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The soft inflation report was a sigh of relief for many sectors, especially the energy industry. With high-interest rates, economic slowdown, and weakness across multiple sectors, oil prices have taken a hit. They have seen massive volatility over the past few months. With the onset of summer, I believe oil prices could be ready for steady growth and this means top oil stocks could see a sector reversal. Furthermore, as we inch closer to the end of rate hikes, we could see a slowdown in the economic growth and this means a rise in oil prices. Smart investors know now is a good time to start looking for oil stocks to buy.
The Saudi energy minister has already warned of further OPEC+ output cuts and this means there could be a supply squeeze, further pushing oil prices higher. The peak travel season is upon us and oil prices could start to rise. Therefore, now is a good time to cash in on the “black gold” and start investing in oil stocks that are well-positioned in the industry today. With that in mind, let’s take a look at the three oil stocks to buy for a sector reversal.
Chevron Corporation (CVX)
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Chevron Corporation (NYSE:CVX) is a solid, well-established powerhouse in the oil and gas sector. The company is engaged in the production, exploration, refining as well as distribution of oil and gas. Having built a solid foundation over the years, the company holds an enviable position in the market today. If you are looking for a dividend stock in this industry, CVX is one of those oil stocks to buy. The company has been raising dividends for 35 consecutive years.
One solid reason to bet on this business is its solid profile. The company has low operating costs and is generating a whopping amount in cash. It ended 2022, with $18 billion in cash and needs only $5 billion to operate. The company generated a cash flow from operations of $7.2 billion in the first quarter. CVX stock offers passive income thru dividends, a balanced profile, and strong financials. It produced a net income of $6.57 billion in the recent quarter, which is up from $6.26 billion in the same quarter a year ago.
The stock has been suffering after Warren Buffet trimmed his investment in the company. However, I think a lot is working in favor of CVX stock. Recently, the company announced the acquisition of PDC Energy (NASDAQ:PDCE) in an all-stock deal valued at $6.3 billion. Chevron believes that this transaction will add $1 billion to its annual free cash flow.
Morgan Stanley has raised the price target of the stock to $198, which is a massive upside potential from the current level.
Exxon Mobil (XOM)
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Exxon Mobil (NYSE:XOM) is another one of the oil stocks for sector reversal that has impressed investors with a strong first quarter. The company reported a record-breaking first-quarter net income of $11.4 billion and I believe its business will hold steady in the coming quarters. It posted an EPS of $2.79 which is up from $1.28 in the same period last year. This is more than a 100% jump and it is nothing but impressive. Clearly, Exxon Mobil has had a better first quarter in 2023 than it did in 2022 and I think the momentum will continue. XOM is one of the top oil sector reversal stocks to own today.
It has increased dividends for 20 consecutive years and has a dividend yield of 3.42% with a recent dividend payout of $0.91. Conservative investors love XOM stock. It is trading at $106 today and is inching closer to the 52-week high of $119. The stock is up 12% in the past year and hasn’t dropped below $60 since November 2021. The company has a solid business and a long way to go. If you are trying to add an oil stock to your portfolio, this is the one to buy.
The business is globally diversified which makes it an attractive investment in uncertain times. However, it is still affected by the industry’s cyclical movements but not as much as other businesses. The company has also joined the electric vehicle bandwagon and bought drilling rights on 120,000 acres in Arkansas for lithium production. This means it is also preparing for a future that is less reliant on gasoline.
Devon Energy (DVN)
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One of the best oil stocks to buy is Devon Energy (NYSE:DVN). Based in Oklahoma City, the company has a hydrocarbon exploration business which has a strong dividend yield. It remains one of the top dividend stocks to buy now. The company is a leader in its niche and has steadily paid dividends for the past 17 years. It has a dividend yield of 9.18%, better than the majority of dividend-paying companies in the industry. It recently paid a quarterly dividend of $1.13. Devon has a fixed and variable dividend program wherein one portion remains fixed and the variable portion varies according to the profits generated by the company.
If you look at the earnings potential of this stock, it looks undervalued at $49. DVN stock is down 30% in the year and 15% year to date. This is due to the drop in oil prices. However, it is also an opportunity for investors to grab the stock at discounted rates.
When it comes to financials, Devon Energy has a robust balance sheet and it has had a record year for the business. The company saw the top and bottom lines racing ahead this quarter. It also reached an all-time high in oil production at 320,000 barrels per day. With a rise in profits, the company continues to increase dividend payouts. With the rise in oil prices, Devon Energy is set to soar higher. Buy the stock while it is trading at a discount.
On the date of publication, Vandita Jadeja did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
