Crude oil prices have slumped about 15% over the past year. That has pushed West Texas Intermediate (WTI), the primary U.S. oil price benchmark, below $70 a barrel. That decline will weigh on the oil-fueled cash flows of many energy companies.
However, some energy stocks are in a better position to handle oil price volatility than others. ExxonMobil(NYSE: XOM), Plains All American Pipeline(NASDAQ: PAA), and Chevron(NYSE: CVX) stand out to these three Motley Fool contributors for their ability to thrive amid oil price volatility. That makes them great energy stocks to buy for those seeking durable growth amid the gyrations of crude prices.
ExxonMobil hasn't skipped a beat for 42 years
Reuben Gregg Brewer (ExxonMobil): If you think energy prices are volatile right now, go back to 2020. That year, when the pandemic led to economic shutdowns around the world, oil crashed to painful lows.
The price of WTI crude actually fell below zero at one point! But Exxon didn't flinch because it had something important to fall back on: a rock-solid balance sheet.
That's how Exxon gets through the inevitable hard times in the highly volatile energy sector. It increases leverage so it can continue to support its business and dividend.
When energy prices recover, as they always have historically, Exxon pays down debt so it is ready to deal with the next weak patch in the oil patch. Its current debt-to-equity ratio of 0.14 would be low for any company and shows that it is well prepared for whatever oil prices do in the future.
But the real show of strength is the dividend, which has been increased every year for 42 consecutive years. That's an incredible streak given the inherent volatility of energy prices.
And a strong balance sheet isn't just supportive of the dividend, it also gives Exxon the firepower to use downturns to buy up smaller energy companies and grow its business over the long term. If you are worried about falling energy prices, Exxon is built to survive the hit and take advantage of it.
Stable earnings amid crude price volatility
Matt DiLallo (Plains All American Pipeline): Plains operates one of the country's biggest oil pipeline platforms. It transports an average of more than 8 million barrels per day across a network of more than 18,300 miles.
Despite its significant exposure to crude oil, Plains All American produces very stable cash flow. That's because long-term fixed-rate contracts and government-regulated rate structures back the bulk of its assets. As a result, it gets paid the same rate regardless of the price of the crude flowing through its pipelines, meaning lower prices shouldn't have much impact on its earnings this year.
Instead, the company expects its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to rise to a range of $2.8 billion to $2.95 billion this year, up from less than $2.8 billion last year. Fueling that increase will be a combination of growth capital projects and acquisitions.
It recently closed three bolt-on acquisitions for $670 million to further enhance its oil midstream operations. And the company spent $330 million to repurchase some of its preferred units, which will boost its free cash flow.
Plains All American's growing earnings and free cash flow have allowed it to continue increasing its lucrative distribution. The master limited partnership (MLP) boosted its payout by another 20% this year. It now yields 7.5%.
The company should have plenty of resources to continue increasing its earnings and distribution. It's investing another $300 million to $400 million into capital projects this year. And it has ample financial capacity to make more bolt-on acquisitions and accretive repurchases.
Those drivers and its low dividend payout ratio position it to keep growing its distribution. That continued growth makes it a great energy stock to buy despite the volatility in oil.
Growth visibility even in a low oil-price environment
Neha Chamaria(Chevron): Since Chevron is one of the largest oil and gas producers in the world, its cash flows are tied closely to oil prices. Its stock, however, just hit a 52-week high, reflecting investor confidence despite falling crude prices. What gives?
President Trump is pro-oil, which is one of the reasons large oil stocks like Chevron are holding up even in a weak market. There's still a lot of uncertainty there given the other macro factors at play, such as tariffs. The company, however, is chalking out its own growth plans that leave plenty of room for the stock to run. Management has also raised dividends for 37 consecutive years.
It's targeting 6% compound annual growth in production through 2026, and over 10% average annual growth in free cash flow through 2027 at a Brent crude price of $60 per barrel. It is also planning to divest some assets and cut operational costs to free up more cash.
Those incremental cash flows should also support bigger dividends and share repurchases, all of which should be reflected in the stock price, In between, if Chevron wins the ongoing arbitration and acquires Hess -- as it is confident it will -- its cash flow could grow even faster and support the oil stock's next bull run.
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Matt DiLallo has positions in Chevron. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.
