Top 5 Oil Stocks to Buy Now for Big Returns in 2022
With no end in sight to the war in Ukraine and more sanctions likely, oil prices are climbing back above $100 a barrel. At the same time, there are several oil stocks to buy now that can help you take advantage of the higher prices.
Higher oil prices boost company earnings which often leads to higher investor returns. In fact, oil and gas stocks boast some of the highest dividends in the entire stock market. For example, the energy sector has an average dividend yield of 3.9% compared to the overall average of 1.9%.
Lastly, gas and oil are critical for the economy to run smoothly. Without fuel, transportation stops, and when this happens, the economy comes to a halt.
Luckily, oil companies are stepping up to fill the supply gap. Keep reading to find the top five oil stocks to buy now and watch your returns multiply this year.
Best Oil Stocks to Buy Now
The Energy Select Sector SPDR Fund (NYSE: XLE) is up 40% YTD compared to the S&P 500 (SPX), down 6% as energy stocks continue their dominant rally.
To determine the best oil stocks to buy now, there are several factors you should consider. For one thing, knowing how they are involved in the industry is a great place to start. Do they extract the resource (upstream)? Transport it (midstream)? Refine it (downstream)? Or, they may do a combination.
Then, the most important things to look for are profitability and strong fundamentals. Given these points, read more below for a detailed analysis of why these top five oil stocks deserve a spot on the list. And then, at the end, learn why they have plenty of room left to run.
No. 5 Occidental Petroleum (NYSE: OXY)
- EPS: 1.4
- YTD Return: 99%
- Revenue Growth (YOY): 90%
2021 was about as good as it gets for Occidental Petroleum. The company achieved record free cash flow while positioning itself for future profitability.
OXY stock is up close to 100% in 2022, while the company’s improvements are attracting high-profile investors such as Warren Buffett. In fact, he continues buying through his holding company, Berkshire Hathaway (NYSE: BRK.B), with an over 14% stake.
After acquiring Anadarko, Occidental is in a position to grow its upstream business, capitalizing on cost savings. Although the takeover creates a dilution risk, higher oil prices are helping boost profits while the company pays down debt.
No. 4 Diamondback Energy (Nasdaq: FANG)
- EPS: 12.3
- YTD Return: 25%
- Revenue Growth (YOY): 163%
Diamondback Energy is another one of the best oil stocks to buy now, with exploding profits and significant free cash flow (FCF).
In Q4, FANG generated $772 million in FCF while producing over $2.4 billion in 2021. As a result, the firm is paying down debt, reducing it by $1.3 billion since last year. With this in mind, the company is in a strong position after selling certain assets from Bakken Shale.
The move will allow FANG to focus on the Permian Basin, one of the lowest-cost drilling sites in the country. Look for FANG shares to continue reaping the benefits as investors flock to the more profitable, fundamentally-solid oil firm.
No. 3 Exxon Mobile (NYSE: XOM)
- EPS: 5.39
- YTD Return: 39%
- Revenue Growth (YOY): 80%
Many investors know Exxon Mobile as the largest integrated oil company in the U.S. But, with some of the lowest breakeven levels, the oil & gas giant is one of the best oil stocks to buy now.
After slimming down and strategically aligning the company, Exxon has one of the lowest breakeven points at $41 per barrel. Not only that, but with higher profitability and cost reductions, the company looks to achieve a breakeven of $35 per barrel between 2022 and 2027.
If this is the case, Exxon will have no problem continue paying its generous dividend, currently at an over 4% yield.
No. 2 Devon Energy (NYSE: DVN)
- EPS: 4.19
- YTD Return: 42%
- Revenue Growth (YOY): 200%
Like Exxon, Devon Energy also took significant steps to slim operations by selling assets and focusing on growing others. The results speak for themselves with record FCF and market-leading returns for investors.
Devon Energy stock led the S&P 500 in 2021, gaining nearly 150%. But the company’s new variable dividend will likely continue attracting investors. With this in mind, DVN is raising its dividend 45% to $0.16 while paying out another 50% of excess free cash flow to shareholders.
The company’s superior strategy is paying off, and investors are seeing the rewards. But the results are just starting to show, making Devon Energy one of the best oil stocks to buy now.
Oil Stocks to Buy Now No. 1 ConocoPhillips (NYSE: COP)
- EPS: 6.07
- YTD Return: 39%
- Revenue Growth (YOY): 177%
As one of the largest oil and gas companies globally, ConocoPhillips is seeing soaring demand. Moreover, after two smart acquisitions last year, the company has a strong position in the oil-rich Permian Basin.
However, the firm has operations in 14 countries worldwide, giving it a unique position to scale. As a result, ConocoPhillips generated over $10 billion in FCF while returning $6 billion to shareholders.
ConocoPhillips also offers a variable dividend program paying a percent of cash flow from operations on top of a base dividend. Lastly, the company expects the strong performance to continue with their new assets driving profits. For example, revenue has grown over 100% YOY for the past four quarters.
Top Oil Stocks to Buy Now: What You Need to Know Before Investing
Although energy stocks are on a tear this year, there are a few things you should be aware of. For one thing, oil is a cyclical industry, and prices can experience big swings.
We saw how quickly the industry can change after many oil companies went under in 2020, only for industry profits to soar in 2021 and this year. But it doesn’t look like the trend will be reversing anytime soon.
With tension rising in Europe and many nations looking for alternative sources to Russian oil, these companies stand to benefit. That said, these are the best oil stocks to buy now to take advantage of the trend.
About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.