5 Best Oil and Gas Stocks to Buy in December 2021

Crude oil prices have come off their 2021 highs and Brent is heading for a weekly loss amid uncertainty caused by the omicron variant. Meanwhile, oil and gas stocks have also come off their highs.

Goldman Sachs has reiterated its bullish call on crude and maintained its previous forecast of crude hitting $100 per barrel. Several other analysts had previously said that crude hitting $100 per barrel is a possibility. What are the five best oil and gas stocks that you can buy in December 2021 and play the expected rebound in crude oil prices?

Goldman Sachs on oil prices

“We’ve already had record high demand before this newest variant, and you’re adding higher jet demand and the global economy is still growing,” said Goldman Sachs’ head of energy research Damien Courvalin. He added, “You see how we will average a new record high in demand in 2022, and again, in 2023.” Goldman Sachs sees oil hitting $85 per barrel in 2022 and sees an upside risk that could take prices almost $10 higher.

Notably, the OPEC+ is going ahead with a 400,000 barrel per month increase in production from the next month. Oil importing countries like India, China, South Korea, and the US released oil from their strategic reserves. Meanwhile, OPEC+ has said that it would closely monitor the situation and react accordingly amid the threat from the omicron variant.

1. BP Plc. (NYSE: BP)

BP stock has gained over 27% for the year which might seem on the lower side considering the steep rise in energy prices this year. However, the stock’s valuations look quite reasonable while the almost 5% dividend yield is also attractive.

Meanwhile, apart from the fossil fuel business, BP is also a play on renewable energy. It has been diversifying its business and is also investing in hydrogen and renewable energy. The company has been exiting some of the fossil fuel business and has been investing aggressively in renewable energy. While these projects might not lead to immediate returns, they would add long-term shareholder value as the world transitions towards a low carbon future.

BP is an oil stock with a high dividend yield

BP looks like an attractive oil stock to buy in December 2021 and play the dual theme of strong crude prices and the company’s aggressive pivot towards renewable energy. The company has a strong balance sheet and should be able to survive an industry downtrend much better than its peers which have strained balance sheets.

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2. Marathon Petroleum Corp. (NYSE: MPC)

Marathon Petroleum stock is up almost 52% for the year. The stock has come off its 2021 highs, in line with other energy stocks. Meanwhile, consensus estimates call for an upside of 16.4% over the next 12 months. Of the 19 analysts covering the stock, 16 have a buy rating while the remaining three have a hold rating.

MPC is a downstream oil company

MPC is a crude oil refining company based in Ohio. The company also has midstream operations. It is also into fuel retailing and has almost 7,100 branded locations across the United States. The stock trades at an NTM (next-12 months) EV-to-EBITDA multiple of 6.45x which is below its average multiples over the last ten years. The stock looks like a good oil stock to buy in December and play the expected uptick in fuel demand in the US.

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3. Chevron (NYSE: CVX)

While Wall Street analysts have been quite mixed on oil and gas stocks, most have a bullish forecast for Chevron. The company’s strong balance sheet and conservative capital allocation make it an attractive oil and gas stock to buy.

Morgan Stanley finds CVX a good oil stock to buy

Earlier this month, Morgan Stanley reiterated its buy rating on Chevron. Last month, Tudor Pickering, Royal Bank of Canada, and UBS had upgraded the stock. The stock has a median target price of $130 which is a premium of 13.3% over current prices. Its dividend yield of 4.7% also looks attractive. If you are looking to add a financially strong oil stock with a good dividend yield, CVX looks like a good bet.

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4. Suncor Energy (NYSE: SU)

Canadian oil and gas company Suncor is another good energy stock that you can consider in 2021. The company recently released its 2022 production outlook and expects its production to rise almost 5% YoY next year. It also expects its synthetic crude oil production to rise 5% next year to a new record high. At the same time, it expects 2022 capex to be $300 million below the 2021 levels. It has instead prioritized shareholder payout and also increased its share buyback program.

SU is among the best Canadian oil stocks to buy

Suncor has a dividend yield of 5.6% which looks quite attractive. It is among the best Canadian energy stocks to buy and was once also a part of Berkshire Hathaway’s portfolio. However, the Warren Buffett-run company has fully exited its investment in Suncor.

Meanwhile, Wall Street analysts are bullish on the stock, and 17 of the 21 analysts rate it as a buy. The remaining four have a hold rating while the consensus target price of $31.54 is a premium of 35% over current prices.

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5. Vanguard Energy ETF (NYSE: VDE)

ETF investing has become very popular and total ETF assets are now over $7 trillion. ETFs can be a good investing strategy especially for investors who lack the time or analytical skills to pick individual stocks. Their low expense ratio makes them an attractive investment option.

Berkshire Hathaway chairman and legendary value investor also advises investors to consider ETFs. The conglomerate has itself invested some funds in S&P 500 ETF.

VDE is a good oil ETF to buy

If you want to get exposure to oil and gas stocks, VDE looks like a good option. VDE has 104 stocks in its portfolio which makes it quite diversified. The ETF has total assets of $7 billion while its annual expense ratio is 10 basis points.

All said, while oil and gas stocks should have another good year in 2022, the macroeconomic environment has been clouded by the omicron variant. If you are looking at exposure to the sector, it would be prudent to take a staggered approach rather than invest in one shot.

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