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Energy Stocks Have Soared This Year, but, These 3 Still Look Like Great Buys
CVXChevron(CVX) The Motley Fool·2024-11-17 15:10

Core Viewpoint - The stock market, particularly the energy sector, has seen significant gains this year, with the average energy stock in the S&P 500 up over 10% [1]. Despite this rally, certain energy stocks like Chevron, MPLX, and Occidental Petroleum are highlighted as compelling investment opportunities. Chevron - Chevron is a leading integrated energy major with a market cap of 275billion,diversifiedacrossupstream,midstream,anddownstreamoperations[2].−Thecompanyhasalowdebt−to−equityratioofapproximately0.17,indicatingstrongfinancialhealth,andhasahistoryofannualdividendincreasesforover30years[2].−Chevron′sstockhaslaggedbehindtheenergyrally,primarilyduetoitsongoingacquisitionattemptofHess,whichiscomplicatedbyExxon′spartnershipwithHess[3].−DespitepotentialsetbacksfromtheHessdeal,Chevronisviewedasalong−terminvestmentopportunity,offeringa4.2275 billion, diversified across upstream, midstream, and downstream operations [2]. - The company has a low debt-to-equity ratio of approximately 0.17, indicating strong financial health, and has a history of annual dividend increases for over 30 years [2]. - Chevron's stock has lagged behind the energy rally, primarily due to its ongoing acquisition attempt of Hess, which is complicated by Exxon's partnership with Hess [3]. - Despite potential setbacks from the Hess deal, Chevron is viewed as a long-term investment opportunity, offering a 4.2% dividend yield while navigating these challenges [4]. MPLX - MPLX units have appreciated about 25% this year, yet the master limited partnership still presents an attractive investment option [6]. - The partnership offers a high yield exceeding 8%, supported by a low valuation of around 10 times earnings and consistent distribution growth, including a recent 12.5% increase [7]. - MPLX has a conservative payout ratio and generated sufficient cash to cover distributions, capital spending, and acquisitions, with a low leverage ratio of 3.4 times [8]. - The company is expanding its midstream operations, enhancing capacity and cash flow, making it a strong buy for investors comfortable with MLPs [9]. Occidental Petroleum - Occidental Petroleum's shares have underperformed, trading 15% lower in 2024, raising concerns about its debt levels amid falling oil prices [10]. - The company reported strong Q3 profits, attributed to increased production from its recent 12 billion acquisition of CrownRock, which is expected to enhance cash flows [11]. - Occidental is committed to divesting 4.5billioninassetsandrepayingdebtwithinayearoftheacquisition,havingalreadyrepaid4.5 billion in assets and repaying debt within a year of the acquisition, having already repaid 4 billion in Q3 [12]. - The acquisition has allowed Occidental to raise its production guidance for the Permian Basin, positioning the company for continued cash flow generation and debt reduction [13].