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1-Year Performance of Energy Stocks
Source: Morningstar Direct.
To come up with our list of the best energy stocks to buy now, we screened for:
Energy stocks that are undervalued relative to the average stock in the sector, as measured by our price/fair value metric.Energy stocks that earn narrow or wide Morningstar Economic Moat Ratings. We think companies with narrow moat ratings can fight off competitors for at least 10 years; wide-moat companies should remain competitive for 20 years or more.
5 Best US Energy Stocks to Buy
The stocks of these energy companies with economic moats were the most undervalued according to our metrics as of Jan. 27, 2025.
HF Sinclair DINODevon Energy DVNHalliburton HALSchlumberger SLBExxonMobil XOM
Here’s a little more about each of the best energy stocks to buy, including commentary from the Morningstar analysts who cover them. All data is as of Jan. 27, 2025.
Morningstar Price/Fair Value: 0.64Morningstar Uncertainty Rating: Very HighMorningstar Economic Moat Rating: NarrowForward Dividend Yield: 5.43%Industry: Oil and Gas Refining and Marketing
HF Sinclair tops our list of the best energy stocks to buy again this month. The integrated petroleum refiner owns and operates seven refineries across the United States. The company is trading at a 36% discount to our fair value estimate of $58 per share, but it has the highest uncertainty rating on our list.
“After the acquisition of Sinclair Oil, HollyFrontier, now HF Sinclair, is a fully integrated independent company composed of refining, marketing, renewables, specialty lubricants, and midstream businesses.
“Its refining footprint has grown to seven refineries totaling 678 mb/d in total capacity, including the recently acquired Puget Sound refinery. The latter deal extends the company’s footprint to the West Coast, beyond its historical midcontinent and Rockies roots, and into a more difficult refining market with less competitive advantages. However, the foothold on the West Coast should help with the growing renewable diesel business, given the region’s growing biofuel mandates.
“The Sinclair acquisition extends HF’s push into renewable diesel, adding a production facility and pretreatment project. Combined with HF’s existing projects (two RD units and a pretreatment unit), it now can produce 380 million gallons annually and expects future growth.
“Adding Sinclair’s marketing group of over 300 distributors, 1,500 wholesale brand sites, and 2 billion gallons a year of branded sales adds a stable earnings stream HF previously lacked as a merchant refiner. In addition, it offers the ability to generate RINs whose high costs have put HF at a disadvantage in the recent past.
“HF Sinclair had already begun to diversify its earnings when it acquired the Petro-Canada lubricants business, Red Giant Oil, and Sonneborn to diversify its earnings stream. It expects the segment to generate $250 million EBITDA annually while also serving as a platform for future growth.
“At the same time, HF added Sinclair’s midstream assets, including 1,200 miles of pipelines, eight product terminals with 4.5 mm/b of storage, and interests in three pipeline joint ventures. The incremental EBITDA of $70 million to $80 million will increase the total midstream segment annual EBITDA to about $450 million while opening up future organic and external transaction growth opportunities.”
Allen Good, Morningstar Director
Morningstar Price/Fair Value: 0.74Morningstar Uncertainty Rating: MediumMorningstar Economic Moat Rating: NarrowForward Dividend Yield: 4.10%Industry: Oil and Gas Exploration and Production
Devon Energy is an undervalued energy stock, trading at a 26% discount to our fair value estimate of $48 per share. The oil and gas exploration and production company earns a narrow economic moat rating and offers a 4.10% forward dividend yield.
“In 2018, Devon embarked on a series of shrewd capital allocation moves that saw it sell its EnLink Midstream interest, divest its Canadian heavy oil and Barnett Shale interests, and merge with WPX. These astute steps allowed Devon to recycle cash by shedding interests that were either noncore or higher on the cost curve. Recycled cash allowed Devon to meaningfully pivot toward the Delaware and enjoy newfound exposure in the Bakken. Previously, both Canadian heavy oil and Barnett Shale made up 40%-50% of its production.
