Clearly, 2021 has been a banner year for equities, with the S&P 500 up a stunning 25%. While the going was pretty easy by historical standards, with only one 5% drop year to date, there is a good chance that 2022 could bring some tougher sledding. The tapering of the quantitative easing program, which was designed to keep interest rates low, starts this month, and some feel that the Federal Reserve may be forced to raise interest rates earlier than expected due to the surge in inflation.
Given the potential for a more difficult 2022, the equity strategists at BofA Securities are focusing on three top sectors to own for 2022. The one with some of the biggest upside potential is energy. In a new research report, they make the case that energy stocks will be solid 2022 picks, as they offer the highest free-cash-flow inflation-protected yield among the S&P 500 sectors and are actually an inflation beneficiary.
In addition, energy stocks can rise when oil goes higher, regardless of whether it is driven by demand or supply. We screened the BofA Securities energy research universe and found four stocks rated Buy that pay outstanding and reliable dividends. While the four top stocks look like very solid ideas for 2022, and all are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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Chevron
This integrated giant is a safer way for investors looking to stay or get long in the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX | CVX Price Prediction) is a U.S.-based 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. Some analysts estimate the company will have a compound annual growth rate of over 5% for the next five years.
With the strongest financial base of the majors, coupled with an attractive relative asset base, many on Wall Street feel that Chevron offers the most straightforwardly positive risk/reward. Although current conditions do not warrant a large focus on production growth, Chevron possesses numerous medium-term drivers that should support production levels in the coming years.
The analysts feel comfortable the 4.50% dividend will remain at current levels. BofA Securities has a $135 price target on Chevron stock. That compares with a consensus target of $128.15. The shares recently closed at $117.19 apiece.
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ConocoPhillips
This is another large cap company that offers strong value for investors. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas 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 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 2.46% dividend. The BofA Securities price target is $90. The consensus price target for ConocoPhillips stock is $89.15. The stock was last seen trading Wednesday at $74.83.
EOG Resources
This leading energy firm shows up well on many Wall Street screens. EOG Resources Inc. (NYSE: EOG) is one of the largest independent exploration and production companies operating in the United States, Canada, Trinidad, the United Kingdom and China.
EOG has secured four years of drilling permits, while retaining flexibility to reallocate resources to other parts of the portfolio and off federal property. EOG has 3,000 locations not on federal lands, which most on Wall Street expect to expand through its exploration.
The dividend yield is 3.25%. The $110 price target at BofA Securities is less than the $111.06 consensus price target. EOG Resources stock closed at $93.05 Wednesday.
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Exxon Mobil
Shares of this mega-cap energy leader backed up nicely as oil sold off in August, and they still offer investors an incredible entry point. 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.
The company has announced that ExxonMobil Catalysts and licensing has introduced ExxonMobil Renewable Diesel (EMRD) process technology to help meet the evolving needs for mobility, while utilizing renewable feedstock. This new process technology converts feedstocks including, but not limited to, vegetable oils, unconverted cooking oil and animal fats, into renewable diesel. Due to significant interest in producing renewable jet fuel as a primary product, Exxon is also developing advanced catalyst and process technology solutions that will offer EMRD process licensees flexibility to tailor the amount of jet fuel versus diesel produced.
Exxon Mobil stock investors receive a 5.55% dividend, which will continue to be defended. BofA Securities has set a $90 price target. The consensus target is just $71.52 and shares closed Wednesday at $63.48.
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Even with interest rates undoubtedly going higher next year, most feel that the Federal Reserve will just be targeting two quarter-point moves, which would leave the federal funds rate still below 1%. That, combined with the tapering of the quantitative easing bond purchases will have an impact for sure, but not enough to discourage investors from buying these top companies.
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