While the concept of energy stocks to buy might seem a bit controversial due to the uncertainty – and in some cases volatility – involved, the narrative comes down to a simple equation. If you believe in the broader economic recovery, then more people will be consuming more resources. And if that’s the case, the full spectrum of energy sources could be in high demand.
First, the hydrocarbon sector would get a new lease on life, at least from the investment point of view. To be blunt, hydrocarbons have always been relevant thanks to their high energy density. However, with the political and ideological push toward green and renewable solutions, fossil fuels took a backseat. Well, the tables will turn if the jobs market continues printing robust numbers.
Second, certain sectors have already cynically enjoyed supply demand fluctuations. For example, the uranium market has been hit with significant supply woes after being in a glut for many years. And with global population rates only rising, seemingly every source of energy is in high demand.
With that, investors should target these energy stocks to buy now.
HF Sinclair (DINO)
If you look at the financial print for downstream hydrocarbon specialist HF Sinclair (NYSE:DINO), the framework doesn’t seem to make much sense. At least, it doesn’t make much sense to me. Currently, DINO trades at a trailing-year earnings multiple of 5.08X, lower than the sector median 9.67X. It also trades at 0.34X trailing-year sales, below 77.4% of sector rivals.
Here’s the thing: HF Sinclair is no slouch. Operationally, the company prints a three-year revenue growth rate of 21.8%, beating out almost 72% of its competitors. Regarding EBITDA growth during the same period, it printed 29.3%. That’s better than over 66% of its peers. Nevertheless, HF Sinclair represents one of the more undervalued energy stocks to buy despite commanding everyday relevance.
I’m not sure this bargain is going to last. Basically, more companies are requiring their employees to return to the office. And if push comes to shove, the employers will almost always win this battle. Analysts rate DINO a moderate buy and that’s really no surprise. The high-side target also lands at $76, making DINO an intriguing idea for energy stocks to buy.
Occidental Petroleum (OXY)
Focused on hydrocarbon exploration, Occidental Petroleum (NYSE:OXY) plies its trade in the upstream component of the energy value chain. Here, unlike HF Sinclair, you’re not getting that great of a deal. For example, OXY trades at 12.61X trailing-year earnings. In contrast, the sector median is 9.67X, so Occidental runs a bit hot. However, the company’s shareholders enjoy a major confidence boost: insider buying.
And it’s not just the insider acquisitions but who’s doing the buying. Warren Buffett via his conglomerate Berkshire Hathaway (NYSE:BRK-B) has been buying up OXY stock against conventional wisdom. Also, data from TipRanks reveals that hedge funds have been busy building a position in Occidental shares since the fourth quarter of 2021.
Even better, Occidental’s narrative should really come alive thanks to the current geopolitical environment. With so much of the world’s hydrocarbons coming from jurisdictionally questionable areas, building more secure supply chains would naturally be ideal.
Analysts peg shares a consensus moderate buy with a $68.42 price target. Also, the high-side target lands at a hearty $80. Thus, it makes for a solid candidate for energy stocks to buy.
Exxon Mobil (XOM)
One of the largest integrated fuels, lubricants and chemical companies in the world, Exxon Mobil (NYSE:XOM) deserves a place in your portfolio. Sure, big oil might seem increasingly irrelevant amid the broader push for electric vehicles. However, with EVs being stranded due to extreme winter weather conditions, it’s quite likely that people are rethinking the pivot.
Moreover, EVs haven’t achieved the economies of scale so that they’re on par with their combustion-powered equivalents. With the economy still recovering from the intense pressure of high inflation and high borrowing costs, many households simply aren’t in the mood for acquiring big-ticket items. As a result, big oil stocks potentially enjoy a significant upside pathway.
To be fair, its earnings multiple of 11.34X is a bit worse than average. However, the company enjoys significant operational strengths, particularly its three-year EBITDA growth rate of 62.4%. Aside from the extraordinary Covid-era hiccup, it’s consistently profitable.
Analysts see good things ahead, rating shares a consensus moderate buy with a $125.75 price target. For relative peace of mind, XOM ranks among the top energy stocks to buy.
