In recent years, oil companies have been beaten down due to price wars, supply limitations, oil spills and environmental concerns. The oil industry saw two major price crashes in 2014 and 2020. This caused a wave of bankruptcies from smaller players. Fortunately, their time has finally come to recover and reward their shareholders. There is a current shortage of oil and demand has never been higher. The war in Ukraine and political tensions with Russia are causing major disruptions and shortages around the world. This is a perfect mix for major oil producers. Profits are skyrocketing and the end doesn’t seem to be anywhere near. Below, we will update where major oil stocks to buy stand and how their shareholders can benefit.
But, savvy investors know, wealth is made when stocks are at rock bottom prices. Does the saying buy low, sell high ring a bell? It appears we’ve plugged the leak, for now.
Best Oil Stocks to Buy 2022
Considering the global economy still runs on crude oil and prices are rising, it’s time to look at some oil stocks to buy in 2022. Two of our top oil stocks poised to shine in this rebound are Enbridge (NYSE: ENB) and EOG Resources (NYSE: EOG)
Who Controls the Price of Oil?
Before we get into oil stocks, it’s important to know what determines the price of oil. Obviously, supply and expected demand are important factors. In 2014, a price war began between members of the OPEC and Russia.
OPEC members (Algeria, Angola, Congo, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq Kuwait, Lybia, Nigeria Qatar, Saudi Arabia, UAE and Venezuela) control around 40% of the world’s oil supplies. When there is a disagreement, prices tend to fluctuate due to a shortage of supply.
When the pandemic first started, oil prices were at their lowest levels. Since, they have been slowly climbing. When Russia invaded Ukraine, tension escalated and sanctions were imposed on one of the world’s oil and gas production leaders.
As supply continued to decrease and demand continues to rise, prices have been increasing. Oil companies come out as winners while consumers are yet again on the losing side unless they are shareholders of these companies.
Enbridge – This Canadian Company Is Doing Something Right
For those of you who don’t know, Enbridge is a company focused on energy generation, distribution, and transportation company.
Their pipeline network consists of three components: The Canadian Mainline system, regional oil sands pipelines, and natural gas pipelines.
But, there’s more to Enbridge than just pipelines – they also own and operate a regulated natural gas utility and Canada’s largest natural gas distribution company. Additionally, Enbridge generates renewable and alternative energy with 2,000 megawatts of capacity.
Ironically, shares in Canuk pipeline Enbridge tumbled close to 25% despite having no exposure to the volatility in the oil market. How does that make sense?
Well, let me explain. Even if we as consumers aren’t using all the oil in Enbridge’s pipelines, we still have to pay to use it. Because of this, Enbridge is pretty confident they’ll deliver on their 2020 cash flow forecast.
Report provided by STOCK ROVER – the best fundamental research tool for retail traders…ever!
Let’s Talk Dividends on Oil Stocks to Buy in 2022
It’s been a brutal year for dividend investors. For proof look no further than the 175 publicly traded companies that have shed their payouts in half, with many stopping them entirely.
Not surprisingly, the oil sector was one of the hardest-hit by those dividend cuts, as many payouts plunged along with oil prices.
When deciding which oil stock to buy in 2022, wise investors pay attention to the dividends offered. And in the case of Enbridge, they deliver.
For the last 25 years, I hasten to add that they’ve risen their dividends, putting them as one of the top dividend stocks on the Toronto Exchange.
Also encouraging is the fact that their dividends increased at a compound annual growth rate (CAGR) of 14% since 2008. That’s nothing to sneeze at. Despite the lower flow of oil through their pipelines, their dividends are safe.
Meanwhile, the future looks bright for Enbridge, with plenty of growth and pipeline expansion ahead. That should give it the fuel to continue growing its dividend, which it has done for the past 25 years.
If you want to swing oil stocks to buy in 2022, make sure you have the best swing trading strategy. Swing trading isn’t for the faint of heart right now.
Let’s Talk EBITDA
When deciding which oil stocks to buy in 2022, pay attention to the company’s EBITDA or earnings before interest, taxes, depreciation and amortization.
EBITDA is a widely used metric of corporate profitability and can be used to compare companies against each other and industry averages. In simple terms, it helps us to use an “apples” to “apples” approach.
