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Can Energy Stocks Win Again in 2023?

  • (1:00) - Will Energy Continue Its Strength Into 2023?

  • (7:45) - Tracey’s Top Picks: Stocks To Keep On Your Watchlist

  • (20:30) - Episode Roundup: XLE, XOM, VLO, SLB, EOG

  • Podcast@Zacks.com

 

Welcome to Episode #309 of the Value Investor Podcast.

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

Energy has been the best performing sector in the S&P 500 in 2022. It also held that title in 2021. Can energy keep its crown 3 years in a row?

Many traders are dubious. Energy stocks have already weakened in Dec 2022 as crude and natural gas prices have eased from recent highs.

But energy stocks are still cheap, on a P/E basis, and free cash flows are still elevated with WTI crude over $65. It’s been trading over $70 the last six months.

But will all energy stocks rise, as they have been the last 2 years? Or will one part of the industry rise above the rest?

5 Ways to Invest in Energy Stocks in 2023

1.       Energy Select SPDR XLE

The XLE is one of the top energy ETFs. It was created in 1998, at the start of the last energy bull market. The XLE has 22 holdings across all aspects of the industry from the producers, to refiners, marketing, and the integrated oil companies.

Exxon Mobil and Chevron are the two largest holdings and make up 42.58% of the total portfolio. If you want a big position in the two largest integrated oil companies in the United States, then the XLE is for you.

Shares of XLE are up 51% year-to-date and over the last 2 years are up 104%.

It has an expense ratio of 0.1% and currently pays a dividend yielding 3.4%.

Should investors still be buyers of XLE in 2023?

2.       Exxon Mobil Corp. XOM

Exxon Mobil is a large integrated oil company. The integrated oil companies have a Zacks Industry Rank in the top 27%.

Shares of Exxon Mobil are up 71% year-to-date but are still cheap, on a P/E basis. Exxon Mobil has a forward P/E of just 7.5.

However, earnings are expected to decline 21.4% next year after 2022’s big year.

Is it too late to buy Exxon Mobil?

3.       Valero Energy Corp. VLO

Valero is a refiner. The refining industry has a Zacks Industry Rank in the top 18%.

Shares of Valero have been on a tear in 2022, gaining 54% year-to-date. It’s still dirt cheap, however, with a forward P/E of just 4.3.

Earnings have soared in 2022, with analysts expecting them to jump 894% to $27.95 from just $2.81 last year. But in 2023, earnings are expected to fall 29%.

Valero pays a dividend, yielding 3.3%.

Should investors consider the refiners in 2023?

4.       Schlumberger Ltd. SLB

Schlumberger is in oil field services globally. Oilfield services has a Zacks Industry Rank in the top 9% of all Zacks industries. It ranks 23 out of 250 industries.

Shares of Schlumberger are up 64% year-to-date but the stock isn’t as cheap as some of the others. It trades with a forward P/E of 24.

However, earnings are still expected to be on the rise. Earnings are forecast to rise 67.9% in 2022 and another 40.6% in 2023 as producers ramp up oil and natural gas production next year.

Should oil field service companies like Schlumberger be on your short list?

5.       EOG Resources, Inc. EOG

EOG Resources is an exploration and production company. The E&Ps no longer have a high Zacks Industry Rank. The E&P industry ranks in the bottom 32%, or 172 out of 250 industries.

Shares of EOG Resources are up 38% year-to-date, but have weakened over the past month, falling 17% during that time. EOG Resources is still cheap, with a forward P/E of just 9.

Earnings of the producers are directly correlated to the price of oil and natural gas, both of which have come down in recent months. Analysts expect EOG Resources earnings to grow just 5% in 2023.

Is the recent weakness in EOG Resources a buying opportunity in the stock?

What Else Should You Know About Energy Stocks Heading into 2023?  

Tune into this week’s podcast to find out.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Exxon Mobil Corporation (XOM) : Free Stock Analysis Report

Schlumberger Limited (SLB) : Free Stock Analysis Report

Valero Energy Corporation (VLO) : Free Stock Analysis Report

EOG Resources, Inc. (EOG) : Free Stock Analysis Report

Energy Select Sector SPDR ETF (XLE): ETF Research Reports

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Zacks Investment Research