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The national average price of regular unleaded is off its peak from earlier this spring of about $4.50 per gallon. Today, the national average stands at $4.22. Drivers are not complaining about the decrease. But the national average remains more than $1 per gallon higher than at this time a year ago. In general, prices starting with a 4 tend to feel high for American consumers, and often lead them to cut back their spending on other goods or services, since it’s difficult to drive less on short notice. We expect gas prices to keep easing, and perhaps slip a bit below the $4 threshold this summer, but probably not by much. And if oil prices start climbing again due to continuing disruptions to exports in the Middle East, gas could quickly shoot up again. Diesel, now averaging $5.38 per gallon, is also coming down, but like gas, remains well above last year’s prices.

Benchmark West Texas Intermediate crude oil is trading near $90 per barrel, after spiking above $100 earlier this spring due to the war with Iran and the related blockage of shipping in and out of the Persian Gulf. Much of the region’s enormous oil output is bottled up in the Gulf as Iran tries to control shipping through the narrow Strait of Hormuz, and the U.S. Navy in turn blockades Iran’s ports. Any new hope for a peace deal to resolve the situation would cause oil prices to drop. But so far, claims that a deal was near have fallen apart, keeping oil traders on edge. We look for WTI to trade near $90 per barrel if the current stalemate continues. Later in the summer, oil could rally again if reserves of stored oil around the world run too low and raise fears of shortages before the Persian Gulf reopens to normal shipping.

Natural gas prices have been ticking up as summer heat intensifies in the U.S. Benchmark gas futures contracts recently traded near $3.30 per million British thermal units, about 10% above their earlier trading range. Warming weather across much of the country means more demand for electricity to keep air conditioners running. And gas is the top fuel for generating power in the United States. We look for gas futures prices to trade in a volatile pattern, dropping to $3 per MMBtu if weather forecasts show lower temperatures returning, or approaching $4 per MMBtu if a major heat wave looms.

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Drivers are watching gasoline prices shoot up these days as the war in the Middle East causes severe disruptions to the region's energy exports. In late February, right before the joint U.S.-Israeli airstrikes on Iran commenced, AAA reported that the national average price of regular unleaded stood at $2.98 per gallon.

Less than a month later, the national average was on the cusp of $4. If the fighting continues and prevents oil and refined fuels from being exported from the Persian Gulf, the price at the pump is likely to spiral still higher.

Drivers suffering from price whiplash might be asking, "Who controls gas prices?" The short answer is that no single person, company or government can really be said to set gas prices, the same way that no single entity controls the prices of the most common types of car insurance.

But it is possible to break down some of the major factors that go into determining what a gallon of gas sells for. Let's take a look.

1. Crude oil

The Department of Energy has a handy chart that breaks down the major expenses involved in turning crude oil in the ground into the refined gas you can put in your car. The biggest, accounting for a bit more than half the price you pay, is the price of crude oil — the raw material from which gas is refined.

The price of that raw material has been soaring lately. On the eve of the war, benchmark West Texas Intermediate crude oil was trading near $65 per barrel. The decline in exports from the oil-rich Persian Gulf region has recently pushed WTI close to $100 per barrel at times. It has also fallen sharply on days when headlines feature hopeful reports about a potential ceasefire, but even when traders think an end to the war might be in sight, WTI has only fallen to around $90.

In other words, oil remains substantially more expensive than before the war began. And it could stay that way even after any ceasefire deal emerges, because it will likely take months for oil exports from the Persian Gulf to start flowing at normal levels again. Damage to oil wells and other infrastructure will take time to repair, keeping markets undersupplied.

Related: Kiplinger Energy Outlook

2. Taxes

The next biggest factor determining gas prices, according to the Department of Energy, is gas taxes — specifically, the state, local and federal taxes levied on fuel.

No one loves paying taxes, but they can't be blamed for the run-up in gas prices. The 18.4-cent-per-gallon federal tax on gas hasn't been increased in more than three decades.

Some states may even opt to temporarily lower their own fuel taxes if the current price spike drags on for long enough. That happened the last time a big geopolitical crisis caused a steep rise in gas prices, when Russia invaded Ukraine in 2022.

3. Other factors determining the price of gas

The remaining factors controlling gas prices are a mix of related costs:

• Refining crude into gasoline and other fuels
• Transporting it to stations by pipeline and truck
• Marketing gas

This bucket of costs includes refiners' profits on turning barrels of oil into barrels of gasoline, diesel and other fuels, and these days, those profits are soaring. Some refineries closed due to the slump in fuel demand during the pandemic, which means bigger profit margins for those that remain, now that demand is back to normal.

If you want to share in some of those profits as an investor, instead of just funding them as a driver, learn how to find the best energy stocks. Maybe they will provide some comfort during your next expensive fill-up.

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Drivers in 2022 face an increasingly painful experience every time they fill up their gas tanks. National-average regular unleaded gas prices sit at $5.01 per gallon as of this writing – up 3.1% from $4.87 just a week ago, up 53% from $3.28 at the start of the year and 63% higher than the $3.04 national average a year ago.

