The Street is upbeat here, with 10 unanimous Buys among analysts that have sounded off over the past three months. See what else the pros have to say about VLO on TipRanks (opens in new tab).
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Cheniere Energy Market value: $40.6 billionTipRanks consensus price target: $210.53 (29.1% upside potential)TipRanks consensus rating: Strong BuyCheniere Energy (LNG (opens in new tab), $163.10) is a producer and exporter of liquefied natural gas (LNG) in the U.S. The company has “one of the largest liquefaction platforms in the world, consisting of the Sabine Pass and Corpus Christi liquefaction facilities on the U.S. Gulf Coast,” with a total production capacity of approximately 45 million tonnes per annum (mtpa) of LNG in operation.
Cheniere has exhibited steady gains in revenues since the third quarter of 2020. In Q3 2022, the company’s revenues were up 177% year-over-year to $8.9 billion. LNG has benefitted from the rising price of natural gas globally, along with increasing exports to Europe in recent weeks. The total volume of gas exported in the third quarter was 559 trillion Btu, up from 500 trillion in the same period last year.
However, the company’s net loss in Q3 widened to $9.54 per share as compared to a loss of $4.27 in the same period last year.
Cheniere reconfirmed its full-year adjusted EBITDA guidance in the range of $11 billion to $11.5 billion, while it expects distributable cash flows between $8.1 billion and $8.6 billion.
The company also stated in its Q3 press release that it expects to generate over $20 billion of available cash through 2026. As a result, LNG has increased its stock buyback authorization by $4 billion for an additional three years and has lowered its long-term leverage target.
Cheniere also upped its quarterly dividend by 20% beginning in the third quarter of 2022 and is targeting an annual dividend growth rate of approximately 10% through the construction of the CCL Stage 3 Project.
Last month, Jeffries analyst Lloyd Byrne initiated coverage on LNG stock with a Buy rating and a $210 price target. Byrne likes Cheniere “because its first mover advantages gives it a leg up in contracting and self-funding growth projects, which should help sustain its position as the largest U.S. liquefaction player generating strong returns on capital and consistent cash flows.”
LNG is another one of Wall Street’s favorite energy stocks, as evidenced by the consensus Strong Buy rating and $211 price target. This average price target indicates that even after a rally of more than 66% in the past year, Wall Street pros see additional upside of roughly 25% for the shares. See the full rundown of analyst ratings for LNG on TipRanks (opens in new tab).
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