Investing Whiz Bob Doll Says These High-Quality Energy Stocks Can Thrive in a Volatile Market

Investing Whiz Bob Doll Says These High-Quality Energy Stocks Can Thrive in a Volatile Market

A look at the year-to-date charts of the major stock indexes shows that the downtrend has been volatile. It has been characterized by short rallies that bounce off until the pattern repeats. This creates a confusing environment for investors.

And we’re not out of the woods yet, says former BlackRock head of equities and Crossmark CIO Bob Doll. In his view, markets are set to turn worse in the short term, perhaps retesting recent lows near 3,500. Doll notes that the Federal Reserve has “only” raised interest rates in the 3.75% to 4% range, and that this likely isn’t enough to curb inflation.

With that in mind, the job of investors is to find stocks that will earn in the future, no matter how the market moves, and Doll has some advice there, too.

“I don’t think you should roll the dice and take a lot of portfolio risk. Good solid companies that sell at reasonable prices. or they have good cash flow … that’s what I try to focus on … Energy companies are making a lot of money … They’re very disciplined this time, which is great for financial returns and for investors,” Doll said.

In particular, Doll has recommended two high-quality energy stocks that have proven they can thrive in volatility. We’ve delved into the TipRanks database to see what Wall Street analysts have to say about whether these stocks make compelling investments. Let’s take a closer look.

Marathon Petroleum Corporation (MPC)

We’ll start with Marathon Petroleum, an old name in the oil industry and currently the largest producer of refined petroleum products in the North American market. The company has a market cap of $54 billion and shares have gained 85% year-to-date, far outperforming the broader markets. Marathon’s strength is based on its operations: 13 active refineries, operating in 12 states, with a combined capacity of 2.9 million barrels of crude oil per day.

A continent-spanning business in a core industry, Marathon generated $47.2 billion in revenue in its recently reported 3Q22, up 45% from the same period last year. The company reported adjusted net income of $3.9 billion, or $7.81 per diluted share. The EPS number was up from just 73 cents in 3Q11.

Thus, the company is profitable, and shows strong stock appreciation in a challenging environment. Also of note to investors, Marathon Petroleum also announced a fourth quarter dividend, payable on December 12, of 75 cents per common share. This is a 30% increase over the quarter and on a year-over-year basis, the new dividend is $3 per common share. At that rate, it yields 2.6%, just above the average of companies listed in the S&P 500. Marathon has maintained reliable dividend payments for the past 11 years.

All of this has impressed Raymond James 5-star analyst Justin Jenkins, who writes for the MPC: “We believe relative momentum will continue as the refining macro continues to support well above mid-cycle margins (and record October cracks as well ). While MPC has met its capital allocation and shareholder return targets, excellent operations, a supportive refining macro and management’s continued focus on returns make MPC the top refining pick even after dramatically outperforming over the past two years…”

To that end, Jenkins rates MPC stock a Strong Buy, and the $150 price target suggests it has 29% upside potential over the next year. (To track Jenkins’ history, Click here)

Wall Street is definitely down with the bulls on these stocks. The stock has 13 recent analyst ratings and are distributed at 10 Buys over 3 Holds for a strong Buy consensus. (See MPC stock forecast at TipRanks)

ExxonMobil Corporation (XOM)

The second energy stock pick on Doll’s list is ExxonMobil, one of the world’s largest crude oil and natural gas exploration and production companies. ExxonMobil has its fingers in many pots, from hydrocarbon exploration on the global stage to buying US refined products to developing new energy sources and more efficient fuels to power a low-carbon or net-zero future.

It takes a big company and a deep wallet to manage all that. ExxonMobil, with a market cap of $448 billion, fits the bill. The company maintains its size with outsized quarterly results – it posted a top line that topped $112 billion in 3Q12, up 52% ​​year-over-year. For the first nine months of this year, ExxonMobil generated $318 billion in revenue, up from $200 billion for the same period in 2021.

In terms of earnings, the company made $19.7 billion in the recent third quarter. That came to $4.68 per diluted share, compared to $1.58 EPS in the prior quarter. The company’s cash flow increased in the third quarter by $11.6 billion and free cash flow, which helps support the dividend payment, was $22 billion.

The dividend is worth mentioning. ExxonMobil reported a fourth-quarter payout of 91 cents per common share, up 3 cents from the prior quarter, payable on Dec. 9. With annual interest coming in at $3.64 per common share, the dividend yields 3.2%, well above average. XOM has maintained reliable payments for 14 years.

Along with rising highs and lows, ExxonMobil shares have been gaining all year. The stock is up 84% year-to-date, outperforming the broader market by a wide margin.

Covering Jefferies stock, 5-star analyst Lloyd Byrne believes this name could see even more gains ahead.

“We believe Exxon has built a compelling investment case… XOM is ‘on the cutting edge’ and we see an attractive risk/reward, particularly for generalists who need energy exposure… We see Exxon’s financial position as solid, as the company rationalized its cost structure and used the higher oil and gas environment to repair its balance sheet. At the same time, XOM continued to reinvest in long-term projects across the energy chain,” Byrne said.

“With strong financials and an industry leading upstream and downstream portfolio, we believe Exxonis is positioned to outperform over the medium term,” the analyst concludes.

All of this, in Byrne’s view, warrants a Buy rating, along with a $133 price target. If the target is met, there could be a twelve month gain of ~22%. (To follow Byrne’s history, Click here)

In total, XOM shares have received the nod from 12 analysts, who collectively give the stock an 8 to 4 Buy to Hold advantage for a consensus Moderate Buy rating. (See XOM Stock Prediction on TipRanks)

To find good ideas for trading energy stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that brings together all of TipRanks’ stock information.

Denial of responsibility: The views expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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