Stocks in the energy sector have had a volatile run in 2023 so far. Against a backdrop of persistently high inflation and interest rates, the Energy Select Sector SPDR Fund (XLE), which tracks the performance of the S&P 500 Energy Index, is up only 6.7% on a YTD basis, compared to a gain of more than 17% for the S&P 500 Index ($SPX).
However, with OPEC+ members throttling production, oil prices are back on the upswing. Crude for October delivery (CLV23), the most active futures contract, hit its highest price in 10 months today as both Saudi Arabia and Russia moved to extend voluntary supply cuts through the end of 2023. Meanwhile, the Energy Information Administration (EIA) is already forecasting that demand will outpace supply.
With oil prices pushing higher, it's a good time to add some top names from the sector to your portfolio. Here's a look at three oil stocks that not only offer decent dividend yields, but have plenty of upside potential based on analyst projections, too.
Marathon Oil
Founded in 1887, Marathon Oil (MRO) is an oil and gas exploration company with interests in the U.S. and Africa. The company commands a market cap of $16.42 billion with a dividend yield of 1.44%. Shares of the company are up only 2% so far this year, underperforming the XLE.
For its latest quarterly results, Marathon Oil reported a decline in both revenue and earnings from the prior year, even though both figures topped the Street estimates. Revenues for the April-June period came in at $1.5 billion, down 34.3% from the prior year. EPS fell even more sharply, down 63.6% to $0.48, yet managed to surpass the estimate of $0.43 per share. Notably, the company’s EPS has consistently exceeded expectations, outpacing the Street in each of the past five quarters.
The oil major also reported a rise in net production to 399,000 thousand barrels of oil equivalent per day (MBOE/d) in the second quarter, up 16.3% from the prior year, and oil production of 189,000 MBOE/d, up 13.2% from the year-ago period.
Marathon Oil's reserves run deep, as the company revealed that as of Dec. 31, 2022, it had total proved reserves of 1.34 billion BOE with 91% in the US and 9% in Equatorial Guinea. Of the total, 48% was crude oil and condensate.
Analysts are bullish about Marathon Oil, with a consensus “Strong Buy” rating for the stock and a mean target price of $32.89 - indicating upside potential of about 20.5% from current levels. Out of 19 analysts covering the stock, 14 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 3 have a “Hold” rating, and 1 has a “Moderate Sell” rating.
Enterprise Products
Houston, Texas-headquartered Enterprise Products (EPD) is a provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals. The company has a network of more than 50,000 miles of pipelines, more than 260 million barrels of storage, 20 deep water docks, 30 natural gas processing plants, and 26 fractionators across the United States and Canada.
The company currently commands a market cap of $58.01 billion, and offers an impressive dividend yield of 7.32%. Shares of the company are up 10.9% year-to-date, although EPD has pulled back following its poorly received second-quarter earnings report.
Enterprise Products reported disappointing numbers for the quarter ended June 30, with both revenue and earnings not only declining from the prior year but missing the consensus estimates. Revenues of $10.65 billion were down 33.7% from the prior year, and EPS came in at $0.57, off by nearly 11%. It was a relatively rare miss, as this was the only quarter out of the last five where EPD reported earnings that fell short of analysts' expectations.
Moreover, the company transported more crude oil and refined products in the second quarter of this year than in the previous year, with 7.1 million BPD compared to 6.6 million BPD.
Consequently, analysts covering the stock have handed out a consensus “Strong Buy” rating with a mean target price of $31.46, indicating upside potential of about 17.5% from current levels. Out of 12 analysts covering the stock, 11 have a “Strong Buy” rating and 1 has a “Hold” rating.
Devon Energy
We round out our list with Devon Energy (DVN), an oil and gas exploration and production company with a market cap of $33.91 billion and a notably high dividend yield of 8.52%.
Founded in 1971, the company's primary operations are in the Permian Basin, Eagle Ford Shale, Anadarko Basin, Powder River Basin, and the Williston Basin in the U.S., along with a small presence in Canada and the U.K.
Unfortunately, the stock has been a considerable laggard in 2023, as Devon is down more than 9% on a YTD basis.
Like its peers, Devon Energy reported a yearly drop in both revenue and earnings for the second quarter. Total revenues for the quarter stood at $3.45 billion, marking a decline of about 38.6% from the previous year. The company reported core EPS of $1.18, down 54.4% from the year-ago period - but above the consensus estimate of $1.17. Devon Energy's EPS has surpassed analysts' expectations on all occasions except one over the past five quarters.
Further, the company reported its highest-ever average oil production in the quarter, up 8% to 323,000 barrels per day. Encouragingly, this metric was driven by strong output from the company's flagship Delaware Basin, which averaged 420,000 BOE per day (50% oil).
Devon Energy's ambitions in the geothermal space were also revealed earlier this year, as the company made a $10 million investment in next-gen geothermal power company Fervo Energy.
Overall, analysts have handed out a “Moderate Buy” rating on the stock, with the mean target price of $60.45 indicating expected upside potential of more than 12% from current levels. Out of 20 analysts covering Devon Energy, 12 have a “Strong Buy” rating and 8 have a “Hold” rating.
Final Takeaway
All three of the energy companies mentioned above have sizeable proven reserves, increasing production capabilities, and offer regular dividend payments to investors. With oil futures ramping higher and plenty of support in place for prices to keep climbing, these stocks are all worth considering as the energy sector heats up.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
