If you haven’t been buying the best energy stocks, there’s still time. It’s a simple math problem. Just a year ago, oil was struggling to stay above $70 a barrel. It’s now likely that $80 will be the new floor for crude oil. Industry executives and analysts are saying that $100 oil is a high probability. And if the conflict between Israel and Gaza expands into a broader conflict, oil could move sharply higher.
The takeaway for investors is that this a time to invest in the economy that is, rather than the economy we might like. The current economy means it’s time to invest in energy stocks. And while renewable energy and clean energy stocks will have their time, in this moment, the best energy stocks are found in the traditional oil and gas companies.
Despite many of these stocks having a recent rally, many of these stocks have an attractive valuation and room to move higher. Here are seven of the best energy stocks to consider in October 2023.
Enterprise Products Partners (EPD)
Enterprise Products Partners (NYSE:EPD) is one of the best energy stocks for income-oriented investors. The midstream oil company operates over 50,000 miles of pipeline in which it transports natural gas liquids, crude oil, natural gas, and other petrochemicals.
As with many things, location matters. The company’s pipeline network spans the fast-growing Permian basin to Gulf Coast refineries. And the company’s network is growing to meet surging energy demand.
Enteprise Products Partners operates as a master limited partnership (MLP). This is a business model that requires a company to return a high percentage of their earnings to shareholders in the form of a dividend.
In the case of Enterprise Products Partners, the dividend yield is 7.24%, and the company has increased its dividend for 20 consecutive years. Analysts expect the company to deliver 5.16% earnings growth over the next 12 months to ensure the safety of that dividend in 2024.
EOG Resources (EOG)
EOG Resources (NYSE:EOG) is an upstream company in the oil sector. Upstream companies tend to be among the best energy stocks when oil prices are rising. To begin with, these companies are directly involved with getting oil out of the ground. Higher oil prices make this more cost-effective.
That is reflected in the EOG stock price. Earlier in 2023, the stock was trading at 52-week lows as oil languished around $60 per share. But EOG stock has been rallying sharply in the last three months and is now up over 4% in 2023.
Earnings growth is expected to be around 16% in the next 12 months. This will not only be the fuel for more stock price growth, it also makes the company’s dividend, which currently yields around 2.4% very safe. In fact, the company has made a commitment to return a minimum of 60% of its annual free cash flow to shareholders.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) is one of the safest bets in the oil and gas industry. The company operates as an integrated oil company. That means it has operations at every level of the process (upstream, midstream, and downstream).
When oil prices are surging, companies like Exxon Mobil have the ability to generate significant revenue and strong earnings. While these “windfall profits” may bother some activists, it is a benefit to shareholders. The company currently delivers an annual dividend of $3.64 per share to investors. Currently, that equates to a dividend yield of 3.28%.
And right now, Exxon Mobil offers investors great value. As of October 16, 2023, XOM stock is trading at around 11.8x forward earnings. Despite 8.8% stock price growth in the last three months, XOM is still trading slightly negative in 2023 and it’s trading in the middle of its 52-week range.
Next up on this list of best energy stocks is Chevron (NYSE:CVX). This is another integrated oil company that does a significant amount of its upstream business in the coveted Permian basin area. Chevron has fallen out of favor among some institutional investors. Part of this is due to the effect of higher interest rates on oil companies.
But Chevron is well positioned to thrive in the current environment and will be a beneficiary when interest rates move lower. Like Exxon Mobil, CVX stock is trading at an attractive valuation. Its forward P/E ratio is 11.9%. The company is expecting earnings to grow by 10% in the next 12 months.
And investors get one of the more attractive dividends in the sector. Chevron is a dividend aristocrat that has increased its dividend in 37 consecutive years. Along with a 3.67% dividend yield, the stock pays investors $6.04 per share on an annual basis.
Schlumberger (NYSE:SLB) is an oil services company that is benefiting from the renewed investment being made by major oil companies like Exxon Mobil and Chevron. This also highlights the steps the company has taken to improve its balance sheet, specifically in areas such as its cash flow and operations. This has allowed the company to start increasing its dividend after it cut (not suspended) its dividend in 2020 at the onset of the pandemic.
OIl demand is likely to remain at elevated levels for some time which will be a catalyst for Schlumberger. The stock is trading at a forward P/E ratio of around 19.8x. That’s higher than some stocks in this sector. However, earnings growth at around 25% for the next 12 months is likely to support the company’s higher valuation.
ConocoPhillips (NYSE:COP) is another upstream company that makes this list of best energy stocks to buy for October. The company is one of the world’s largest independent exploration and production companies measured in total production and proven reserves. The company has operations on five continents.
COP stock is up 17% in the last three months. However, analysts project that there may be another 10% upside in the stock. Much of that is based on projected earnings growth of over 21% in the next 12 months.
Plus, investors get a dividend that currently has a yield of 1.63%. While that is among the smallest yields in the industry, the company was able to maintain, and grow, its dividend in 2020 and 2021. And with business in the oil sector being much different in late 2023 then it was in 2020 or even earlier in 2023, ConocoPhillips is an undervalued oil stock that is positioned to deliver strong growth and value.
Energy Select Sector SPDR Fund (XLE)
The Energy Select Sector SPDR Fund (NYSEARCA:XLE) gives investors exposure to many of the best energy stocks in a single fund. In fact, the fund has exposure to five of the six stocks listed above, and over 40% of the fund’s holdings are those of integrated oil companies. Over 95% of the fund’s holdings are those of U.S. companies.
The XLE attempts to match the performance of the Energy Select Sector Index. The fund has an attractive expense ratio of just 0.10%, has over $39 billion in assets under management (AUM), and offers investors a 3.59% dividend yield.
Like most funds, the goal is to smooth out the volatility (and risk) that investors may take on from any one sector. However, investors who prefer to pick their own stocks may get a better total return by picking out a few of the individual names in the fund.
On the date of publication, Chris Markoch had a LONG position in CVX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.