Best Energy Stocks Even When Oil Prices Drop
Energy Stocks to Buy Even If Crude Prices Are Falling
Picking the best energy stocks can be challenging when oil prices are low or falling but there are a few areas of the energy sector that can perform relatively well in almost any environment.
Stocks in the energy sector can generally be smart long-term holdings because their price movement doesn't have a high correlation with broader market indices, such as the S&P 500 Index. Although this means prices for energy stocks can be generally negative when other parts are positive, as was the case in 2017, the low price environments can be smart times to buy the best energy stocks.
However, if oil prices are low and are expected fall further or remain low in the short term, there are still a select group of energy stocks to buy that can perform relatively well, compared to the energy sector as a whole, in almost any environment.
How to Find the Best Energy Stocks (No Matter What Oil Is Doing)
Some of the main factors you want to consider when looking for the best energy stocks to buy in a cheap oil environment can be summed up in the following points:
- Look for stocks of energy companies that have a history of remaining profitable.
- If you do extra research, you can look to see if the energy company acquired assets while oil prices were down. This would indicate that they may profit more when oil prices come back up.
- Look for a correlation between profitability and low oil prices. For example, some energy stocks can do well with oil prices above $40 per barrel, whereas others may need to see prices above $45 or $50 per barrel. The lower the price vs profitability, the better.
So, with that backdrop, and in no particular order, we'll share four energy stocks that can do well in a cheap oil environment and profit when oil prices move higher.
The greatest strength of XOM may be it's consistency in growing it's dividend, which this large-cap energy firm has done for 30 years. Although the share price for XOM has seen volatility in the recent cheap oil environment, it's income has consistently remained positive. Therefore, XOM may be best described as a reliable blue chip stock in the energy sector that is a solid long-term holding to buy when prices are relatively low.
PXD has shown a history of beating its oil and exploration company peers, especially in the long run, with returns that are double digits ahead of the averages for the 5- and 10-year annualized returns through the end of 2017. Part of how PXD can pulls off this performance is its ability to remain resilient in the face of cheap oil. In summary, Pioneer can produce oil and natural gas at a lower break-even point that its average peer.
Formerly British Petroleum, BP is another oil and gas company that is primed to pump through the low oil price environment and potentially lead the energy sector in the coming years. With the worst damage from gigantic oil spills mostly behind it, and its proven ability to land big projects and keep costs low, BP's production and revenue, and thus its stock price, look to return to it's glory days.
EOG is another stock that has historically proven that it can perform head and shoulders above the average oil and gas exploration stock, even in the cheap oil environment. EOG is highly effective at finding premium sites, which means that it seeks oil and gas production projects that can be highly productive while keeping costs low. More revenue and less relative expenses translate into greater profits and higher stock prices.
As always, past performance is no guarantee of future results. Investors that want exposure to the energy sector with less market risk, compared to holding just a few select stocks, may consider buying an energy exchange-traded fund, or ETF, like Energy Select Sector SPDR (XLE). Investors wanting to diversify may also consider buying energy and oil mutual funds.
Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.