After spending much of the pandemic in a bear market, oil stocks have rallied in 2022. Despite the rally slowing a bit, I believe the macroeconomic environment is still highly favorable for oil stocks.

At current prices, oil companies are making money hand over fist. This is true even if oil dips to $80 per barrel. There isn’t any fundamental reason to believe that oil will go back to pandemic-level prices. Demand is simply too strong and supply too constrained.

Therefore, there’s plenty of opportunity with investing in the sector. In a well-diversified portfolio, oil stocks should remain a core component. Here are seven to consider.

Best Oil Stocks: Exxon Mobil (XOM)

Exxon Mobil (NYSE:XOM) is one of the largest diversified publicly traded oil companies. It is an energy leader operating in upstream, downstream, and chemical verticals.

The company is diversified across the entire value chain of the energy industry. Therefore, XOM stock is well positioned to capture excess returns as oil prices remain elevated.

Credit Suisse recently upgraded XOM stock from “neutral” to “outperform.” According to the investment bank, Exxon Mobil’s exploration in Guyana is “one of the best growth stories.” Furthermore, the company’s production in the Texas Permian Basin continues to outperform.

Producing more oil while prices remain elevated is quite the winning strategy and one that would benefit Exxon well. The company’s refinery in Texas is set to earn an additional $10 billion in free cash flow in 2022 and 2023. Credit Suisse has a $125 price target on XOM stock. This represents a hefty 30%-plus gain from its current price.

Chevron (CVX)

Another major oil producer worth considering is Chevron (NYSE:CVX). The company is a well-established long-term dividend payer with management that is focused on shareholder returns.

In fact, CVX stock has been consistently paying its dividends for more than 30 years. This allows the stock to join the prestigious “Dividend Aristocrats” group. To me, it’s even more impressive that Chevron’s management did not falter during the height of the pandemic.

Even when oil was trading at record lows, CVX’s management kept its commitment to its dividend payout. With assets in the Permian Basin and Australia, CVX stock has enough growth in the pipeline to continue those dividend payouts and increases.

CVX stock is currently trading at a forward P/E of roughly 9.3x with a dividend yield of 3.7%.

Best Oil Stocks: Devon Energy (DVN)

In the oil and gas industry, explorers and producers tend to benefit the most from high fuel prices. This is because their operations are highly leveraged to the price of oil such that a $1 increase in prices flows directly to the bottom line. One of my favorite exploration and production companies is Devon Energy (NYSE:DVN).

The company owns a portfolio of oil and gas assets primarily in the United States. It produces approximately 300,000 barrels of oil, 125,000 barrels of natural gas liquids, and 920 million cubic feet of natural gas.

Earlier this summer, Devon Energy acquired RimRock Oil and Gas assets in North Dakota. This represents more than 38,000 net acres of total land holdings in the oil-rich Williston Basin.

The acquisition is expected to generate value almost immediately as these assets are close to Devon Energy’s existing operations. I believe that this is fantastic news for DVN shareholders given the persistently high price of oil.

Marathon Oil (MRO)

Another exploration and production company that has caught my eye is Marathon Oil (NYSE:MRO). The company has operations focused in Eagle Ford in Texas, Bakken in North Dakota, and other projects in Oklahoma and New Mexico.

Despite the run up, MRO stock still has plenty of value. This oil company is trading at a forward P/E of just 5.4x. Wall Street analysts are incredibly bullish on the stock. According to the website TipRanks, the average price target on MRO stock from the 12 analysts surveyed is $32.33. This implies 35% upside from current prices.

As an E&P company, Marathon Oil is highly dependent on oil prices. Should oil prices continue to remain elevated, MRO stock can possibly exceed even these lofty expectations.

MRO stock also pays a decent dividend. It currently has a forward yield of about 1.3%. Management also recently increased the company’s buyback program to $2.5 billion.

Best Oil Stocks: Diamondback Energy (FANG)

If you are looking for exposure to the important oil-rich Permian Basin, look no further than Diamondback Energy (NYSE:FANG).

FANG stock has had a massive run up already, up 19% this year alone.

This could be the time to accumulate more shares though as FANG is poised for more long-term growth. Diamondback also has very shareholder-friendly management and is committed to investor returns. The company has approved a return of capital commitment of at least 75% of free cash flow.

This commitment can come in the form of dividends or stock buybacks. Management recently increased its base dividend to $3 per share. This gives FANG stock a forward yield of about 2.4%.

This is just the base dividend though. Management also typically pays out a variable component for its dividend as part of its shareholder return program. Given how well the oil market is doing, there is a good chance this will continue on. For Q2 2022, the company expects to pay out $3.05 in total. Assuming this will continue in the future, this translates to an annual yield of greater than 10%.

Enbridge (ENB)

For investors focused on income and a steady stream of payouts, the midstream sector has always been a solid choice. The industry is focused on transporting the oil, making it a beneficiary as well of the current market environment.

In the midstream industry, Canadian company Enbridge (NYSE:ENB) is among the largest.

The company has a great asset portfolio of pipelines. These pipelines have close to a virtual monopoly within their geographic area due to the capital investment required. You can’t easily just build a pipeline anywhere. This translates to a steady cash flow for ENB stock investors.

Enbridge transported 3 million barrels per day through its pipelines in the first quarter. This was 9% higher than the 2.75 million barrels sent in 2021. The increase in transported barrels resulted in more distributable cash for ENB shareholders.

The company’s distributable cash flow in Q2 2022 was 2.7 billion CAD or 1.36 CAD per share. This translates to a cash flow yield of roughly 10%.

Best Oil Stocks: Civitas Resources (CIVI)

Smaller companies deserve a place in an oil-focused portfolio as well. These companies don’t get as much love and attention from Wall Street, thus leading to great value plays in the sector.

One company that I like is Civitas Resources (NYSE:CIVI). The company is Colorado’s largest pure-play natural oil and gas producer with decades of experience in the DJ Basin.

Civitas Resources has a strong balance sheet and increasing free cashflows. Furthermore, the company has a solid commitment to sustainability and is focused on its ESG goals. Such goals have driven Civitas Resources to be the first carbon-neutral energy operator in Colorado.

Only four Wall Street analysts cover CIVI stock. However, all are very bullish on CIVI stock. The average price target for the stock is $87.25 with a high and low target of $106 and $67, respectively.

On the date of publication, Joseph Nograles held a long position in XOM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.