Just when investors think it is safe to come out from hiding, another big interest rate increase and some quite hawkish testimony from Federal Reserve Chair Jay Powell has put a lid back on the risk-off crowd. The message on Wednesday was higher for longer, and some indications that the Fed’s dot-plot for the terminal rate could be moved higher. The question now is what the path forward should be.
The only sector that has traded higher this year is energy, and it is a pretty solid bet that the outperformance will continue as demand looks to stay strong and output is hampered for numerous reasons. Between irrational government regulation, the war in Ukraine (now in its 10th month) and a host of additional problems, benchmark oil prices should continue to stay elevated. While they may not reach the highs hit in June, a move back over the $100 level from Brent and West Texas Intermediate crude seems likely.
Big oil posted huge third-quarter results. While the fourth quarter may not be quite as magnificent, analysts remain positive on the large-cap leaders. We screened our 24/7 Wall St. energy research database looking for the top domestic leaders that pay dependable dividends and found five that make sense for growth and income investors. While these stocks are rated Buy across Wall Street, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
APA
This company was long considered an industry leader when it was known as Apache, and the stock is perhaps offering one of the best entry points in the sector. APA Corp. (NYSE: APA) explores for and produces oil and gas properties. It has operations in the United States, Egypt and the United Kingdom, as well as has exploration activities offshore Suriname. It also operates gathering, processing and transmission assets in West Texas, as well as holds ownership in four Permian-to-Gulf Coast pipelines.
The company is one of the largest U.S. exploration and production companies, with 2.3 billion barrels of oil equivalent of proven reserves (63% liquids). It is an explorer, acquirer and exploiter a fiscally conservative company that has grown its reserves and production consistently via acquisitions and organic projects.
Wednesday, APA reported third-quarter net income of $422 million, after reporting a loss in the same period a year earlier. The company said it had profit of $1.28 per share. Earnings, adjusted for nonecurring costs, were $1.97 per share, which topped Wall Street expectations for $1.92 per share.
Shareholders receive a 2.20% dividend. The Mizuho price target for APA stock is $52, and the consensus target is $53.81. Thursday’s close at $47.29 was a 7% gain for the day following the big earnings report.
Chevron
This integrated giant remains a safer way for investors looking to get positioned in the energy sector. Chevron Corp. (NYSE: CVX) engages in integrated energy and chemicals operations worldwide.
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