11 Energy Plays to Power Up Your Portfolio

Energy has been one of the bright spots over the past challenging year. And while energy prices have pulled back of late, several leading advisors and contributors to MoneyShow.com, continue to believe the sector will reward patient investors. Here are 11 favorite ideas within the global and domestic energy space. Todd Shaver, Bull Market Report Occidental Petroleum represents a remarkable turnaround story, from the verge of a catastrophe in mid-2020, when it posted a staggering loss of $17 per share, with enormous debt on its books, to the best performer among energy stocks this year, after a monumental 560% rally. The stock has since won the approval of Warren Buffett who currently owns a 21% stake in the company. We wouldn't be surprised to see Warren buy more, and we wouldn't be surprised to see Warren make an offer for the whole company. The company continues to generate robust cash flow, at $4.3 billion during the third quarter, of which $1.8 billion was used for repurchases, bringing year-to-date stock buybacks to $2.6 billion of the $3 billion tranche that was approved by the Board. Management loves buying back stock and we can see a new tranche being authorized when the first one is depleted. Its robust liquidity profile consists of $1.4 billion in cash, a number that will move steadily higher as the company continues to execute at this high level. Our target price is $90, and we believe it can get there early next year. Chuck Carlson, DRIP Investor Exxon Mobil has been a powerhouse stock in 2022. Providing a kicker to capital gains is the hefty yield. Now, there was a period when the company's dividend didn't look so safe. Well, those fears turned out to be unfounded. Indeed, Exxon has not only maintained the dividend but recently announced a small increase in the payout. The yield based on the new payout was recently 3.3%. With oil prices expected to remain at elevated levels, Exxon's earnings and cash flow should continue to be solid. The impressive move in Exxon Mobil stock to new all-time highs begs the question: Is there more left in the tank? I think the answer is yes, though I don't see the stock posting another 81% advance over the next 12 months. However, the yield of more than 3% coupled with reasonable, albeit more moderate price gains should result in a double-digit total return for investors in 2023. I am a long-time owner of Exxon -- I bought my first shares in the early 1990s -- and while I have had to sit through some down periods, I never stopped reinvesting dividends and making occasional stock purchases. The stock's recent strength has rewarded me for that persistence. I continue to view the stock as a core holding for investors who want energy exposure. Mark Skousen, Forecasts & Strategies Enterprise Products Partners has been a consistent winner for us this year; it is up over 20% when you include the generous dividends made this year. It slightly beat Wall Street forecasts last month on earnings and revenues per unit. The stock offers a yield around 7.7%. There's a lot of talk that electric vehicles (EVs) will cut into demand for fossil fuels, but the reality is that EVs can't be built without oil & gas, coal and other non-renewable commodities. The International Energy Agency recently reported that demand for oil and natural gas will rise by 18% by 2040, driven by economic and population growth. Houston-based Cheniere Energy is a new addition to our portfolio. Even though natural gas prices are in retreat, demand for liquid natural gas is strong. The U.K. government confirmed that it is in talks for an LNG purchase agreement with Cheniere Energy, among others. Currently, 70% of Cheniere's cargoes of LNG are landing in Europe. In early November, Cheniere reported sales soaring 175% to $8.8 billion in the third quarter. However, it actually lost money due to derivative losses and a legal settlement. Zacks Investment Research is still bullish on Cheniere, ranking it as a #1 buy and expecting 2022 sales to double and earnings to triple from last year. Jake Scott, Schaeffer Investment Research Peabody Energy Corporation has been trading just below its seven-month high; the shares are up 212% over the past one year versus the SPDR S&P 500's deficit in the same timeframe. What's more, there is plenty of reason to believe its rally could soon resume. Digging deeper, BTU's recent peak comes amid historically low implied volatility (IV), which has been a bullish combination for Peabody Energy stock before. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, six other signals occurred in the last five years when the security was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) stood in the 20th percentile of its annual range or lower. This is currently the case with Peabody's SVI of 68%, which stands in the lowest percentile of its 12-month range. White's data shows that one month after these signals, the security was higher 67% of the time, averaging an impressive 11.3% return for that period. A short squeeze could also keep the winds blowing for BTU. Short interest rose 11.9% in the last two reporting periods, and the 17.94 million shares sold short now make up for 12.6% of the security's available float. An unwinding of options traders' pessimism could also have bullish implications. Marty Fridson, Fridson/Forbes Income Securities Investor Plains All American Pipeline, LP is an MLP that owns and operates midstream energy infrastructure and provides logistics services for crude oil, natural gas liquids, and natural gas. In April 2020, PAA announced cost-cutting initiatives in response to the sharp drop in energy prices, aggravated by the pandemic. Ultimately, the distribution was cut by 50% in May 2020. Since mid-2021, PAA has reduced debt leverage with continued debt reduction expected in 2023. The partnership's diversified asset base, visible contract coverage, and commitment to conservative financial policies prompted Moody's to raise PAA's senior rating to Baa3 from