The energy sector is composed of companies focused on the exploration, production, and marketing of oil, gas, and renewable resources around the world. Energy sector stocks include upstream companies that primarily engage in the exploration of oil or gas reserves, such as Devon Energy Corp. (DVN). Downstream companies include Marathon Petroleum Corp., which refines and processes oil and gas products for delivery to consumers. Among the industry’s biggest players are Chevron Corp. and ExxonMobil Corp.
Russia’s invasion of Ukraine in February disrupted oil supplies and initially drove oil and gas prices higher. In response, President Biden ordered the release of millions of barrels of oil from the U.S. Strategic Petroleum Reserve. This, along with rising global production and supply, pushed down gasoline prices to pre-Ukraine invasion levels in August. Prices have increased again as OPEC+ cut production, prompting President Biden to plan an additional release from the U.S. reserve.
Energy stocks, as represented by an exchange-traded fund (ETF)—the Energy Select Sector SPDR ETF (XLE)—have posted a total return of 58.3% over the past year compared to the Russell 1000 Index’s return of -18.2%. These market performance numbers and all statistics in the tables below are as of Oct. 21, 2022.
Below are the top three energy stocks with the best value, the fastest growth, and the most momentum.
These are the energy stocks with the lowest 12-month trailing price-to-earnings (P/E) ratios. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you’re paying less for each dollar of profit generated.
- APA Corp.: APA is an oil and gas exploration and production company with operations in the U.S., Egypt’s Western Desert, and the U.K.’s North Sea. It also has exploration interests offshore of Suriname. On Sept. 14, APA announced that it is doubling its quarterly dividend to $0.25 a share. The payment will be on Nov. 22 to shareholders of record as of Oct. 21, 2022.
- PDC Energy Inc.: PDC Energy is an oil, natural gas, and natural gas liquids (NGLs) and production company. Its primary operations are in Colorado and west Texas.
- Ovintiv Inc.: Ovintiv is an oil and natural gas exploration and production company with operations in the U.S. and Canada. On Sept. 28, Ovintiv said it received approval from the Toronto Stock Exchange to renew its buyback program and purchase 25 million shares by October 2023.
These are the top energy stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax laws or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with a quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.
|Fastest Growing Energy Stocks|
|Price ($)||Market Cap ($B)||EPS Growth (%)||Revenue Growth (%)|
|Coterra Energy Inc. (CTRA)||29.67||23.6||1,800||693.8|
|Targa Resources Corp. (TRGP)||67.79||15.4||973.3||77.3|
|Phillips 66 (PSX)||100.44||48.3||889.4||79.9|
- Coterra Energy Inc.: Coterra Energy is an independent oil and gas exploration, and production company with operations focused on the Permian Basin, the Marcellus Shale, and the Anadarko Basin.
- Targa Resources Corp.: Targa Resources is a midstream services provider. It owns and operates domestic midstream infrastructure assets to connect natural gas and NGLs to domestic and international markets. Targa reported second-quarter financial results on Aug. 4. Net income attributable to the company grew roughly 10-fold as revenue nearly doubled year-over-year (YOY). A significant portion of the profit growth came from a $435.9 million gain on the sale of Targa GCX Pipeline LLC. Targa reports third-quarter financial results on Nov. 3.
- Phillips 66: Phillips 66 manufactures and transports energy products. Its businesses focus on midstream, chemicals, refining, and other areas. On Oct. 7, Phillips 66 announced a quarterly dividend of $0.97 a share payable Dec. 1 to shareholders of record as of Nov. 17, 2022.
These are the energy stocks that had the highest total return over the past 12 months.
|Energy Stocks With the Most Momentum|
|Price ($)||Market Cap ($B)||12-Month Trailing Total Return (%)|
|Occidental Petroleum Corp. (OXY)||71.26||66.4||118.7|
|Devon Energy Corp. (DVN)||74.29||48.7||101.9|
|EQT Corp. (EQT)||37.88||14.0||85.1|
|Energy Select Sector SPDR ETF (XLE)||N/A||N/A||58.3|
- Occidental Petroleum Corp.: Occidental Petroleum explores for and produces oil, NGLs, and natural gas. It also transports and stores oil and natural gas and manufactures basic chemicals and vinyls.
- Devon Energy Corp.: Devon Energy is involved in the exploration, development, and production of oil, natural gas, and NGLs. Its operations are focused in Texas and Oklahoma. On Sept. 28, Devon announced that it had completed the acquisition of Validus Energy for $1.8 billion. The deal includes a position of 42,000 acres in the Eagle Ford area of Texas.
- EQT Corp.: EQT is a natural gas production company with operations in Pennsylvania, West Virginia, and Ohio. It’s one of the largest U.S. natural gas producers.
What the Supreme Court’s EPA Ruling Means for Energy Stocks
In June 2022, the U.S. Supreme Court ruled to restrict Environmental Protection Agency’s (EPA)ability to limit carbon emission outputs from power plants. Instead, the EPA must now gain congressional approval before enacting sweeping climate change regulations. The decision targeted the Obama administration’s Clean Power Plan (CPP), which had called for energy players to curb emissions by 32% from 2005 levels by 2030. Under the CPP, the EPA had the authority to remake the U.S. power system, shifting from fossil fuels to cleaner energy alternatives.
The ruling removes potential EPA regulatory challenges for coal, oil, and gas stocks that have already performed strongly in 2022 amid surging energy demand in the wake of the pandemic. However, the decision may present headwinds for renewable energy stocks, many of which have struggled to gain traction despite clean energy being an integral part of President Joe Biden’s policy agenda.
It remains unclear how much long-term upside the ruling will deliver fossil fuel producers given the clear move to renewable clean energy. Moreover, many utilities have already implemented EPA environmental regulations, especially where it has made economic sense.
Advantages of Investing in Energy Stocks
Two key reasons to invest in the energy sector include the size of the market and the group’s recent returns.
Size of the Market: Given that the world relies on energy to power everything from cars to factories and just about everything in between, it’s not surprising that the value of the global energy market stands at around $7 trillion. Furthermore, the International Energy Agency (IEA) expects global energy demand to grow by more than 30% by 2035. The energy market also has many industries to invest in, including exploitation, storage, renewables, production, transportation, and distribution.
Recent Returns: The trend is your friend, as they say on Wall Street. No sector epitomizes this saying more than energy stocks over the past year. The group leads every other area of the market by performance, having returned 53.83% over the past 12 months.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
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