NextEra Energy (NEE)
When the topic shifts to renewable energy stocks to buy, it’s tough to not mention NextEra Energy (NYSE:NEE). Per its website, NexEra ranks among the nation’s largest capital investors in renewable infrastructure. Looking ahead, management plans for between $85 billion to $95 billion in U.S.-based infrastructure projects through 2025. Also, it ranks number one on Fortune’s 2023 World’s Most Admired Companies List in the electric and gas utilities industry.
Stated differently, it knows how to do environmental, social, and governance (ESG) directives right. Further, NEE stock should benefit from an expanding arena. According to Mordor Intelligence, the U.S. renewable energy market size reached an estimated capacity of 434.54 gigawatts (GW) in 2024. Analysts project that by 2029, the ecosystem could rise to 700.15 GW.
To be fair, NEE stock encountered significant volatility last year. However, it’s trying to make a comeback. In Q4 2023, NextEra beat Wall Street’s estimates for per-share profitability and revenue. Analysts view shares as a moderate buy. Looking over the next 12 months, they anticipate an average price target of $69.60.
Devon Energy (DVN)
A leading independent energy company, Devon Energy (NYSE:DVN) focuses on finding and producing oil and natural gas. With the economic engine turning and people eagerly entering the workforce, the case for higher crude oil demand appears obvious. However, over the long run, natural gas demand should rise as well. It’s the same math – more people consuming resources should decrease supply and increase prices.
Additionally, Devon may benefit from a geopolitical catalyst. When Russia – a major exporter of natural gas – brazenly invaded Ukraine, it sent shockwaves everywhere. Initially, nations fretted about balancing moral principles versus acquiring necessary commodities. However, a strong dollar and slowed economy activity took the sting off what should have been blistering hot energy prices.
Still, Russia continues to be, well, Russia and may not let up until it’s forced to let up. Who knows when that will be? So, the underperformance of DVN stock could be temporary.
Analysts rate shares a consensus moderate buy with a $54.87 price target. With this robust estimate, DVN is one of the best energy stocks to buy at on discount.
Cameco (CCJ)
Ever since the Fukushima meltdown, the nuclear power industry largely struggled for momentum. Indeed, it was until late 2020 to early 2021 that sector players like Cameco (NYSE:CCJ) found their footing. Looking back in hindsight, the deflated value of the underlying uranium commodity may have been overkill. As stated earlier, global population trends are only rising. That means folks on average are consuming more resources, not less.
Cynically, this dynamic plays into Cameco’s hands. As the world’s largest publicly traded uranium company, it plays a vital role in global production. Yes, the uranium shortage crisis in Kazakhstan imposed a shockwave to the sector. But the reality is that nuclear facilities are built with uranium in mind. They can’t just switch to an alternative material like thorium on a whim.
On the other side of the argument, CCJ doesn’t make a great case for undervalued energy stocks to buy. However, meeting rising energy needs should keep Cameco relevant. Just as well, analysts remain optimistic, pegging shares a strong buy with a $54.31 price target.
NuScale Power (SMR)
Right off the bat, I’m personally speculating on NuScale Power (NYSE:SMR) so take what I say with a grain of salt. I also mention the caveat because SMR ranks among the riskiest energy stocks to buy. If you’ve followed its price chart, you know that it’s liable for some big swings in either direction. Like a cryptocurrency, it’s hard to predict the day to day.
On the flipside, SMR stock has been looking very attractive since hitting (what I hope is) a bottom on Jan. 18. Fundamentally, NuScale’s business of small modular reactors is extraordinarily compelling. In a way, NuScale may help “decentralize” power through building smaller, more flexible facilities across the country. In addition, the company deploys advanced systems to protect against catastrophic failures.
One approach that it uses is called a passive safety system. Basically, it’s a system that clamps down on safety issues even if other active safety systems fail. So, you potentially get the best of both worlds – efficient nuclear power with advanced protections in place. Analysts rate shares a moderate buy with a sky-high $6.13 price target.
On the date of publication, Josh Enomoto held a LONG position in SMR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.