10 Best Energy Stocks to Buy in 2022

Global economic growth is dependent on the energy sector. This fuel and energy are needed to grow and expand developed nations. It has been among those areas that have always grabbed investors' attention.

Energy investing can be risky, however. Considering economic headwinds and supply-and-demand uncertainties can make selecting substantial investments difficult.

Through this guide, we will learn about investing in energy stocks, the benefits and risks of energy stock investment, and a list of the 10 best energy stocks to buy in 2022. 

Understanding the concept of energy stocks 

Energy sector stocks are held by companies that produce and distribute energy products. Other companies may provide energy producers with services and equipment. A few of the top energy stock categories include:

1. Oil and natural gas stocks

Instead of looking for new oil and gas sources, these companies take what is already there and get it ready for use in the economy. Oil and gas reserves are worth more than their existing sales and untapped potential.

2. Pipeline and refining stocks

Oil and gas do not generate returns at the time of extraction. Refineries convert raw materials such as crude oil into usable fuel. Pipelines transport crude oil, natural gas, and a few more products.

3. Mining stocks

Energy must still be derived from coal, which must be mined. Atomic power plants are also powered by uranium.

4. Renewable energy stocks

These energy companies specialise in green energy sources such as wind, solar, and geothermal.

There is no restriction on the type of company. Companies in the energy sector are often involved in many different categories. A company may invest in renewable energy projects in addition to getting oil, refining it, and transporting it.

List of the 10 Best Energy Stocks to Buy in 2022

Growth leaders aren't limited to the technology sector. In the energy sector, profit margins increase, and more dividends are being paid to shareholders. Based on these trends, the top 10 best energy stocks for 202 to invest in are mentioned below.

1. Devon Energy (NYSE: DVN)

One of the best-performing energy stocks is Devon Energy. The index has surged by 167% over the past year. The company's portfolio is made up of oil volumes (50%) and gas volumes (26%), then natural gas liquids (24%).

Still, DVN is taking strategic steps to strengthen its position. In addition, the company is rewarding shareholders with excess cash. Devon, for example, just announced a $1 billion program to buy back shares and a 71% rise in dividends.

Since DVN expects the growth to continue, the company pays an attractive dividend-yielding around 7%.

2. Diamondback Energy (Nasdaq: FANG)

Another company with a Permian Basin interest is Diamondback Energy. There are around 58% oil reserves in the company, with 20% natural gas and another 22% for natural gas liquid.

FANG stock has also outperformed its competition, rising 112% in the past year. Due to strong demand, the price of crude oil is going up, helping the company build up its cash reserves. 

According to Diamondback's latest earnings release, it has $457 million in cash. Shareholders will receive a dividend, and the company will pay down its debt.

FANG is therefore committing to a free cash flow return of 50% for investors. Dividends are paid out by the company itself every year, yielding around 1.6%.

3. Exxon Mobile (NYSE: XOM)

Exxon Mobile is known to be the largest publicly traded petroleum company worldwide. Exxon Mobile operates in several upstream, downstream, and chemical segments.

The company is seeing improved margins across all segments as gas prices have increased over the past decade. XOM has made this payment by paying off its debt by $4 billion, bringing the debt-to-capital ratio down 25%.

In addition, this top energy stock also paid out dividends of $3.7 billion. In addition, this top energy stock also paid out dividends of $3.7 billion. The payout yield of nearly 5% is now $0.88 per share, up from $0.77 per share in the last dividend increase.

Also, several investments in Guyana and the Permian are beginning to pay off. There is potential for growth in the offshore sector in the coming years.

4. Phillips 66 (NYSE: PSX)

One of the top energy stocks is Phillips 66. Phillips 66 is best known as a refiner of oils. Yet the company is also diversifying into chemicals and midstream. The company has 13 refineries in the U.S. and Europe, and it can produce 2.2 million barrels of oil every day.

With more people getting back to work, gasoline demand rises. PSX is also a refiner at the center of production. Higher demand is resulting in higher earnings and margins.

The company makes use of its extra cash to improve its balance sheet. According to PSX's Q3 earnings, it paid down $1 billion in debt in 2021.

In addition, PSX is buying out its public partners. This move will further improve margins while also integrating the business.

PSX also offers a 4.15% dividend yield or a dividend of $3.68 per share.

