Investors need to consider the good times and bad times when selecting investments. This is necessary when dealing with highly volatile Energy stocks. Several factors, such as inflation and policies, affect the sector. Currently, the Energy sector has been outperforming the market. It's never too late to jump on the energy stocks considering OPEC members' decision to cut oil production, which will send the price of crude to high levels.
There are reliable solid stocks you might want to look at.
Some of them are:
ExxonMobil (NYSE: XOM). Currently trading at $101, this stock is up by more than 20% in 6 months. And net profit margin was up 125% YOY.
Chevron (NYSE: CVX). This stock may be down by 3% for the last 6 months, but it still outperformed the S&P which is down by more than 17%. However, Chevron is a big dividend play. At a 3.55% dividend yield, this stock is still a good buy in the Energy sector.
Devon Energy Corp (NYSE: DVN). DVN is up by more than 20% during the last 6 months and still has a dividend yield of about 6%. What a fine combination of growth and dividend-paying stock to hold in this bear market.
Occidental Petroleum (NYSE: OXY). The bullish case for this stock is that Warren Buffet now has about an 11.9 billion stake in this company.
This bull run in the Energy sector has been happening since March 15, 2020. Although, there has been a decline in prices along the way, such as Crescent Point Energy (NYSE: CPG) which went down by 11%, and 1% for Kosmos Energy (NYSE: KOS) since small energy businesses are always affected by changes in oil prices. However, these stocks have bounced back and are up more than 10 percent within the past 5 days. This means that investors are still in their resolution to invest in these companies as they recognize that "energy" is an essential aspect of human existence.
However, I often advise against investing in small caps or the little players in a given sector because of the current market trend. And for the Energy sector, which is a very volatile playing field, the big boys are where I focus my interest. My first principle of investing is "Captial preservation." Small players will be affected the most if there is a change in oil prices, unlike big players who offer some hedge.
Big Energy Players To Look Into
You might wonder how the big players pull off this feat of beating the market.
First, it's common knowledge that both Exxon (NYSE: XOM) and Chevron (NYSE: CVX) are integrated energy companies meaning that they produce, transport, and process their oil, causing them to be exposed to the entire value chain giving them a smooth financial performance because some parts of their businesses benefit from low energy prices. In comparison, small energy companies focus mainly on drilling making their top and bottom lines reliant on energy prices.
Also, Exxon (NYSE: XOM) and Chevron (NYSE: CVX) have solid balance sheets with a debt-to-equity ratio of 0.26 times and 0.17 times, respectively, giving them the financial power to support their rich dividends, take on debt during challenging times and spend on necessary capital investments.
Despite the highly volatile nature of oil prices, Exxon and Chevron are also considered leaders regarding dividends payment.
To be fair, even the small players are also pulling off incredible feats. A look at Crescent Point's and Kosmos's debt-to-equity ratios shows some modesty in their fundamentals. It stands as a modest 0.23 times and 3.4 times, respectively. So, you could also consider these two stocks if they fit into your investing style.
In conclusion, the Energy sector would still be a goldmine for value investors to tap in. The ongoing energy crises have highlighted how important this utility is in the existence of humanity. Having a good Energy stock now is never a bad idea.