These are 2020's best energy stocks.
The past year hasn't been great for the energy sector, which has essentially been the most consistently down-and-out sector of the markets ever since oil prices crashed in 2014. Through late 2019, energy stocks were up 5.8% on the year, dramatically underperforming the 27.3% gains of the S&P 500. That said, the sector is prime pickings for contrarian-minded investors, and it's rife with large dividend yields to tempt income investors. Currently, S&P 500 energy stocks are yielding 4.3%, almost double the sector's 20-year average yield of 2.4%. Without further ado, here are 10 of the best energy stocks to buy for 2020.
Phillips 66 Partners LP (ticker: PSXP)
A rare repeat from last year's list, PSXP is one of the best energy stocks to buy for 2020 even after a 42% rally in 2019. Phillips 66 Partners operates in the "midstream" part of the oil and gas business, which includes companies that transport, store or process raw resources. A master limited partnership (MLP), Phillips 66 must pay out 90% of its income as dividends, and in exchange doesn't have to pay corporate taxes. PSXP owns pipelines, storage facilities and refineries, allowing it to collect steady tolls from some of America's biggest shale producers. PSXP enjoys exposure to booming production hotspots like the Anadarko Basin and the Bakken Shale.
Market capitalization: $13 billion
Dividend yield: 5.7%
Enterprise Products Partners L.P. (EPD)
Next up among the best energy stocks to buy for 2020 is Enterprise Products Partners, another midstream MLP with REIT-like qualities income investors love. EPD is about five times more valuable than Phillips 66 Partners, which means it should generally be a little safer as a long-term investment prospect. It operates over 19,000 miles of natural gas liquids (NGL) pipelines and 5,300 miles of crude oil pipelines and trades at just 13 times earnings -- dramatically below its five-year average price-earnings ratio of 19.5. That gives EPD great downside protection and some serious upside as well. If that multiple reverts to its historical mean in 2020, investors will be richly rewarded.
Market capitalization: $63 billion
Dividend yield: 6.3%
Occidental Petroleum (OXY)
Primarily interested in the "upstream" process of exploring and producing, Occidental, despite its size, is one of the riskier energy stocks to buy for 2020. Down about 37% in 2019, OXY stock has been falling going into 2020 as markets struggle to digest OXY's $38 billion deal to buy fracking and natural gas giant Anadarko Petroleum. OXY is aggressively divesting some Anadarko assets to repay debt it acquired for the deal, and some shareholders fear a dividend cut in 2020. That said, activist investor Carl Icahn owns a chunk of the company, and openly plans to lobby for board changes and against dividend cuts. Berkshire Hathaway (BRK.A, BRK.B) also owns preferred stock in OXY it acquired by financing the Anadarko buyout, showing confidence in the company's long-term viability. Insiders have been aggressively buying stock recently, too.
Market cap: $35 billion
Dividend yield: 8.2%
Chevron Corp. (CVX)
If you're going to focus on the energy sector, plenty of high-risk, high-reward plays abound. But many individual investors don't have the time, resources, or stomach required to sort through these names, and there's something to be said for tried-and-true blue-chip stocks like Chevron. One of the three largest integrated oil & gas majors on U.S. exchanges, Chevron does it all, boasting upstream, midstream and downstream operations. This harmonic vertical integration means CVX can reap the benefits of drilling, transporting, refining and selling oil and gas without having to pay middlemen. The diversification also makes it relatively insulated from swings in oil prices, as oil refineries actually make more money when prices fall (and their margins increase).
Market cap: $225 billion
Dividend yield: 4%
Brookfield Renewable (BEP)
A nice change of pace from all the companies directly or tangentially involved with oil and gas, BEP is a major player in renewable energy, and specifically hydropower. Although technically a utility, BEP owns a wide array of wind, solar and biomass energy sources globally, and signs long-term contracts at fixed rates to provide the sustainable energy it produces. Another MLP, don't get caught up by BEP's gaudy P/E ratio of 100; using funds from operations (FFO) is often more useful when valuing MLPs. On that basis, BEP trades at a much more reasonable 18 times FFO, and FFO jumped 27% last quarter.
