After a horrific year, investors soon will be receiving the dreaded fourth-quarter and year-end statements, and they will not be pretty. The Nasdaq ended the year down a stunning 33%, while the S&P 500 was battered to the tune of 19.4%, putting one of the indexes firmly in bear market territory and the other knocking on the 20% down door. The venerable Dow Jones Industrials finished the best of the worst, down right at the 10% mark.

So what is the plan for 2023? BofA Securities Equity and Quant strategy guru Savita Subramanian, along with her team, feel that last year’s big winner, the energy sector, could once again shine in 2023. She is also quite positive on stocks that generate dependable dividend income, as total return could play a large part of a winning portfolio this year.

The extensive BofA Securities year-end research notes that energy is aided by the kind of inflationary environment in which we remain. While peak inflation likely has been hit, we are still in an environment with prices rising 7% year over year. Plus, energy stocks have come down in price since oil hit $120 per barrel last June.

We screened the BofA Securities energy research database, looking for Buy-rated companies that offer big and dependable dividends that could be raised in 2023, and found the following six top picks. It is important to remember, though, that no single analyst report should be used as a sole basis for any buying or selling decision.

APA

This company was long considered an industry leader when it was known as Apache, and the stock is perhaps offering one of the best entry points in the sector. APA Corp. (NYSE: APA) explores for and produces oil and gas properties. It has operations in the United States, Egypt and the United Kingdom, as well as has exploration activities offshore Suriname. It also operates gathering, processing and transmission assets in West Texas, as well as holds ownership in four Permian-to-Gulf Coast pipelines.

The company is one of the largest U.S. exploration and production companies, with 2.3 billion barrels of oil equivalent of proven reserves (63% liquids). It is an explorer, acquirer and exploiter, and a fiscally conservative company that has grown its reserves and production consistently via acquisitions and organic projects.

APA reported third-quarter net income of $422 million, after reporting a loss in the same period a year earlier. The company said it had profit of $1.28 per share, and adjusted earnings topped Wall Street expectations.

Shareholders receive a 2.14% dividend. BofA Securities has a $65 price target for APA stock, and the consensus target is just $55.73. The last trade for Friday came in at $46.68 a share.

Chevron

This integrated giant remains a safer way for investors looking to get positioned in the energy sector. Chevron Corp. (NYSE: CVX) engages in integrated energy and chemicals operations worldwide.

The Upstream segment is involved in the exploration, development, production and transportation of crude oil and natural gas; processing, liquefaction, transportation and regasification associated with LNG; transportation of crude oil through pipelines; and transportation, storage and marketing of natural gas, as well as operating a gas-to-liquids plant.
Chevron’s Downstream segment engages in refining crude oil into petroleum products; marketing crude oil, refined products and lubricants; manufacturing and marketing of renewable fuels; transporting crude oil and refined products by pipeline, marine vessel, motor equipment and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. It is also involved in cash management and debt financing activities, insurance operations, real estate activities and technology businesses.

Chevron stock comes with a 3.19% dividend. BofA Securities has set a $190 target price, a bit lower than the $191.81 consensus target. The shares closed on Friday at $179.49.

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 (LNG) and natural gas liquids (NGLs) 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 Basin.

Investors receive a 2.01% dividend. The BofA Securities price target is $140. The consensus target is $138.67, and ConocoPhillips stock closed at $118.00 on Friday.

Exxon Mobil

Despite the rally in oil this year, this mega-cap energy leader trades at a reasonable valuation and still offers investors an excellent 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.

Top Wall Street analysts expect Exxon to remain a key beneficiary in this higher oil price environment, and most remain strongly positive about the company’s sharp positive inflection in capital allocation strategy, upstream portfolio, and leverage to a further demand recovery, with Exxon Mobil offering greater downstream/chemicals exposure relative to peers.

The top U.S. oil producer reported a per-share profit of $4.68, easily exceeding Wall Street’s consensus view, on a huge jump in natural gas earnings, continued high oil prices and strong fuel sales.

The yield here is 3.30%, and the dividend will continue to be defended. Exxon Mobil has a $136 price target at BofA Securities. The consensus target is lower at $118.02, and Friday’s closing share price was $110.30.

Shell

This European energy giant offers investors size and strength. Shell PLC (NYSE: SHEL) operates as an energy and petrochemical company in Europe, Asia, Africa, the Americas and elsewhere.
Shell explores for and extracts crude oil, natural gas and NGLs. It markets and transports oil and gas, produces gas-to-liquids fuels and other products, and operates upstream and midstream infrastructure necessary to deliver gas to market. The company also markets and trades natural gas, LNG, crude oil, electricity and carbon-emission rights, and it markets and sells LNG as a fuel for heavy-duty vehicles and marine vessels.

In addition, the company trades in and refines crude oil and other feed stocks, such low-carbon fuels, lubricants, bitumen, sulfur, gasoline, diesel, heating oil, aviation fuel and marine fuel. It produces and sells petrochemicals for industrial use, and it manages oil sands activities. Further, the company produces base chemicals, comprising ethylene, propylene and aromatics, as well as intermediate chemicals, such as styrene monomer, propylene oxide, solvents, detergent alcohols, ethylene oxide and ethylene glycol.

Additionally, it generates electricity through wind and solar resources, produces and sells hydrogen and provides electric vehicle charging services, as well as electricity storage.

Shareholders receive a 3.53% dividend. The $70 BofA Securities target price is greater than the $67.69 consensus target and Friday’s close at $56.95.

TotalEnergies

This French integrated giant is another great way to play an energy rally from the European side. TotalEnergies S.E. (NYSE: TTE) operates as an integrated oil and gas company worldwide. Its Exploration & Production segment engages in oil and natural gas exploration and production activities in approximately 50 countries.

The Integrated Gas, Renewables & Power segment engages in the LNG production, shipping, trading and regasification activities; trading of liquefied petroleum gas (LPG), petcoke and sulfur, natural gas and electricity; transportation of natural gas; electricity production from natural gas, wind, solar, hydroelectric and biogas sources; energy storage activities; and development and operation of biomethane production units, as well as provides energy efficiency services.

The Refining & Chemicals segment refines petrochemicals, including olefins and aromatics; and polymer derivatives, such as polyethylene, polypropylene, polystyrene and hydrocarbon resins, as well as biomass conversion and elastomer processing. This segment also engages in trading and shipping crude oil and petroleum products.

The Marketing & Services segment produces and sells lubricants; supplies and markets petroleum products, including bulk fuel, aviation and marine fuel, special fluids, compressed natural gas, LPG and bitumen; and provides fuel payment solutions. It operates approximately 15,500 service stations.

Shareholders receive a 4.63% dividend. The BofA Securities price target of $92 compares with a $71.19 consensus target, and TotalEnergies stock closed at $62.08 on Friday.

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Given the shaky geopolitical state of the world, we decided to focus on the mega-cap domestic and foreign sector leaders. Needless to say, if the current administration fails to pivot at some point on the overregulation and energy policy mistakes, the current supply situation likely will worsen. Now is a good time to stay with or to start accumulating mega-cap energy leaders for 2023, especially after the backup in the stock prices.

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