“Today, Devon is among the lowest-cost providers on the US shale cost curve, along with Diamondback Energy and EOG Resources. Devon’s reconstituted portfolio is buoyed by its presence in Delaware, which supplies some of the lowest breakeven costs among US basins. About two-thirds of the firm’s production is tied to this premier asset, which helps Devon command favorable well production relative to peers. We expect management to continue allocating capital to this basin—it signaled that over 60% of its roughly $3.6 billion in capital expenditure will be allocated to it in 2024.
“But Devon is more than just a single basin play. It boasts a meaningful presence in four of the top five US shale basins by lowest breakeven costs. These include the Williston, the Eagle Ford, and the Anadarko basins. Exposure to high-quality assets with a near-17-year remaining inventory life, coupled with operational improvements from initiatives like longer laterals, should allow Devon to enjoy modest production growth. Importantly, we expect production gains will come at increasingly attractive drilling and completion costs.
“We think Devon completed its reset with its revised capital allocation framework in late 2020. That framework was the first to implement a fixed plus variable dividend. In 2024, Devon’s capital allocation framework calls for returning 70% of its free cash to shareholders. While capital returns had favored the dividend, the bias is now the majority of available cash toward buybacks. We’re happier with this, given Devon’s 2024 value relative to market pricing.”
Joshua Aguilar, Morningstar Director
Morningstar Price/Fair Value: 0.76Morningstar Uncertainty Rating: MediumMorningstar Economic Moat Rating: NarrowForward Dividend Yield: 2.50%Industry: Oil and Gas Equipment and Services
Halliburton is North America’s largest oilfield service company, as measured by market share. This relatively cheap energy stock trades at 24% below our fair value estimate of $36 per share. It has the forward lowest dividend yield on our list at 2.50%.
“After a century of operations, Halliburton is the world’s premier wellbore engineering firm. The company made a historic bet on US shale, which ensured its position as North America’s premier oilfield services company. The company tailors its pressure-pumping solutions to drive down producers’ development costs.
“The advantages here are fleeting and require constant innovation in an increasingly smaller profit pool. However, we think Halliburton will remain in a leadership position. Outside capital remains uninterested in funding would-be competitors following prior boom-and-bust cycles. Both US producers and services firms are now far more capital-disciplined. Producer discipline ensures good utilization rates for Halliburton’s equipment and creates a more certain operating environment for integrated services firms with scale.
“Halliburton also generates strong internal cash flow that funds differentiated solutions with pricing power. In pressure pumping, the solution we like the best is its electric fracturing equipment. Despite the higher upfront cost, customers value this equipment since it lowers their total cost of ownership and reduces their emissions.
“Halliburton also holds a solid competitive position in drilling and evaluation, trailing only SLB. These solutions are less moaty than its completions solutions. But, they still command differentiation, particularly in drilling. Halliburton’s latest generation rotary steering solution should deliver pricing power and good incremental returns. Drilling’s growth outlook should also improve, given the lower inventory of drilled but uncompleted wells in the US. Many of these wells remain unviable for production.
“Finally, the near-term outlook for US shale remains muted. US capital spending is far more short-cycled and susceptible to commodity price swings. So, Halliburton’s offshore business outside of North America will carry greater importance. Offshore international is roughly only a quarter of its revenue mix. But, we still think the firm is well positioned here given its strong execution on complex completions with higher revenue content.”
Joshua Aguilar, Morningstar Director
Morningstar Price/Fair Value: 0.79Morningstar Uncertainty Rating: MediumMorningstar Economic Moat Rating: NarrowForward Dividend Yield: 2.68%Industry: Oil and Gas Equipment and Services
Schlumberger is an undervalued energy stock, trading at a 21% discount to our fair value estimate of $54 per share. The oil and gas equipment and services company is the world’s premier oilfield-services company by market share and earns a narrow economic moat rating.
