Top Energy Stocks to Watch in 2022 to Capture the Electrifying Growth
Despite being one of the worst-performing sectors over the past 10 years, the top energy stocks are now leading the stock market. With inflation hitting a 39 year high in the U.S, cyclical stocks are back on top.
In fact, the Energy Select Sector SPDR Fund (NYSE: XLE) is up over 55% in the past year. Even more, the top energy stocks are off to a good start in 2022, pushing the ETF up over 13% so far.
After oil prices fell drastically when the pandemic first hit, prices are climbing back to their highest price since 2014. With this in mind, high inflation readings tend to benefit commodity stocks as investors look for less risk.
Not only that but with interest rates likely going up this year, crowded trades like tech stocks are getting clobbered.
Having said that, diversifying your portfolio with commodities can help buffer the impact. Keep reading to find the top energy stocks to watch in 2022 to boost your returns.
Top Energy Stocks for Growth Investors
Tech isn’t the only sector with growth leaders. Several energy stocks are leading the charge as profit margins are improving and more is being returned to shareholders. Given this, here are the top energy stocks for capturing growth.
Devon Energy (NYSE: DVN)
- Market Cap: 34.5B
- 1 Yr. Return: 167%
- 1 Yr. Revenue Growth: 214%
Devon Energy is outperforming the market, making it one of the top energy stocks. It’s surging by 167% in the past year to lead the S&P 500 index. The oil and gas exploration company holds a diverse portfolio of oil volumes (50%), gas volumes (26%) and NGL volumes (24%).
However, DVN is making strategic moves to further its position. A few weeks ago, Devon merged with rival WPX Energy to create one of the largest shale producers in the U.S. Although the deal dilutes ownership, it will help boost cash flow with a larger presence in the Permian Basin.
More importantly, the company is using the excess cash flow to reward shareholders. For example, Devon announced a $1 billion share buyback program on top of a 71% dividend increase.
The company now pays a generous dividend yielding around 7% as DVN expects the growth to continue.
Diamondback Energy (Nasdaq: FANG)
- Market Cap: 22.6B
- 1 Yr. Return: 112%
- 1 Yr. Revenue Growth: 165%
Diamondback Energy is another oil exploration company with an interest in the Permian Basin. So far, the company’s reserves include 58% oil, 20% natural gas, and another 22% natural gas liquids.
Like Devon, FANG stock is outpacing the competition, up 112% in the past year. Strong demand is pushing crude oil prices higher, helping boost the company’s cash reserves. Diamondback’s latest earnings shows the company has $457 million in cash. The company is planning to use the money to pay down debt and return to shareholders.
With this in mind, FANG is committing to a 50% free cash flow return for investors. The company pays a $2 annual dividend thus far, yielding around 1.6%.
Top Energy Stocks for Value Investors
The growth vs. value debate is an ongoing controversy among investors. Growth stocks have had the edge the past few years, but value stocks are outperforming growth so far this year. That said, here are the top energy stocks for value investors.
Exxon Mobile (NYSE: XOM)
- Market Cap: 311.58B
- 1 Yr. Return: 62%
- 1 Yr. Revenue Growth: 58%
As one of the world’s largest publicly traded oil companies, Exxon Mobile, is involved in all aspects of the process. The company’s business segments include upstream, downstream, and chemical.
With gas prices increasing over their 10-year range, Exxon is seeing improved margins across all segments. Exxon also used the excess free cash flow in the third quarter to improve fundamentals. In light of this, XOM paid down its debt by $4 billion, bringing debt to capital to 25%.
Not only that, but this top energy stock distributed another $3.7 billion in dividends. With its latest dividend increase to $0.88 per share, the payout yields nearly 5%.
And on top of this, several investments are starting to pay off in Guyana and the Permian. The offshore projects are creating promising growth potential in the next few years.
Phillips 66 (NYSE: PSX)
- Market Cap: 38.85B
- 1 Yr. Return: 24%
- 1 Yr. Revenue Growth: 90%
Phillips 66 is another one of the top energy stocks. It’s best known as an oil refiner. But the company is branching out into other revenues sources such as chemicals and midstream. So far, PSX operates 13 refineries in the U.S. and Europe with production capabilities of 2.2 million barrels of crude oil per day.
As more people get back to their everyday lives, gasoline demand rises. And as a refiner, PSX is at the heart of production. So, the higher demand is significantly improving earnings and margins.
Like the other energy companies on this list, PSX uses extra cash to improve its balance sheet. In the company’s Q3 earnings, PSX noted paying down debt by $1 billion so far in 2021.
Another key thing to note from the report, PSX is buying out all public partners. The move will help integrate the business while further improving margins.
PSX also offers an attractive annual dividend of $3.68 per share, or a 4.15% yield/
Risks to Consider When Investing in Energy Stocks
Although the stocks listed are up significantly in the past year, these are also the top energy stocks right now. Investing in the energy sector can be challenging with so many changing variables.
Having said that, the sector is heavily influenced by changes in the economy. When the pandemic first hit, oil prices cratered, causing businesses to take on more debt. You can see how easily things can change from March 2020 to where we are now.
Now that oil prices are recovering, we are seeing improving margins. And as a result of the extra cash, companies are reducing debt while rewarding investors.
The past ten years have not been very rewarding for energy investors. But, with OPEC capping supply levels, it looks like higher margins will continue this year. If demand remains strong, we will likely see much of the same in 2022.
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.