Broad inflationary pressures are increasing. To rein in inflation, which is near a 40-year high mark, the Federal Reserve announced the approval of its third successive interest-rate rise of 0.75 percentage points. There are signals from the Fed that in the upcoming meetings, additional significant rate hikes are likely, thereby increasing fears of recession and spurring market volatility. The energy sector is known for its volatile business scenario, and a slowdown in economic activities could significantly dent energy fuel demand.
Companies belonging to the sector have been witnessing a choppy business environment since the onset of the coronavirus pandemic. The initial pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The commodity’s price plunged to a negative $36.98 per barrel on Apr 20, 2020. However, with the rapid developments of vaccines by the scientists, which in turn led to the gradual opening of the economies, the pricing scenario of West Texas Intermediate (WTI) crude improved drastically over time to reach $123.64 per barrel on Mar 8, 2022. Oil price data are per the U.S. Energy Information Administration.
Considering the backdrop of heightened uncertainties engulfing the energy market, it would be wise for investors to bet on large-cap stocks like Exxon Mobil Corporation XOM, Chevron Corporation CVX and Schlumberger Limited SLB.
Large-Cap Energy Players to the Rescue
Operations of large-cap energy companies are more stable than mid or small-cap players. This is because they have large, diversified and well-established operations, and client goodwill. Hence, large-cap companies have strong capabilities to sail through business uncertainties, banking on strong financials. Also, big energy companies have a steady dividend payment history, making those stocks relatively less volatile in uncertain times. Along with protecting a portfolio in uncertain times, these stocks have long-term steady growth prospects.
Hence, it’s an ideal time to buy large-cap stocks from the energy space, especially when prices are down due to the overall volatile business environment fueled by recession fears. We have employed our Stock Screener to zero in on three such stocks with a market capitalization value of significantly higher than $10 billion. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
3 Stocks to Buy
ExxonMobil: ExxonMobil has a pipeline of key projects in the Permian – the most prolific basin in the United States – and offshore Guyana. In the Permian, ExxonMobil has an inventory of more than 8,000 well locations, with the integrated energy major estimating a net of 10 billion oil-equivalent barrels of recoverable resource. In offshore Guyana, it made several oil and gas discoveries. Like upstream businesses, ExxonMobil also benefits from its strong refinery utilization.
In the past month, XOM has lost 8.1%, creating a buying opportunity since the stock is likely to see earnings growth of 23.7% in the next five years, surpassing the industry’s 11.9%.
Chevron: CVX is banking on its low-cost assets, comprising the prolific Permian. Chevron’s conservative capital spending discipline has cleared the path for solid cashflow generation. Among the companies in the energy sector, Chevron’s balance sheet is among the strongest, giving the company an edge to counter any business downturn.
In the past month, CVX has lost 5.1%, creating a buying opportunity since the stock is likely to see earnings growth of 14% in the next five years, surpassing the industry’s 11.9%.
Schlumberger: SLB believes strong upstream E&P spending will continue because of an urgency to increase oil and gas production capacity. This is going to aid Schlumberger’s oilfield services.
In the past month, SLB has lost 4.2%, creating a buying opportunity since the stock is likely to see earnings growth of 38.8% in the next five years, surpassing the industry’s 35.3%.
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