Market cap: $8 billion
Dividend yield: 4.5%
Crestwood Equity Partners (CEQP)
Next up on the best energy stocks to buy for 2020 is another attractive midstream player, and one of the smaller names on this list at just over $2 billion. Most of Crestwood's business comes from gathering and processing, which entails transporting oil and gas from the actual point of production to a processing or storage facility. The company just brought its Bakken Bear Den II processing plant online, and even as CEQP sets fresh gathering records the new plant is handling 100% of the volume with plenty of room for volume growth. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) jumped 39% last quarter as a multi-year, self-funded capital expansion project is starting to pay off.
Market cap: $2 billion
Dividend yield: 7.9%
Diamondback Energy (FANG)
Another beneficiary of America's energy boom, Midland, Texas-based Diamondback Energy is an attractively priced exploration and production company primarily focused on the oil-rich Permian Basin. For the debt-laden energy sector, FANG has a remarkably sound balance sheet, with a debt-equity ratio of just 0.3. It helps that FANG doesn't pay strenuously high dividends, instead reinvesting in growth. At just 12.5 times earnings and a price-to-earnings-growth (PEG) ratio of 0.7, FANG looks like it has room to rally going forward. Analysts expect earnings per share to surge more than 50% between 2019 and 2021, and a consensus price target of $124 per share is about 40% above current levels.
Market cap: $14 billion
Dividend yield: 0.9%
PetroChina Company Limited (PTR)
It's important to have some geographic diversification in any portfolio, and while the booming U.S. market is as good a place as any to find the best energy stocks to buy for 2020, the world's second-largest economy is worth a glance, too. Certainly a contrarian play, PTR is analogous to China's version of Chevron or Exxon Mobil Corp. (XOM), but that didn't stop shares from shedding about 20% in 2019. PetroChina is the country's largest oil and gas producer, and company executives have recently emphasized how natural gas demand in China is destined for long-term growth as the country shifts to cleaner energy sources. PetroChina seems fundamentally undervalued at a PEG ratio of 0.5 and an average target price of $76, implying 55% upside. Still, PTR isn't suited for shorter-term or momentum-based investors.
Market cap: $141 billion
Dividend yield: 4.8%
NextEra Energy (NEE)
Part utility, part energy company, NextEra Energy is the diametrical opposite of PetroChina: it's a momentum investor's dream. Not only did shares add over 35% in 2019 but the longer-term chart is up, up, up. Although a bit frothy at 35 times earnings, the market places a premium on NEE's regular growth and oligopolistic grip on the Florida electric utility market. The world's largest producer of renewable energy from the wind and sun, NEE has 5 million Floridians as captive customers. It also generates emissions-free electricity via nuclear power in four states.
Market cap: $116 billion
Dividend yield: 2.1%
Energy Transfer LP (ET)
Last but not least is Energy Transfer, another midstream MLP company whose high dividend and conservative valuation make it one of the best energy stocks to buy for 2020. High dividend yield stocks aren't always savvy buys, but this natural gas pipeline company -- which boasts over 12,000 miles of toll-producing natural gas pipelines -- is consistently profitable enough to pay the richest dividend yield on this list. Analysts expect EPS to grow at a compounded rate of 16.5% over the next five years, but ET stock still trades for just 10 times earnings. Analysts have a $20 price target on shares, which implies enormous upside of more than 50%.
Market cap: $34 billion
Dividend yield: 9.4%
The best energy stocks to buy for 2020.
-- Phillips 66 Partners LP (PSXP)
-- Enterprise Products Partners L.P. (EPD)
-- Occidental Petroleum (OXY)
-- Chevron Corp. (CVX)
-- Brookfield Renewable (BEP)
-- Crestwood Equity Partners (CEQP)
-- Diamondback Energy (FANG)
-- PetroChina Company Limited (PTR)
-- NextEra Energy (NEE)
-- Energy Transfer LP (ET)