2 Monster Energy Stocks to Buy

While the price of oil is beginning to retreat from its peak, there’s good reason to believe that energy prices will remain elevated for some time to come.
Interrupted Russian fuel supplies, soaring demand and supply chain snarls have all contributed to heightened energy prices.
As such, the energy sector could be particularly attractive for investors over the coming years. Here are two monster energy stocks to consider buying for both growth and income.


Exxon Mobil (NYSE:XOM) is one of the leading energy producers in the world, making it a solid investment to play on rising oil prices.
For considerable parts of its history, Exxon has beaten the S&P 500 index and delivered outsized returns for its shareholders. Today, the oil giant once again looks like a solid buy for investors seeking stable returns in the energy sector.
In Q2, Exxon delivered a strong earnings beat, reporting $4.21 per share against expectations of $3.60. Impressively, this beat occurred in conjunction with a modest revenue miss, as Exxon underdelivered on expected revenue by about $1.5 billion. Increased production and high oil prices both supported improved margins.
Like most oil companies, Exxon pays a generous dividend. The stock currently yields 3.78 percent, paying out $3.52 per share annually.
Even more encouragingly, the company has raised this payout every year for the last 39 years. As such, investors can be reasonably confident that Exxon will continue increasing its dividends, even in challenging market conditions.

Exxon’s dividend growth has slowed in the past few years, however. Over the past decade, the payout has grown at a compounded rate of 5.4 percent. In the last three years, though, that rate has slowed to just 1.36 percent. Given that Exxon maintains a dividend payout ratio of under 40 percent, however, the distribution looks safe.
Exxon is also getting out in front of the possibility of lower future oil prices by cutting its costs aggressively. By next year, the company expects to reduce costs by as much as $9 billion. This would bring its break-even price to just $41 per barrel. Careful cost management could allow Exxon to thrive, even as prices adjust toward more normal levels.
A final argument in favor of Exxon is the fact that the stock is trading at what appears to be a very attractive price. The forward P/E for Exxon is just 7.34, while the price-to-sales ratio stands at 1.06.
Given that analysts project annual growth of up to 24 percent over the next five years, this suggests that Exxon is trading a deep discount on its potential future earnings. This is especially true in light of the cost-cutting measures management is implementing to increase capital efficiency.
In the next 12 months, analysts expect Exxon to reach a median target price of $107. Based on the current price of $93.18, this would result in a return of 17 percent.
It’s worth noting that even the most pessimistic projection has Exxon falling by 4.5 percent. With the dividend taken into account, this would make the stock very close to flat and suggest a fairly low level of risk.


Chevron (NYSE:CVX) is another oil giant that has been a go-to stock for energy investors for decades. Most notably, Chevron has been a well-known favorite oil stock for Warren Buffett. Today, Buffett’s Berkshire Hathaway holds a position in Chevron worth over $25 billion.
In the most recent quarter, Chevron significantly beat analyst expectations on earnings. The company generated earnings of $5.82 per share against a consensus estimate of $4.66.
Chevron also handily beat the estimated $57.69 billion in revenue projected by analysts, delivering actual revenues of $68.76 billion.

Another point in Chevron’s favor from an investment perspective is the fact that it appears to be preparing for success as the global economy transitions away from fossil fuels.
The company plans to cut its emissions to net zero by 2050 and is investing heavily in biofuels that could one day take the place of traditional fossil fuels. This farsighted approach to energy transition could allow Chevron to continue generating returns for investors as the world gradually uses less of its core product.
Chevron pays a similar dividend yield to Exxon at 3.62 percent. This payout has been growing for the last 35 years, and the payout ratio stands at a very conservative 37 percent. Where Chevron does distinguish itself from Exxon, however, is in its dividend growth rate.
While Exxon has gradually lowered its rate of dividend growth in recent years, Chevron has actively increased it. Over the last 10 years, the annual compounded growth rate averages 5.05 percent. In the last three, though, that number climbs to 6.09 percent. As such, Chevron may be the better choice for income-focused investors.
Chevron also tends to keep its debts to a minimum. With interest rates rising rapidly, this practice should insulate the company from the variable rates that typically accompany corporate debt.
At the moment, the company’s debt-to-equity ratio is just 0.15. The industry average, for reference, is 0.40. As a result, Chevron is likely in a better financial position than many of its competitors.
Like Exxon, Chevron appears to be priced at enough of a discount to make it attractive to value investors. The stock trades at 8.5 times earnings and 1.42 times sales. While not quite as favorable as Exxon’s, these metrics still suggest that Chevron is likely undervalued as long as oil prices don’t plummet in the near future.
The median target price for Chevron over the coming 12 months is $180, up 14.7 percent from the current price of $156.92.
Similar to Exxon, the lowest projection would have the stock lose only 4.4 percent. This low risk-to-return ratio seems to be a general feature of the energy sector at the moment, but Chevron and Exxon are both prime examples of companies that could deliver superior returns through both growth and dividends.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.