Energy stocks have been the worst performers in 2024. The S&P 500 Energy Sector index is up just 1.8% year-to-date, trailing well-behind the 8% gain of the second-worst-performing materials sector let alone tech stocks, which continues to run away with the lead with a 26% jump this year. The S&P 500 as a whole is up 18%
Declining oil prices have weighed on the industry. The global Brent crude benchmark is down 22% over the past year while the U.S.-oriented West Texas Intermediate is down nearly 24%. Even though oil prices started the year off strong, they have weakened considerably over the summer.
Much of that is due to the slowing economies of major oil-consuming countries, especially China, which caused a drop in demand for oil. China is responsible for over 15% of the world’s oil consumption, more than any other country except the U.S., which is also the world’s largest producer.
That creates opportunity for shrewd investors. Energy stock prices have been discounted, opening up the potential to score big gains on the bounce-back from top quality companies. Below are three of the best energy stocks you should be buying in September.
Key Points About This Article:
- Following large run-ups in 2021 and 2022 after the pandemic, energy stocks are depressed by falling oil and gas prices. The sector has the worst performance so far this year.
- With the industry at a low point, here are three companies with compelling tailwinds, strong fundamentals, and attractive valuations that deserve a closer look this month.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Occidental Petroleum (OXY)
Warren Buffett’s favorite oil and gas company Occidental Petroleum (NYSE:OXY) is offering a chance to invest alongside the Oracle of Omaha at a price equivalent to what he paid for his substantial holdings.
Occidental is one of the world’s largest independent exploration and production (E&P) oil companies and its stock is down almost 15% in 2024. Trading at around $51 per share, that’s the average buy-in price Buffett has since he began accumulating the stock in a major way beginning in 2022. There is still room for you to pick up shares.
The oil stock has been investing heavily in the U.S., Middle East, Africa, and Latin America, markets with lower production costs and lower decline rates. That tends to bolster Occidental’s resilience against oil price volatility. Its midstream assets are also benefiting from lower crude oil and transportation rates from the Permian to the Gulf Coast, which should show up in its financial statements late next year. Occidental’s long-term goal, however, is to be an industry leader in low-carbon production through carbon capture technologies and sequestration.
With so many tailwinds behind OXY stock, its current depressed valuation makes it a top energy stock to buy this month.
EQT (EQT)
EQT (NYSE:EQT) is the largest natural gas supplier in the U.S. Its stock is down 14% on lower prices, which have lost more than three-quarters of their value since their 2022 highs. Yet because prices are near the bottom of their trough and we’re heading into the winter months, look for a steady climb higher from here.
While depressed natural gas demand has served as a limiting factor for its business, EQT’s gargantuan size affords it economies of scale to lower costs. That has been enhanced by its acquisition of Equitrans earlier this year, a midstream operator it previously spun off. The reacquisition allows the natural gas supplier to save substantial sums of money it would have to pay to the pipeline operator, further lowering costs. It also provides EQT with more exposure to Gulf Coast export markets.
The growth of data centers provides an additional tailwind. Because of their massive electricity consumption, data centers are placing unsustainable demands on existing power plants that are already operating at or near capacity. That should allow for more natural gas plants to be constructed increasing demand for EQT’s supply.
The stock trades at very discounted valuations and is currently offered below its book value, making for an excellent entry point for investors in September.
Energy Transfer (ET)
The third energy stock you should be buying this month is midstream operator Energy Transfer (NYSE:ET). It has transformed itself into one of the largest owners of pipelines and storage facilities nationwide allowing it to move oil and gas supplies from just about anywhere in the continental U.S. Natural gas, natural gas liquids (NGLs), crude oil, and refined products can all be readily transferred to both coasts, the Gulf of Mexico, and up to the Canadian border.
Similar to the catalysts accruing to EQT with its acquisition of Equitrans, Energy Transfer will similarly benefit from increased data center electricity consumption. The midstream operator is already connected to 55% to 60% of the power plants in Texas, an important data center market. As one of the cheapest regions in the country for electricity, Texas is an attractive growth market.
Energy Transfer is also an attractive dividend-paying energy stock, with a payout yielding 8% annually. The one word of caution is the midstream operator is organized as a master limited partnership (MLP). When investing in MLPs, there are complex tax issues investors need to consider before buying in. Yet, if it is right for your situation, Energy Transfer is a high-yield energy stock that deserves a place in your portfolio in September.
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