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4 Energy Stocks to Buy on Continued Geopolitical Goings-on

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We have well and truly gone past the supply shock of 2022, and at the onset of this year, hardly anybody was expecting the energy sector to be booming. However, the Energy Select Sector SPDR (XLE) soared 13% year to date as of Jul 31. The sector has been driven by fantastic growth in oil refiners who have benefited from favorable spreads between the price of oil and its distillates. But it has not been limited to refiners, with explorers and producers, equipment and services gaining ground as well.

Geopolitical tensions continue to play a vital role, like they did in 2022. With the threat of a broader conflict between Israel and Iran looming charge, escalating hostilities in the Middle East and the conflict between Russia and Ukraine not relenting, the supply side pressure on oil prices may continue for a long time. In June, both the Organization of the Petroleum Exporting Countries (“OPEC”) and OPEC+ agreed to maintain oil output reductions until 2025. These macro drivers will continue to drive up oil demand and prices.

Since the start of May, crude oil prices have remained relatively low, with tensions easing off, or at least temporarily de-escalating between Iran and Israel. On Wednesday, Aug 21, oil closed lower for a fourth consecutive day. This weakness comes even though cease-fire talks between Israel and Hamas seem to have stalled. Worries over weaker demand continue to be the main driver for the market at the moment. The downward pressure on prices makes it increasingly likely that OPEC+ will have to scrap their plans for gradually increasing supply from October.

Oil prices fell $1 a barrel on Aug 21. Brent crude settled down $1.15, or 1.5%, at $76.05/barrel. WTI crude settled $1.24 lower or 1.7% at $71.93.

However, with the market consensus now heavily suggesting that the first interest rate cut would happen in September and with continued OPEC production cuts, prices should resume their climb northward. With the inherent cyclical nature of the sector and based on the miles it has already traveled in 2024, the energy sector is possibly looking at a winning year.

Our Choices

The stocks below flaunt a Zacks Rank #1 (Strong Buy) or Rank #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here, V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.

Baytex Energy Corp. (BTE - Free Report) is an explorer and developer of crude oil and natural gas. BTE’s expected earnings growth rate for the next year is 48.4%. The Zacks Consensus Estimate for its current-year earnings has improved 40.9% over the past 60 days. This Zacks Rank #2 company has a VGM Score of B.

SM Energy Company (SM - Free Report) is an independent energy company. SM’s expected earnings growth rate for the current year is 28.5%. The Zacks Consensus Estimate for its current-year earnings has improved 14.2% over the past 60 days. This Zacks Rank #1 company has a VGM Score of B.

Delek Logistics Partners, LP (DKL - Free Report) is a provider of gathering, pipeline, transportation and other services for the energy market. DKL’s expected earnings growth rate for the current year is 5.6%. The Zacks Consensus Estimate for its current-year earnings has improved 4.3% over the past 60 days. This Zacks Rank #1 company has a VGM Score of A.

CrossAmerica Partners LP (CAPL - Free Report) is in the business of wholesale distribution of motor fuels, operating convenience stores, and owning and leasing real estate used in the retail distribution of motor fuels. CAPL’s expected earnings growth rate for the next year is 241.2%. The Zacks Consensus Estimate for its current-year earnings has soared 194.4% over the past 60 days. This Zacks Rank #2 company has a VGM Score of A.

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