Ba1 in late 2021. PAA reported strong third-quarter 2022 adjusted net income of $280.0 million, up 35% from a year ago on increased gathering volume and higher energy prices. Earnings per share of $0.33 jumped 50% year-over-year, beating analysts' $0.28 estimates. We are changing the partnership's recommendation to Buy from Hold for low- to medium-risk taxable portfolios. PAA issues a K-1 to investors. Buy at $16.50 or lower for a 5.27% annualized yield. Bryan Perry, Cash Machine One of the larger secular themes that is playing out is the rising global demand for liquified natural gas (LNG) to replace coal and to also replace Russian-imported LNG in Europe. The supply/demand equation heavily favors producers and shippers of LNG to foreign buyers -- hence, the basis for our latest recommendation. Flex LNG Ltd. . Based in Bermuda under Norwegian management, Flex LNG Ltd. is an LNG shipping company with a fleet of thirteen fuel-efficient, fifth-generation LNG carriers. The shares recently traded to an all-time high on headlines that industry-leading Cheniere Energy had exercised its option to employ a fifth Flex LNG carrier. Flex LNG reported third-quarter results that beat consensus estimates while also guiding for above-consensus estimates in the current quarter. The shipping company reported that the boom in the freight market has affected both short-and-long term rates positively. Flex LNG confirmed the 100% contract coverage for 2023 and minimum 91% coverage for 2024. At its recent price, the stock yielded 9.12%, making it an excellent addition to our Extreme Income Portfolio and a strong complement to our high-yield, inflation-sensitive asset mix. Let's set sail with this pure play in the LNG space and look for rising dividend payouts and capital appreciation. Buy Flex LNG Ltd. under $34. Mike Cintolo, Cabot Growth Investor The initial leaders in a broad energy sector advance are almost always the explorers. But usually, after many months (sometimes longer) of elevated prices, Wall Street begins to favor the equipment and service providers - and this go-round should be more exciting than prior cycles given the prior bust period that saw years of underinvestment. All of that leads us to Schlumberger , one of the big boys in the oil service arena, with a wide array of well construction, completion and data-driven exploration tools needed for onshore and offshore drilling, both in the U.S. and overseas; it also has a small but growing New Energy business to ride that area, too. Business has been picking up, and Q3 was no exception, with sales (up 28%) and earnings (up 75%) easily topping expectations. Plus, Schlumberger itself is gaining share in the sector, which will add fuel to the earnings fire. Indeed, the company just reported its largest EBITDA quarter since 2015 (when the stock was 60% higher than now), and analysts see 38% bottom-line growth next year (likely too low). Moreover, the stock looks to be just getting going -- as the stock recently powered to new highs on big volume. Despite its size, we think SLB could be among the next liquid leaders of the energy uptrend. Gordon Pape, The Income Investor The pipeline industry is one of the best places for income investors to put their money these days. Pipeline companies offer a combination of stability, above average yields, and steady growth. Enbridge Ltd. , which recently reported third-quarter results, is currently paying a quarterly dividend of $0.86 a share ($3.44 a year) and that's expected to rise by at least 5% next February. The yield was recently 6.35%. How does Enbridge manage to grow its business in the face of all the anti-pipeline opposition? Acquisitions, a shift to green energy projects, and below-the-radar pipeline construction all play a role. Recently, the company announced it has purchased U.S. renewable project developer, Tri Global Energy, the third largest onshore wind developer in the US, with a portfolio of wind and solar projects of over seven gigawatts. Enbridge reaffirmed its 2022 financial guidance, which includes adjusted EBITDA between $15 billion-$15.6 billion and distributable cash flow per share between $5.20 and $5.50. Pembina Pipeline recently boosted its monthly dividend by 3.5%, to $0.2175 to yield 5.69%. The company's stock was under selling pressure during the pandemic as investors were expecting a dividend cut. It never happened, as management vowed to protect the payout. Like Enbridge, Pembina had a strong third quarter. Revenue was almost $2.8 billion, up from $2.1 billion in the same period of 2021. Earnings were $1.8 billion ($3.23 per diluted share), compared to $588 million ($1.01 per share) a year ago. The company previously announced it was merging its Western Canadian natural gas processing assets with KKR to create a new joint venture entity, of which PPL will own 60%. Adjusted third quarter EBITDA was $967 million, beating the consensus estimate of $883 million. TC Energy is paying $0.90 per quarter ($3.60 a year) to yield 6% annually. It will likely raise its payout in the spring. The company owns and operates 93,300 km of natural gas pipelines and 653 billion cubic feet of storage in Canada, the US, and Mexico. It also has a 4,900 km network of oil pipelines, which supply Alberta crude to the US market. As well, TC Energy invests in a number of power generation facilities, including wind, solar, and nuclear. Overall, the price of these three pipeline stocks has dropped in recent months in the face of rising interest rates. That's to be expected: as yields on safe government bonds rise, higher risk stock yields are pushed up to compensate, which translates into share price declines. Income investors should not be overly concerned by these market fluctuations but focus instead on the quality of their holdings and the stability of the dividends.

11 Energy Plays to Power Up Your Portfolio

Leading advisors offer their favorite stock ideas within the global and domestic energy space.

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