5. NextEra Energy

Then we have NextEra, a company that offers a complete electric power and energy infrastructure. The company has three segments: FPL, NEER, and Gulf Power. Electric energy is generated, distributed, and sold by FPL in Florida. 

Meanwhile, its NEER segment owns, builds, operates, and develops electric power plants in North America's wholesale energy markets. 

Southwest Power Pool (SPP) awarded NextEra Energy Transmission the project to build the Minco-Pleasant Valley-Draper transmission line earlier this week. 

It is the second project award received by SPP as it strives to become America's premier competitive transmission company. 

6. JinkoSolar

As a result, we have JinkoSolar, a leading solar company. Generally, the company is involved in photovoltaic (PV) technology. This company's solar power products, like silicon wafers and solar modules, are made from start to finish by the same company.

This company provides engineering, procurement, construction (EPC), and processing services. JKS stock has increased by 15% since the beginning of the year.

As JinkoSolar works to become the largest solar module manufacturer globally, it continues to gain financial strength. 

7. First Solar

One of the leading solar technology companies right now is First Solar. JinkoSolar's business is manufacturing solar panels and utility-scale photovoltaic (PV) power plants. First Solar, a company, provides the same services. 

First, Solar manufactures solar panels and PV power plants for utility-scale use like the company. The company sells thin-film photovoltaic (PV) modules, a new type of solar technology. 

Consequently, it provides an attractive, high-performance, and lower-carbon alternative to conventional silicon solar panels. Consequently, it provides an attractive, high-performance, and lower-carbon alternative to conventional silicon solar panels.

8. Alliance Resource Partners

Next, let's talk about Alliance Resource. In contrast to the previous entries, this is a coal-producing and coal-marketing company. 

The company primarily sells to U.S. utilities and industrial users. As well as buying and selling coal, the company owns minerals and royalty interests in oil and gas producing regions totaling about 1.5 million gross acres. 

ALRP shares have often risen steadily over the past year, impressive. The stock rose more than 200% during that time frame.

The stock is now once again attracting investors. Preliminary results of the company's quarter ended March 31, 2022, were so much encouragement.

Compared to $24.7 million in the prior year's quarter, Alliance expects its net income to be between $35.0 million and $37 million. 

9. Magnolia Oil and Gas Corporation (NYSE: MGY)

Magnolia Oil and Gas Corporation is headquartered in Austin, Texas. The company explores and produces oil and gas in the areas of South Texas' Eagle Ford Shale and Austin Chalk formations. 

After capital expenditures, the company has a conservative leverage profile with high operating margins and significant free cash flow.

Magnolia was only started in 2018, but in the third quarter of 2021, it reported a net income of $119.4 million, or $0.67 per diluted share. The adjusted net income from Q3 was $157.9 million, or $0.67 per diluted share. 

Operating activities provided $221.9 million in cash and generated $143.5 million in free cash flow during the third quarter.

As of Q3, the company had $245 million in cash on its balance sheet, and its $450 million revolving credit facility was undrawn, with no debt maturities until 2026. Furthermore, it is not planning to increase its debt levels.

Magnolia Oil and Gas Corp. are confident in its ability to succeed because they have a clear path forward and a thriving business.

10. EOG Resources, Inc. (NYSE: EOG) 

Exploration, development, great production, and the marketing of crude oil or natural gas are a few of the core businesses of EOG Resources Inc. in Houston, Texas. 

Some of their businesses are in Trinidad and Tobago, the U.S., and other countries outside of the U.S. 

Despite oil prices averaging less than $40 per barrel, EOG Resources generated a free cash flow of $1.6 billion in 2020, which allowed the company to pay a dividend and improve its balance sheet.

Adjusted net income was $1.3 billion, or $2.16 per share, and free cash flow was $1.4 billion.

EOG Resources could be a good addition to your portfolio because it has a history of making smart decisions about capital spending, operating costs, and product pricing. It also has great earnings and free cash flow.

How can you invest in energy stocks?

You can buy energy stocks from taxable brokerage accounts, even tax-advantaged retirement accounts. 

Check out Forbes Advisor's list of the best online brokerages if you don't already have one or are dissatisfied with your current broker.

