If any sector has taken a beating in 2020, it is energy. Many of the top companies in the sector have been forced to cut capital expenditures, in some cases to lower or eliminate dividends, and generally hunker down until there is an improvement in demand. One huge positive for the sector is the prospect of COVID-19 vaccines coming to market soon. In a new survey of portfolio managers, energy is one of the top picks for 2021.
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A new BofA Securities report notes that the recent fund manager survey was the most bullish of the year and that there was a 20-year high in sentiment for gross domestic product. While the BofA team remains very cautious, they feel we are close to what they term a “full bull” scenario, and they actually would be sellers of additional positive vaccine news. They note that energy is one of the top ideas for next year, along with emerging markets and the S&P 500.

Given the shakeout in energy, we decided to screen the BofA Securities energy research database for quality companies that pay dependable dividends. The following four top stocks look like solid buys for growth and income investors intending to shift portfolios some for 2021. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Chevron

This energy giant is a safer way for investors looking to be positioned in the energy sector. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG).

Back in the spring, at the height of the pandemic, Chevron slashed spending after halting its $5 billion-a-year share buyback and halving spending in the Permian Basin, which means a large decrease in projected output from America’s biggest shale region.

The California-based oil giant lowered projected 2020 capital spending by 20%, or $4 billion. The Permian will account for the largest single element of that reduction, translating into 125,000 fewer barrels of oil equivalent per day than previously forecast, a quantity equal to about 2.5% of the basin’s total current production.

On a positive front, Chevron posted a surprise profit on better downstream, with the company close to breaking even on a cash basis, including the dividend. Preliminary 2021 capital spending guidance suggests it will be flat to lower, but inclusive of 330 thousand barrels of oil equivalent per day from the purchase of Noble Energy.

Investors in Chevron stock receive a massive 5.67% dividend, which still appears to be safe. BofA Securities has a Buy rating and a $97 target price. The Wall Street consensus target is $95.28, and a Monday close of $91.03 a share followed a huge 6% gain for the day.

ConocoPhillips

This is another large-cap company, and it also resides on the Goldman Sachs U.S. 1 list of top stocks. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, LNG and natural gas liquids worldwide.

Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects.

Many Wall Street analysts feel that Conoco can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, with visibility on future growth from a sizable position in the Permian.

Investors receive a healthy 4.03% dividend. The BofA Securities price target is $45, while the consensus target is $46.09. ConocoPhillips stock was last seen trading at $42.71, after a 7.7% gain on Monday.
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Exxon Mobil

The energy giant is trading at levels that are higher than the March lows, but the short sellers have stood their ground. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

This was an outstanding short earlier in the year, especially when oil futures cratered to literally below zero, but one would think hedge funds are keeping a close eye on this position because if the economy opens up even some, the benchmark price could go back above the $50 level or higher.

The company offers a huge 8.84% dividend, which probably will continue to be defended. BofA Securities has a Buy rating with a $74 price target. The consensus target is much lower at $43.30. Exxon stock closed Monday at $39.36 per share.

Valero Energy

This Wall Street favorite is a very solid energy play for more conservative balanced accounts. Valero Energy Corp. (NYSE: VLO) is one of the largest independent petroleum refining and marketing companies in the United States. It is based in San Antonio, Texas; owns 13 refineries in the United States, Canada and Europe; and has a total throughput capacity of around 2.5 million barrels per day.

Valero also is a joint venture partner in Diamond Green Diesel, which operates a renewable diesel plant in Norco, Louisiana. Diamond Green Diesel is North America’s largest biomass-based diesel plant.

Valero sells its products in the wholesale rack or bulk markets in the United States, Canada, the United Kingdom, Ireland and Latin America. Approximately 7,400 outlets carry Valero’s brand names.

Investors receive an outstanding 6.99% dividend. The BofA Securities analysts are very bullish and have a $75 price target. The consensus target is lower at $58.56. Valero Energy stock ended Monday at $56.09 a share, after an incredible jump of over 10%.

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While there is always an outside chance that any of these companies could still cut their dividends, it seems unlikely now that the worst for the sector and benchmark oil pricing seemingly has passed. We stick with three integrated giants and a large-cap refiner as they all have the ability to fight through cyclical drops in the sector and oil pricing, have multiple income streams and have already done a large amount of fiscal belt-tightening this year.

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