Investors should note that Enbridge’s EBITDA has consistently risen the last number of years. Let me give you an example to put this into perspective.
In the first half of 2020, their EBITDA increased to $7.08 billion, up from $6.98 billion lat year. The company’s diverse revenue streams and resilient businesses continue to drive its EBITDA and cash flows; despite lower throughput in liquid mainline volumes.
Depending on the charts and the market, oil stocks could be good bear market stocks to buy. However, CHECK THE CHARTS!
EOG Resources (NYSE: EOG)
Ranked 181st on the Fortune 500 list, EOG Resources, Inc. is another company involved in the crude oil and natural gas industry. Their primary focus is the exploration, development, production and marketing of the products I mentioned above.
Why Is EOG Resources Apart of Oil Stocks to Buy 2022?
Unlike other oil and gas companies, EOG Resources entered 2022 with a cash-rich balance sheet to the tune of $2.1 billion rich.
Least I forget, they recently amped that up to $2.9 billion by issuing low-cost debt. Despite incremental borrowing, EOG has one of the lowest leverage ratios in the oil and gas sector.
Meanwhile, they also have some of the lowest operating costs in the industry. Further to this, EOG has an enormous supply of drilling locations that bring in bank.
With premiums of around $30 a barrel, the company anticipates that it can generate enough cash to cover both their capital expenses and dividend payout this year.
Is It a Good Time to Invest in Oil Stocks?
- We saw oil get to negative pricing on the stock market earlier this year. Imagine, going to buy oil and seeing it trading negatively. Thankfully, oil has rebounded since that time. Make sure to check the charts of any oil stocks to buy 2020 before buying or selling. That’ll be your best indicator on if it’s a good time to invest in oil stocks.
Let’s Talk Dividends on Oil Stocks to Buy 2022
Not surprisingly, many oil companies this year cut dividends because they needed the cash to square up their shaky balance sheets.
Luckily, EOG resources don’t have that concern. And coupled with a healthy balance sheet and ultra-low-cost drilling operations, EOG Resources’ dividend remains the most secure in the sector.
Zack’s Earnings ESP Surprise
Many investors wonder if they should buy ahead of earnings in anticipation of stocks beating the estimates. With earnings coming up soon, EOG Resources may be one such company.
As of late, EOG Resources has had a favorable earnings estimate revision, which is generally a forerunner to an earnings beat. After all, analysts raised their estimates right before earnings.
Reading between the lines, I say this is a pretty good indicator of some favorable trends underneath the surface for EOG.
In fact, the broader Zacks Consensus Estimate is at a loss of 14 cents a share. However, the most accurate estimate for the current quarter is currently at a loss of 11 cents per share for EOG.
In plain terms, analysts just bumped up their estimates for EOG. Overall, this gives EOG resources a Zacks Earnings ESP of +21.99% heading into earnings season.
Another research report from Stock Rover.
Analysts Price Targets
Of 27 Wall Street analysts looking at oil company EOG, 11 have given hold ratings, 16 buy ratings and 0 have given sell ratings.
According to analysts, the EOG oil stock’s target price is $68.46, with a high price target of $111.00.
At the same time, EOG Resources has been the subject of 16 research reports in the past 90 days. One can see this as a reflection of strong analyst interest in this stock.
Why Is This Important?
When you crunch the numbers over the last ten years, a positive Zacks Earnings ESP has proven to be a very powerful tool.
In a recent backtest, stocks with a positive Earnings ESP along with a Zacks Rank of #3 (hold) or better, show positive surprises nearly 70% of the time. Further to that, these stocks have returned over 28% on average in annual returns.
Considering the fact that EOG has a Zacks Rank #2 (Buy) and an ESP in positive territory, savvy investors might want to consider buying this oil stock ahead of earnings.
Even if you miss buying before earnings, it’s still a buy and hold for decades. You’ll most certainly benefit from high dividend income and capital appreciation.
Oil Stocks Update & Shareholder Value
When oil prices are low and future demand is uncertain, oil companies will spend much less to develop new opportunities. It can take a year to successfully complete a new project. Furthermore, any existing infrastructure won’t be updated.
Instead, capital will be put towards renewable energies and environmental concerns. This has been the case in the last decade. This sector saw a shortage of investments, until this year.
