5 Best Oil and Gas Stocks to Buy in October 2021

Energy prices have been incredibly strong in 2021 which has led to a spike in oil and gas stocks. Here are five of the best oil and gas stocks that you can buy in October 2021.

The fortunes of oil companies are intertwined with energy prices. Now, crude oil prices are at the highest level since 2014 and some of the brokerages including Goldman Sachs and Bank of America see more upside in crude oil prices. Russian President Vladimir Putin, whom European countries have accused of manipulating gas prices, believes that $100 per barrel crude oil prices is a real possibility.

1. BP (NYSE: BP)

The iconic British energy giant BP is among the best oil stocks that you can buy in October 2021. The near-term forecast for BP stock looks bullish looking at the momentum in energy prices. While the stock has outperformed the broader markets this year, the price action does not fully appreciate the current strength in energy prices.

BP CEO Bernard Looney has been trying to transform the company from a fossil fuel giant to a renewable energy leader. He has announced plans to sell $25 billion worth of fossil fuel assets by 2025. BP has already sold $15 billion worth of assets under Looney. The company also intends to cut its crude oil production by 40%. While almost all the energy giants are taking of lowering their carbon footprint, BP became the first company to commit to a quantitative production cut.

BP is among the best oil stocks to buy

BP looks among the best oil stocks to buy looking at its long-term pivot towards renewables. While these endeavors would not add to the profits at least until 2025, they would add long-term value. Also, BP would see a valuation multiple re-rating as it increases the focus on clean energy. Notably, renewable energy funds trade at a valuation premium even as fossil fuel companies trade at a discount. A lot of institutional investors are shunning fossil fuel companies for renewable companies.

With an NTM (next-12 months) EV (enterprise value)-to-EBITDA multiple of 4.4x and a dividend yield of 4.4x, BP is one oil and gas stock that should be on your radar in October.

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2. ConocoPhillips (NYSE: COP)

JPMorgan listed COP as among the best stocks in the energy industry if crude oil were to hit $100 per barrel. COP is the largest crude oil producer in Alaska. It has globally diversified operations. The stock currently trades at an NTM EV-to-EBITDA multiple of 5x. COP stock has gained 90% so far in the year and trades near its 52-week highs. Its dividend yield is 2.4%.

JP Morgan finds COP as among the best oil stocks

Meanwhile, JPMorgan isn’t the only brokerage that is bullish on COP stock. Of the 14 analysts polled by TipRanks, 12 rate the stock as a buy while two rate it as a hold. None of the analysts have a sell rating on the stock. Its average target price of $86.07 is a premium of 14.3% over current prices.

Overall, looking at the strength in crude oil prices, COP looks among the best oil stocks to buy in October.

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3. Suncor (NYSE: SU)

Canadian energy giant Suncor is another oil stock that should be on your radar. The stock is up only about 39% for the year and consensus estimates call for an upside of 28.3% over the next 12 months. The street high target price of $37.22 is a premium of 60% while the street low target price of $22.95 is similar to current prices.

Suncor was once a top oil stock in Berkshire Hathaway’s portfolio

Suncor was part of Berkshire Hathaway’s portfolio. While the conglomerate has exited the stake in Canada’s largest integrated energy company, it nonetheless looks like an oil stock worth buying. Suncor produces oil from oil sands where the unit production costs can be higher. However, given the recent surge in energy prices, companies like Suncor would make handsome profits.

At current prices, Suncor has a dividend yield of 2.9% which is over twice the S&P 500’s dividend yield. Looking at the strength in crude oil prices. Suncor is one oil stock that should be on your radar. The valuations also look reasonable and SU trades at an NTM EV-to-EBITDA multiple of 4.5x.

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4. ExxonMobil (NYSE: XOM)

XOM stock is up 53% for the year and trades near its 52-week highs. The global energy giant is another oil stock that should be on your watchlist in October. Meanwhile, Wall Street analysts have a divergent view of XOM stock. In August, Morgan Stanley had reiterated its overweight rating on the stock.

Morgan Stanley finds XOM a good oil stock

“During 1Q earnings, US super-majors CVX & XOM collectively generated more free cash flow than the past 6 quarters combined. Now, with rebounding commodity prices and capital discipline holding firm, Big Oil delivered once again, generating over $12 B in aggregate free cash flow in 2Q, the highest level since 1Q12,” said Morgan Stanley on XOM and Chevron.

However, last month, RBC reiterated XOM as underweight and said that it sees better value in other oil and gas stocks. The consensus view is neutral on XOM stock and it has received a buy rating from only 10 of the 31 analysts. 19 analysts rate it as a hold while two analysts have a sell rating. Its median target price of $66.50 is a premium of 4.7%.

However, if you are looking at an oil stock with a high dividend yield, you can consider XOM with its dividend yield of 5.5%.

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5. Diamondback Energy (NYSE: FANG)

Texas-headquartered Diamondback Energy is another good oil stock to buy. The stock has outperformed peers in 2021 and is up 127% for the year. It is among the oil stocks that JPMorgan is bullish on in the event of oil prices rising to $100 per barrel.

JPMorgan finds FANG a good oil stock to buy

FANG has a median target price of $122 which is a premium of 10% over current prices. Its street high target price of $153 is a premium of almost 38%. The stock trades at an NTM EV-to-EBITDA multiple of 6x and has a dividend yield of 1.6%.

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