Top 3 Stocks to Buy Now as Energy Sector Hits Buy Zone

Key Points

• The XLE ETF has retraced to its 200-day SMA, presenting a potential buying opportunity after underperforming the market in Q2.
• Exxon Mobil (XOM) is trading near its 200-day SMA. Analysts forecast a 23% upside, and the company has a solid dividend yield of 3.4%.
• Berkshire Hathaway's increased stake in Occidental Petroleum (OXY) and Williams Companies' (WMB) 20% year-to-date surge make them both attractive options for investors looking to gain exposure to the sector.

After showing relative strength in the first quarter, the energy sector and the Energy Select Sector SPDR Fund ETF NYSEARCA: XLE trended lower in the second quarter, recouping most of their gains. Now up just over 5% year-to-date, the sector is underperforming the market and its benchmark. 

However, the XLE ETF's recent dip to its 200-day SMA presents a potential buying opportunity. Three stocks that show promise for investors looking to gain exposure to the sector are Williams Companies, Occidental Petroleum, and Exxon Mobil. Let's delve into the details.

The Energy Sector Dips into Potential Buy Zone

After an impressive start to the year, the XLE ETF has seen a pullback, now trading near its 200-day simple moving average (SMA). This level is considered a significant area of interest and potential support. A bounce or momentum shift might follow if the ETF finds support here and establishes a higher low. Investors looking to capitalize on this dip and gain exposure to the sector could consider the following stocks, which have demonstrated relative strength or bullish activity.

Exxon Mobil Near 200-Day SMA: A Buying Opportunity?

Like the overall sector, Exxon Mobil Corporation NYSE: XOM is trading near its 200-day SMA, presenting a potential buying opportunity from a risk-reward standpoint. The energy giant has outperformed the sector, up over 9% year-to-date. XOM is appealing, with a P/E ratio of 13.4 and an attractive dividend yield of 3.4%. Analysts are bullish, forecasting a 23% upside based on the consensus price target. The stock holds a moderate buy rating from eighteen analysts.

Confidence in Occidental Petroleum's Future Prospects

Occidental Petroleum NYSE: OXY has a P/E ratio of 16.7 and a dividend yield of 1.4%. While the stock has underperformed the sector, it recently found support near $60 and shows signs of bouncing. Notably, Berkshire Hathaway has increased its stake in OXY, now holding roughly 29% of the company, worth $15.4 billion. This significant investment signals confidence in OXY's future prospects.

Recent Breakout Indicates Upward Momentum for Williams Companies

Williams Companies, Inc. NYSE: WMB operates as an energy infrastructure company in the United States. WMB has been a standout performer this year, with shares surging over 20% year-to-date. The stock boasts an impressive dividend yield of 4.5% and a modest P/E ratio of 17.5. In its most recent earnings report on May 6th, 2024, WMB reported $0.59 earnings per share, beating the consensus estimate of $0.49. The company earned $2.77 billion during the quarter, surpassing analysts' expectations. WMB's recent breakout from a lengthy consolidation suggests solid upward momentum.

Technical and Fundamental Factors to Consider in Energy Investments

The energy sector, represented by the XLE ETF, has pulled back to a potentially compelling buy zone near its 200-day SMA. XOM, OXY, and WMB present attractive opportunities for investors seeking to gain sector exposure. ExxonMobil offers strong performance and a solid dividend yield, Occidental Petroleum shows promise with Berkshire Hathaway's significant investment, and Williams Companies stands out with impressive year-to-date performance and robust earnings. 

As always, investors should consider technical and fundamental factors before making any investment decisions, and traders looking to capitalize on a bounce should look to be reactive once the sector finds crucial support and confirms a higher low above its 200-day critical support area.