Producers are attracting new investors and are simultaneously seeing record profits. Let’s explore which companies have been successful this year and their impact on their shareholders.
Devon Energy (NYSE: DVN)
Oil companies are stacking money in their pockets and so are their shareholders. Devon was the first oil company to launch a fixed-plus variable dividend program. What does this mean? There is a base quarterly dividend paid to shareholders.
On top of that, there is an additional dividend that can reach 50% of its cash flow. Many oil companies have a ceiling for new yearly well drills. The remaining money is for renewable projects as well as excess dividend distributions. Currently, the dividend yield is almost at 9%.
In Devon’s case, the base and variable dividend payments have both increased in the last year. But wait, there’s more.
Recently, Devon purchased more oil-producing land in the Williston Basin. If oil prices keep increasing, this investment can pay out even more for the company as well as for investors. At the moment, the company’s financials look great.
Many investors will jump on this oil ship for growth and increased dividend payouts. As long as there is a shortage of oil and prices are high at the pump, this play can remain very profitable.
Pioneer Natural Resources (NYSE: PXD)
Similar to oil stocks to buy in Devon, Pioneer adopted the fixed-plus variable dividend program. The main difference is that the additional dividend can reach 75% of its cash flow. Pioneer’s most recent dividend payout reached an 11% annualized yield.
In the last quarter, it repurchased shares. Its shareholders saw even more green in their pockets. All this represented an 88% return of its free cash flow to its investors. Pioneer is the leader in this category.
Diamondback Energy (NASDAQ: FANG)
More oil stocks and more good news. Diamondback is also showering its investors with dividends. Just like Devon, the company is committing up to 50% of its free cash flow toward a fixed-plus variable dividend program. Since 2020, its dividend increased by more than 500%.
Take that dividend aristocrats. Furthermore, Diamondback implemented aggressive share repurchase agreements. Its last dividend payout represented a 10% yearly dividend yield. Its shareholders are finally rewarded after years of suffering.
Dividend distributions don’t stop with these companies. The majority of big players established special dividend programs to attract more investors. Conoco Phillips (NYSE: COP) and EOG Resources (NYSE: EOG) have similar policies. All this is positive as long as oil prices remain high. How much longer will this last?
Oil Future Outlook
What externalities can keep the price of oil at current levels or even higher? To begin with, the war with Russia has repercussions around the world.
Europe and the US claim they can find their oil elsewhere, but as we established earlier, setting up new wells and having them ready for production doesn’t take a few weeks.
It’s a matter of months, unless we want another ecological disaster on our hands.
Realistically, the war between Russia and Ukraine doesn’t seem like it will end anytime soon. To add more fuel to the fire, Russia is threatening its neighboring countries.
What effects could that have? Nobody is quite certain yet. In any case, oil companies seem to be in business for the short term. On the other hand, consumers who are dependent on oil to commute are in for a ride.
What would happen if the war comes to an end? It is unlikely that prices will drop because demand will remain much higher than the supply. Many experts believe that the price of oil will continue to increase.
Foreign exporters will increase their available supply, but long-distance transport is much more costly than Russian oil. Angola, Brazil and Iraqi production have already risen 40-50%, but these countries remain much further away than neighboring Russia for Europe.
One last thing. Despite global COVID restrictions declining, China tightened them. This month, the country is finally relaxing their measures. This means more movement within the country and an increase in oil demand. For the moment, China is remaining on Russia’s good side. However, if China respects global sanctions against Russia, it will need foreign supply as well. Prices will once again increase.
Your Next Steps
If you want oil stocks to buy 2022, you can certainly day or swing trade them for a more short term return. Now I know some oil stocks have pretty high share prices, but don’t let that dissuade you.
Bullish Bears will show you a simple way to “buy” 100 shares of a stock without evening owning it. Yes, you read that right, and no, it’s not a typo.
Join us today for free, and we’ll show you how to get your hands on these oil stocks. With a little bit of hard work and a commitment to learning, profits will be flowing faster than the water and steam out of Yellowstone’s geyser.
Bullish Bears urges you to do your own research and nothing on this website constitutes a recommendation to buy. By using our site you agree to our disclaimer.