After researching the energy sector, you can use your preferred brokerage platform to buy shares in individual energy companies. It is still risky to pick individual stocks, even in the energy sector. 

You should invest in a diversified portfolio because experts recommend it. They say you should invest in tens, hundreds, or even thousands of stocks rather than just a few. 

If you invest in many companies, you might be able to take advantage of the highs and avoid some of the lows. The result is to provide steadily rising returns over time.

You can make the process easier by investing in index funds and exchange-traded funds (ETFs) geared toward the energy sector. A fund screener at your brokerage will help you find funds like the S&P 500 Energy, which tracks important energy sector indices.

The benefits of investing in energy stocks

1. Global markets that are important to the economy.

The energy sector contributes trillions of dollars to the economy every year. Power is important to the world economy, so there will always be a need for energy resources.

2. Potential for high profits or dividends.

Even though the cost of oil remains about the same, energy companies can benefit from higher energy prices, which means they earn a lot more per barrel of oil. This opportunity will assist them in increasing dividends or even investing for the future.

3. Increasing global demand.

Developing countries like China or India will also need more energy to continue to grow. In addition to existing energy sources like oil and gas, there will be a growing need for alternative fuel sources in the future.

4. Different types of investments are available.

Even though oil and natural gas stocks are the most valuable in the energy sector based on market cap, they do not reflect the whole sector. In addition to getting exposure to green stocks like solar and wind energy, you can also generally gain exposure to the energy sector.

5. It is possible to recover from the recession.

The sector struggled because of the COVID-19 pandemic, decreased travel, and overall economic recession. It is possible to get better. As schools reopen, there may be a resurgence in travel, pushing up the prices and demand for energy stocks.

Risks associated with energy stock investing include

1. Environmental concerns

Global warming is worsened by the products of oil, gas, and coal companies. These companies may also pose other environmental risks, including oil spills. This is wrong, and it puts energy companies at risk of costly lawsuits, which hurts their profits.

2. Market volatility reduces profits.

Depending on the global economy, energy prices can vary widely and rapidly. For instance, in the last ten years, crude oil prices have fluctuated between almost $110 per barrel and less than $20 per barrel at the start of the COVID-19 pandemic. 

Energy stocks can be risky and volatile as their value varies with energy prices.

3. Companies require significant investments.

Exploring new energy sources, like drilling for oil wells, and researching and developing sustainable energy technologies, which may not always work, takes a lot of money. Your long-term returns can suffer if enough of these drains coalesce.

4. Additional regulatory risk

A world that ramps up its fight against global warming might adopt more regulations limiting the production and use of energy sources like fossil fuels. The energy industry is also subject to political risks due to its dependence on government subsidies for development.

5. New technologies may lower demands in the long run.

Over the past decade, green energy sources have become dramatically cheaper, like solar. As a result, coal demand is going down, and oil, gas, and other traditional energy sectors may also be affected, potentially harming their long-term value.

Related questions: FAQs

1. Is it an excellent choice to start investing in energy stocks?

As long as the costs remain almost the same, energy companies can make a massive profit from rising energy prices by earning significantly more per barrel of oil. Investors can either expect a higher dividend or invest for growth in the future. 

2. Is it wise to buy oil stocks?

Oil and gas stocks will give you significant capital gains during high oil or gas prices. This will be from the appreciation in share prices and the attractive dividend income. Oil companies generate a lot of money when crude oil prices rise.

3. Where can I invest aa little money in oil?

Your brokerage account is probably the best place to look for oil investments with a limited budget. You can now buy stocks without worrying about fees cutting into your investment by using no-fee stock trades at big brokerage houses.

4. How can I profit from rising oil prices?

You can buy small contracts at first. You can even purchase the oil for a lower price in the future. In that case, you may sell it at the market value on the date of your contract. Let's say oil is trading for $60.

Final thoughts

As the energy industry undergoes clean energy revamp, investing in energy can be risky. The right moves can nonetheless lead to solid gains in the space. 

When investing in the energy sector, you should consider that traditional power gives way to sustainable and environmentally friendly energy sources. Most likely, these companies will do well if they have a history of growth and actively look for low-cost energy alternatives. 

Before investing your first dollar in energy stocks, it's essential to do your research and understand what you're getting into. Investing in energy stocks can lead to significant gains.