Energy stocks have soared recently, with the S&P 500 Energy index up 38% year to date.
In addition, the energy sector is tops in the S&P 500 universe for setting net-zero carbon emission targets, Bank of America strategists wrote in a commentary.
But, “energy has been the most underweight sector by ESG [environmental/social/governance] funds since last year, due to its [supposedly] ‘poor’ ESG profile,” they said.
Nonetheless, “energy stocks rated highly on the BofA ESG Meter have outperformed high-rated stocks in other sectors,” the strategists said.
They put together a list of energy stocks with buy ratings from BofA analysts that have high ESG Meter levels but are underweighted by ESG funds versus the Russell 1000 index.
Here are 10 of the stocks in alphabetical order:
· Chevron (CVX), the big oil producer;
· ConocoPhillips (COP), an oil producer;
· Devon Energy (DVN), another oil producer;
· ExxonMobil (XOM), the giant oil producer;
· Halliburton (HAL), the oilfield services titan;
· Hess (HES), an oil producer;
· Marathon Petroleum (MPC), an oil refiner;
· Occidental Petroleum (OXY), an oil producer;
· Phillips 66 (PSX), a diversified energy manufacturing and logistics company;
· Pioneer Natural Resources (PXD), a fracking company.
Morningstar’s Take on Chevron
Morningstar analyst Allen Good assigns the company a narrow moat and puts fair value for the stock at $142. It recently traded at $148.71.
“We expect Chevron to deliver higher returns and margin expansion thanks to an oil-leveraged portfolio as well as the next phase of growth, which is focused on developing its large, advantaged Permian Basin position,” Good wrote in a March commentary.
“Its latest capital plan maintains its focus on capital discipline without sacrificing growth.”
Further, “oil and gas prices will dictate Chevron’s earnings and cash flow for the foreseeable future,” Good said. “However, the company is investing in low-carbon businesses to adapt to the energy transition. It recently tripled its investment to $10 billion cumulatively by 2028…”
Morningstar’s Take on Exxon Mobil
Good gives the company a narrow moat and puts fair value at $96. It recently traded at $88.48.
“While many of its peers have announced intentions to divert investment toward renewables to achieve long-term carbon intensity reduction targets, Exxon remains committed to oil and gas,” he noted in a March commentary.
“It has responded to calls to bring in more outside voices to its board and announced emission reduction targets. It is also investing in low-carbon technologies.
“But each of these efforts is measured and keeps oil and gas (liquefied natural gas) production at the core. While its strategy is unlikely to win praise from environmentally-oriented investors, we think it’s likely to prove more successful and, paradoxically, likely holds less risk.”
