The energy sector absolutely ignited in September, and it’s evident that there is still an appetite for exposure to these stocks amidst the market selloff. While many of these companies have already moved up substantially in 2021, it’s important to understand that a large majority of them are still below their pre-pandemic prices. With global demand for oil recovering after the pandemic and Brent crude rallying on supply constraint concerns, there are certainly some valid reasons to be optimistic about energy stocks going forward.
Keeping the bull cases above in mind, it’s probably best to wait a bit for a pullback or consolidation before adding new positions in the sector given how hot they have been. In the meantime, check out our list of 3 energy stocks to buy if you are bullish on oil prices.
1. Occidental Petroleum
As one of the largest oil and gas companies in the U.S., Occidental Petroleum (NYSE:OXY) provides a great way to play the rally in crude oil prices. It also helps to know that legendary investors like David Tepper and Carl Icahn are long shares. Occidental has oil and gas exploration and production operations in the United States, the Middle East, and Latin America along with carbon management, midstream and marketing, and chemicals businesses.
What’s really attractive here is the company’s large presence in the Permian Basin, which allows the company to take advantage of the cheapest source of oil production in the United States.
Other positives with Occidental Petroleum include how the company has been deleveraging to clean up its balance sheet and getting rid of some of its non-core assets to focus on its strengths. There’s also a lot to like about the company’s Q2 earnings, which saw Occidental deliver a huge swing in profitability. The company reported an adjusted Q2 net profit of $311 million versus an adjusted net loss of $166 million last year, which points to a continued recovery in Occidental’s business. Keep an eye out for a break above the $33.50 level for the next leg up here.
2. Matador Resources
While most oil and gas companies have been performing well recently, there are very few that are trading at all-time highs. That’s why Matador Resources Company (NYSE:MTDR) stock stands out as a potential buy, as the stock has been breaking out during the recent market selloff. Matador is an independent energy company that is engaged in the exploration, development, and production of oil and natural gas resources in the United States. Its two business segments include exploration and production and midstream, and the company has interests in the Wolfcamp and Bone Spring plays in the Delaware Basin.
This small-cap energy stock has rallied over 236% year-to-date and could continue to deliver outperformance if crude prices continue heading higher. It’s also worth noting that the company achieved record free cash flow in Q2 of $156.3 million, up 145% sequentially, and saw its average daily oil, natural gas, and total oil equivalent production hit all-time quarterly highs last quarter. Matador continues to improve its operational efficiencies and perform astoundingly well in the market, making it a truly strong oil play to consider going forward.
3. Devon Energy Corp
Finally, we have Devon Energy Corp, a member of the S&P 500 and a company benefitting from many of the themes we’ve mentioned above in this article. When it comes to buying oil and gas exploration companies, investors should only focus on those with the strongest assets. That’s why Devon (NYSE:DVN) is a top pick in the energy sector, as the company has operations in four core oil-producing areas, the Delaware Basin, Eagle Ford, Powder River Basin, and Anadarko Basin. This stock also has the highest dividend yield out of the companies on our list, with a 1.14% dividend yield, making it intriguing for investors interested in extra income.
Investors should look at the company’s relatively recent acquisition of WXP Energy as a big positive, as it should help Devon deliver higher margins and allow it to return more money to shareholders with dividends. WXP Energy is also interesting as it has nonfederal acreage, which is a nice perk if the government starts to ban drilling on federal acreage. The bottom line here is that Devon Energy is a best-in-breed energy stock to focus on if you are bullish on oil prices, so keep an eye out for a pullback or consolidation.