“SLB focuses its strategy through three growth engines: core, digital, and new energy. Our thesis mostly relies on SLB’s first two growth engines, specifically its offshore business outside of North America and its digital offerings. Market bears seem concerned that the exploration and production capital expenditure cycle is turning and that the acquisition of ChampionX dilutes shareholder value. We disagree with the latter point, and we think parts of the cycle could be more resilient and longer lasting than the market appreciates.
“The cycle is indeed turning in North America amid customer consolidation. We also expect the broader market will face reductions in discretionary short-cycle spending, given concerns about an oversupplied commodity market and weak demand in China. But the fundamentals underlying long-term project spending, particularly in offshore international, look intact.
“From this standpoint, SLB is well positioned since it’s the premier global oilfield-services company. It boasts an oligopolistic foothold in some of the most attractive market segments, thanks to its record of innovation. Furthermore, over three-fourths of its business is exposed to markets outside North America. Industry figures frequently cite roughly $100 billion in final investment decisions in 2026. The Middle East and deep-water projects in Latin America and West Africa strike us as among the most attractive long-term opportunities, and we think SLB will capture its healthy share of project wins.
“SLB also holds an industry-leading position in digital, whose revenue is sticky, highly accretive to margins, and more resilient to cyclical headwinds. Digital enjoys these attributes because it helps reduce customers’ cycle times while also lowering their cost of production. We believe SLB’s digital revenue can cross $4 billion by the end of the decade.
“We fully credit SLB with extracting $400 million in annualized pretax synergies in its third year following the close of the ChampionX acquisition, which we model with 100% probability. If we’re right, we think the acquisition will create roughly $900 million in shareholder value.”
Joshua Aguilar, Morningstar Director
Morningstar Price/Fair Value: 0.82Morningstar Uncertainty Rating: HighMorningstar Economic Moat Rating: NarrowForward Dividend Yield: 3.59%Industry: Oil and Gas Integrated
Integrated oil and gas company ExxonMobil rounds out our list of the best energy stocks to buy. The company explores for, produces, and refines oil worldwide. ExxonMobil stock is 18% undervalued relative to our fair value estimate of $135 per share.
“Exxon is departing from industry trends by increasing spending to deliver $20 billion in earnings growth by 2030. Although the higher spending might sound alarming given the industry’s history of pursuing growth at the expense of returns, Exxon’s differentiated portfolio should enable it to do so while maintaining capital discipline and delivering returns. Its differentiated Guyana position and enlarged Permian position remain at the core of its portfolio, which offers capital-efficient volume and earnings growth. Meanwhile, the breadth of its downstream businesses opens new low-carbon business opportunities.
“Going beyond the headline of increased spending—$27 billion to $29 billion in 2025 and $28 billion to $33 billion annually from 2026 to 2030—reveals hydrocarbon investment will remain flat even as production grows from 4.3 mmboed in 2024 to 5.4 mmboed in 2030. This is thanks to over 70% of upstream investment going toward the Permian, Guyana, and LNG, where Exxon has realized material capital efficiency gains. These areas should also deliver margin expansion, adding $9 billion in earnings.
“Unlike some peers, Exxon will continue to grow Permian volumes from 1.5 mmboed in 2025 to 2.3 mmboed in 2030.
“Based on volume growth and cost reductions, another $8 billion of earnings growth will come from product solutions—refining, chemicals, and specialty products.
“By 2030, Exxon expects to deliver about $3 billion in earnings from new businesses in the production solutions and low-carbon segments, which span resins, low-emission fuels, carbon capture and storage, lithium, and low-carbon hydrogen. Spending on these lower emissions areas totals $30 billion through 2030 but requires policy support and market development. Thus, if the earnings don’t materialize, Exxon won’t invest.
“The large portion of short-cycle spending, including the Permian, affords Exxon flexibility in the event of lower prices. Even so, with the current plan, growing cash flow results in falling reinvestment rates to 2030 and a $30/bbl dividend breakeven. So, as the higher spending breaks with peers, the earnings and cash flow growth and delivery of higher returns justify it.”
Allen Good, Morningstar Director
How to Find More of the Best Energy Stocks to Buy Now
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.