Two Energy Stocks You Should Buy Now With $200

Two Energy Stocks You Should Buy Now With 0

If there’s one thing investors really need to think about when it comes to the energy sector, it’s volatility. Indeed, the prices of oil and natural gas, the fundamental products of the energy sector, are commodities subject to rapid and dramatic price fluctuations. Most investors interested in the energy sector will want to stick to integrated energy giants like Chevron (NYSE: CVX) And TotalEnergies (NYSE:TTE). Here’s why these two stocks, priced comfortably below $200 per share, are worth adding to your portfolio.

Similar in one important respect

There are many differences between Chevron and TotalEnergies. But there is one very important similarity: they are both integrated energy major. This means that their activities extend from upstream (drilling for oil and natural gas) to mid-sector (transporting oil and gas through pipelines) and all the way downstream (processing oil and gas into chemicals and refined, like gasoline). Each of these segments of the energy sector presents different operating dynamics.

Two Energy Stocks You Should Buy Now With 0

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Upstream performance tends to follow the path of energy prices. The midstream sector is fairly stable, driven by fees for using the assets companies own. And downstream can be volatile but often benefits from low energy prices because these raw materials are key inputs. Overall, diversification across these segments helps smooth out the ups and downs of the energy sector. Add to that geographic diversification and the story becomes even better, as these companies can redirect their business investments to where they will produce the highest returns.

If you’re looking for a reliable energy investment, the first place to look is the integrated energy majors. Among this group, Chevron and TotalEnergies stand out but for different reasons.

Chevron is a rock-solid company

Chevron’s most notable differentiation from its closest peers is its financial strength. The company’s debt-to-equity ratio is 0.12 times, which is the lowest in the group. This means that it is balance sheet is solid as a rock. This is notable because the normal strategy during an industry downturn is to take on debt to support the business while energy prices are low. Chevron has also used this tactic to support its dividend, which has been increased for 36 consecutive years.

In other words, when times get tough, Chevron has proven it can withstand the shock. And when energy prices improve again, it reduces debt in anticipation of the next storm. The dividend yield today is about 4.3%, which is significantly higher than what you’d get from an S&P 500 index fund. If you’re looking for an energy investment you can count on through thick and thin, Chevron is a great option.

TotalEnergies evolves with the world

French energy giant TotalEnergies doesn’t have such a strong balance sheet, with a debt-to-equity ratio of 0.43 times. That said, European energy companies tend to hold more cash than U.S. energy companies, which helps reduce the risk of higher debt. However, European peers P.A. And Shell both have cut their dividends during the COVID-19 pandemic. TotalEnergies stood out from these competitors by sustaining its dividend during this difficult period.

What’s interesting about the BP and Shell dividend cuts is that they came around the same time that these two integrated energy giants announced plans to increase their investments in energy clean. TotalEnergies has made the same commitment, but without a dividend cut. But the truth is that TotalEnergies has been investing in clean energy for years, so this change is only an acceleration of investments in an area that it already knows well. This is what could make some investors prefer TotalEnergies, since Chevron still focuses most of its efforts on oil and natural gas.

Essentially, if you want an energy stock that adapts to the changing energy landscape, TotalEnergies appears to be among the best of the bunch. The dividend yield is an attractive 4.8%, although US investors should note that they will have to pay French taxes on the dividends they receive.

Focus on oil or adjust to the world, your choice

There are many different options in the energy patch. However, if you are looking for reliable companies with generous dividends, Chevron and TotalEnergies are two good choices. One of them, Chevron, is perfect for the investor trying to focus on oil and natural gas. The other, TotalEnergies, is a little more nuanced, as it weaves renewables into the story as the world slowly moves toward low-carbon energy sources. Either way, though, these two stocks under $200 are great options in the energy space.

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Ruben Gregg Brewer occupies positions within TotalEnergies. The Motley Fool ranks and recommends BP and Chevron. The Motley Fool has a disclosure policy.

2 Obvious Energy Stocks to Buy with $200 Right Now was originally published by The Motley Fool

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