5 Best Oil and Gas Stocks to Buy in January 2022

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Crude oil prices have whipsawed over the last two years which is also reflected in the price actions of oil and gas stocks, whose earnings are sensitive to energy prices.

In 2020, WTI prices went negative for the first time in history. However, prices soon bounced back. Crude oil prices continued to strengthen in 2021 and reached the highest level since 2014. However, the emergence of the omicron variant took a toll on energy prices. However, prices have since recovered and Brent prices are now near $85 per barrel levels.

Oil and gas companies are one way to play the strong crude oil prices. Here are the five best oil and gas stocks that you can buy in January 2022.

  1. Halliburton Company (NYSE: HAL)

morgan stanley finds hal a good oil and gas stock to buy

Oilfields services company Halliburton looks like a good oil and gas stock to buy in January 2022. The stock has underperformed peers over the last year and looks set for a catch-up trade especially as energy prices are looking strong. Earlier this month, Morgan Stanley analyst Conor Lynagh upgraded the stock to an overweight expressing optimism over the company’s shareholder payout.

Morgan Stanley finds HAL a good oil and gas stock to buy

In its note, Lynagh said, “We think the Street is underestimating HAL’s commitment to capital restraint, and commensurately its [free cash flow]. … Pairing this with an increased degree of market conviction that this will be returned, not reinvested, we think this could drive multiple expansion.”

Lynagh raised his target price to $30 and said “HAL’s balance sheet is in a good place now, and it has ample optionality for capital returns. … We assume a meaningful step up in both dividends and buybacks in 2022, but there is upside to this, as shown by the gap between available cash and assumed cash returns.”

HAL stock trades at an NTM (next-12 months) EV-to-EBITDA multiple of about 10x which looks reasonable considering the current macro environment. If you are looking to buy an oil and gas stock in January 2022, HAL is one name that you can consider.

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  1. ExxonMobil (NYSE: XOM)

Oil and gas major ExxonMobil is another name that you can consider in January 2022. Recently, Bank of America named the company as a top pick for 2022. “Amongst the majors XOM leads our top picks again – with 2022 a transition year for its balance sheet, free cash flow, disposals and dividend growth – and at its size we believe can lead the sector weight higher through renewed confidence in its dividend outlook,” it said in its report.

xom is a oil and gas stock with high dividend yield

XOM is an oil and gas stock with a high dividend yield

XOM stock hit a 52-week high yesterday. Oil and gas stocks have been strong this year even as the broader markets, especially the tech stocks have tumbled. XOM has a dividend yield of almost 5% which looks quite good looking at the dismal yield of the S&P 500.

Wall Street analysts have a consensus hold rating on the stock and its median target price of $72 is similar to current prices. However, analysts could soon upwardly revise their target prices looking at the current crude oil pricing environment.

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  1. Chevron (NYSE: CVX)

Several brokerages are bullish on Chevron stock in the oil and gas industry and earlier this month Mizuho said that the stock is a top 2022 pick. Analysts like CVX stock for its higher leverage to oil prices and its strong balance sheet. Chevron also hit a 52-week high yesterday and has a dividend yield of 4.2%.

CVX is a top oil and gas stock for Mizuho

Along with Mizuho, Bank of America is also bullish on CVX stock. Of the 30 analysts covering the stock, 21 have a buy rating while the remaining nine have a hold rating.  The stock has a median target price of $137 which is a 7.6% premium over current prices. The street high target price of $155 is a 21.7% premium.

If you are looking for an oil and gas stock with a strong balance sheet, CVX is one name that you can consider. The stock trades an NTM EV-to-EBITDA multiple of 5.6x which looks reasonable.

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  1. ConocoPhillips (NYSE: COP)

While crude oil prices at $100 per barrel looked like a pipe dream a few months back, many observers now see prices hitting that level. According to JPMorgan. COP would be among the best oil and gas stocks to buy if crude oil prices were to hit $100 per barrel. COP is the largest crude oil producer in Alaska and has globally diversified operations.

Wall Street finds COP a good oil and gas stock to buy

Wall Street analysts are also generally bullish on COP stock and it has 25 buys, four hold, and one sell rating. It has a median target price of $95 which is a premium of 12.5%. Its street high target price of $117 is a 38.6% premium over current prices. Overall, COP is among the best oil and gas company to play the strength in crude oil prices.

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  1. Vanguard Energy ETF (NYSE: VDE)

ETF investing has become very popular and total ETF assets are now over $7.2 trillion. December was a record month for US ETF and inflows were almost $100 billion which took the 2021 inflows to over $900 million which was much higher than the previous year. 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.

VDE is a diversified oil and gas ETF

The oil and gas industry is quite heterogeneous and we have upstream, midstream, downstream, integrated, as well as oilfield services companies. Vanguard Energy ETF gives you diversified exposure to the sector.

The ETF has 104 holdings. Integrated oil and gas companies are the biggest constituent of the ETF with a 40% exposure. Oil and gas exploration and production companies form another 30%.

The ETF has an expense ratio of 10 basis points. If you want diversified exposure to the oil and gas sector, VDE looks like a good bet.

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Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA in finance as a major. He has over 15 years of experience in financial markets. He has been writing extensively on global markets for the last eight years and has written over 7,500 articles. He covers metals, electric vehicles, asset managers, tech stocks, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.