Energy stocks as a whole delivered an underwhelming performance in 2025. The average one in the S&P 500 has only managed to eke out a small gain (the Energy Select Sector SPDR Fund -- an ETF that tracks energy stocks in the S&P 500 -- is only up about 1% on the year). Meanwhile, the S&P 500 has rallied more than 25%.
A few Fool.com contributors expect a better performance from energy stocks next year. Chevron(NYSE: CVX), Enterprise Products Partners(NYSE: EPD), and Occidental Petroleum (NYSE: OXY) top their lists as the best ones to buy in the new year. Here's why they expect these energy companies to deliver a strong performance in 2025.
Chevron has you covered through the energy cycle
Reuben Gregg Brewer (Chevron): Energy stocks can be volatile, given that oil and natural gas prices are notoriously volatile. So you have to go in ready to handle the inherent ups and downs of the industry, regardless of whether you buy at the top of the energy cycle or the bottom.
Chevron is built to ride the wave -- and keep paying you well throughout. The proof is in the $250 billion market cap energy giant's 37-year streak of annual dividend increases.
There are a couple of important reasons for this reliable performance. First off, as an integrated energy company, Chevron has exposure across the energy sector, including the upstream (energy production), midstream (pipelines), and downstream (chemicals and refining). Each of the sectors operates a little differently from the others and, as such, having all three in the portfolio helps to soften the broader industry's peaks and valleys.
Then there's Chevron's rock-solid balance sheet, with a debt-to-equity ratio that's a very low 0.2. That would be low for any company, but it gives Chevron the leeway to take on leverage during energy downturns so it can continue to support its business and dividend until the energy sector recovers, as it always has before. Add in an attractive 4.5% dividend yield, and there's even more reason to buy Chevron right now.
Dual drivers should fuel more growth in 2025
Matt DiLallo (Enterprise Products Partners): Midstream giant Enterprise Products Partners had a very solid year in 2024. The master limited partnership (MLP) grew its distributable cash flow by 5% in the third quarter. Meanwhile, it has increased its distribution payment by 5% over the past year. The company benefited from recently completed organic expansion projects, which supplied it with new sources of cash flow.
That momentum should continue in 2025. The midstream company has several more organic expansion projects in the pipeline that should enter commercial service over the next year. Those projects will supply more sources of cash flow growth next year.
In addition, Enterprise Products Partners will get a boost from its recently closed acquisition of Pinon Midstream. The $950 million deal will be highly accretive to its cash flow. The MLP expects it to add $0.03 per unit in 2025, with further upside potential from commercial and operating synergies.
Those visible growth drivers should give the MLP the fuel to continue increasing its distribution in 2025. That would extend its growth streak, which reached 26 years in 2024. Its payout currently yields a very attractive 6.8%, putting it much higher than average (the S&P 500's dividend yield is around 1.2%).
Enterprise Products Partners' lucrative income stream and visible growth drivers should give it the fuel to produce a solid return in 2025. That low-risk probability of earning a solid return makes it stand out as a top energy stock to buy for the next year.
A compelling bounce-back candidate for 2025
Neha Chamaria(Occidental Petroleum): Occidental Petroleum stock turned out to be one of the largest underperforming large-cap energy stocks of 2024, losing 19% of its value in the year as of this writing. While falling oil prices in the second half of the year hit several oil stocks, Occidental Petroleum stock took a bigger hit partly because of debt, which zoomed after its multibillion-dollar CrownRock acquisition in August.
At this point, however, Occidental Petroleum looks like the kind of energy stock you'd want to buy for 2025 for one big reason: Management is laser-focused on cutting down debt. Occidental announced a target of reducing debt by at least $4.5 billion within 12 months of closing the CrownRock acquisition. The company, however, hit 90% of its goal in less than three months, driven by strong cash flow generation in its third quarter.
During its third-quarter earnings conference call, management stated that Occidental Petroleum has enough cash to repay debt maturing in 2025, and that it should be able to pare debt further next year even in a low-oil price environment.
Meanwhile, CrownRock's key assets in the Permian Basin are already contributing to Occidental's production and cash flows, as was evidenced in the third quarter. Occidental also has other growth catalysts, such as its low-carbon ventures business and its chemicals business, called OxyChem. Given the backdrop, Occidental Petroleum looks like a value stock worth betting on for 2025.
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Matt DiLallo has positions in Chevron and Enterprise Products Partners. 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 recommends Enterprise Products Partners and Occidental Petroleum. The Motley Fool has a disclosure policy.
