Energy stocks have experienced a good week thus far as crude oil prices rebounded. I firmly believe energy stocks are set for a significant uptick over the next 12 months. Many of the large-cap energy companies have underperformed for years, but their margins are widening with inflation. At the same time, they still possess the necessary pricing power and control over their own supply.
Here are my picks for now.
Devon Energy
Devon Energy Corp. (DVN, Financial) has improved its cash flows with the acquisition of WPX Energy. The company has made a strategic decision to divest its non-oil assets and reinvest into U.S. oil-rich projects, which will lead to better overall operating efficiency.
Petróleo Brasileiro
More commonly known as Petrobras, Petróleo Brasileiro SA (PBR, Financial) is a dividend play. The dividend is yielding at 9.06%, and this may well increase as the company continues to crush earnings. The stock has received upgrades by the likes of Credit Suisse and Scotiabank over the past month.
Chevron
Chevron Corp. (CVX, Financial) is another stock that is in a good spot at the moment. The company recorded a loss a year ago, but rediscovered profitability in the second quarter with $3.08 billion in net income. Chevron has decided to revive its $30 billion share repurchase plan, providing significant support to the stock's intrinsic value.
Sasol
Sasol Ltd. (SSL, Financial) is an emerging market play. The energy producer is set to benefit from plans that the South African government, the public investment fund and the company itself have agreed on regarding a public-private partnership to help build the hydrogen economy, which could provide significant support to the stock.
Final word
Energy stocks could be an excellent addition to your portfolio as they have been overlooked for years. Due to their vertically integrated business models, energy companies tend to outperform other sectors financially during inflationary periods. I firmly believe the stocks mentioned will bear fruit over the next year.