Why are gas prices rising so much? And when will gas prices go back down again?

Let’s explore some of the drivers behind higher gas prices, then delve into whether there’s any relief in store for consumers at the pump.

COVID Crushed Oil Demand … Then Crushed Oil Production

No single person, company or even government controls gas prices. Instead, there are several reasons why Americans are facing increasing pain when they fill up their vehicles.

First, blame the COVID-19 pandemic, which threw oil markets severely out of whack two years ago. They still haven’t fully recovered from the damage the virus inflicted.

When COVID first hit, it put a deep dent in global oil demand as many normal activities shut down and millions of people who usually drive to work stayed home. As a result, crude oil prices plunged. In fact, at one point in April 2020, benchmark West Texas Intermediate crude prices actually fell below $0 – something that would normally seem impossible.

With oil demand so weak due to COVID-19 restrictions, places to store unwanted crude filled up, and traders in oil futures scrambled to unload their positions in crude. Eventually, some had to pay buyers to take future oil deliveries off their hands.

Negative prices didn’t last long, but oil stayed very cheap for much of 2020. That led energy companies and major oil exporting countries in OPEC to slash their production because no one wanted to give away barrels of oil at such rock-bottom prices.

Since then, the world has slowly gotten through the pandemic, and oil demand has come roaring back, especially in the U.S. Unsurprisingly, consumers who missed out on travel and other normal activities in 2020 and 2021 are making up for lost time now. U.S. oil demand is about back to where it was pre-COVID. But oil production takes a lot longer to restart than oil consumption.

Idled wells can’t be easily restarted. Drilling new wells takes time. And oil producers have been cautious about opening the taps quickly, lest a new price drop burn them again. Here in the U.S., oil output has only partially recovered from its 2020 drop. OPEC and its partner nations are only gradually restoring the exports they took off the market during the worst of the pandemic.

But that’s not the only reason gas prices are going up.

War in Ukraine Threatens Russian Oil Exports

That mismatch between supply and demand helped push oil higher throughout 2021. Then they got another major boost early in 2022, when Russia invaded Ukraine.

Among oil-producing nations, Russia ranks behind only the U.S. and Saudi Arabia, supplying roughly 10% of the world’s oil needs. Western sanctions have cut off some of that supply, more sanctions targeting Moscow’s oil sales may be coming, and many western energy companies are voluntarily shunning Russian oil.

All this has sent crude oil prices to around $120 per barrel, which in turn pushed the average price of regular gas well above $5 per gallon this spring.

U.S. Trying to Move Away From Oil

Then there are the political factors that have contributed to higher gas prices.

President Joe Biden came into office vowing to transition the U.S. economy away from fossil fuels, with a goal of halving emissions from energy use by 2030 and making the U.S. carbon-neutral by 2050. The administration has continued to approve permits to drill for oil on federal lands – angering many environmentalists – but it has also tried to cut back on where energy companies can drill for oil in the future.

Plus, it famously nixed the disputed Keystone XL pipeline, which would have carried more than 800,000 barrels per day of Canadian crude to U.S. refineries. That oil can still cross the border, but it’ll have to come by rail, which is more expensive than moving by pipeline.

In short, the administration has been less friendly to oil production and transport than its predecessor, at a time when markets are undersupplied. How much that adds to the price you pay at the pump is impossible to say, but it’s a factor.

Energy Companies Not Rushing to Drill

Even now, with prices soaring, energy companies are being cautious about ramping up their oil output. They’re slowly putting new rigs to work drilling more wells, which helps. But they’re also limiting how much they invest in new production so that they can reward their investors with bigger dividends and stock repurchases.

That’s good for stockholders. But it means less money going toward pumping more oil, which isn’t great for consumers.

Will Gas Prices Go Down Soon? Well …

Unfortunately, it doesn’t look like gas prices are going to head much lower anytime soon.

The war in Ukraine shows no sign of ending, global oil demand is straining available supply, and Wall Street wants publicly traded energy companies to grow their production slowly so that they can keep returning cash to shareholders.

Indeed, earlier this year, we said that "we could take a run at $5 per gallon for the national average." Now that that has happened, it looks like gas prices could peak somewhere around $5.25 to $5.50 per gallon this summer.

At this point, only an economic recession caused by the Federal Reserve’s coming interest rate hikes – which some economists are starting to warn about – would be able to really lower gas prices.

And that’s probably not how anyone wants to save money at the pump.

It's no secret that much of Wall Street is adopting a green-is-good investing mentality to combat climate change. But that doesn't mean less environmentally friendly, old-style oil and gas stocks can't speed ahead from time to time. That's just what has happened in recent months.

Thanks to supply shortages and a rise in demand for fossil fuels as the economy recovers, large-company energy stocks have gained 60% since the start of 2021. That's more than double the 27% rise in the S&P 500 and tops all other market sectors. And it comes after a disastrous 2020, when energy stocks plunged 34% – the sector's worst return in a calendar year in more than a decade.

The resurgence of old-economy energy stocks comes as U.S. oil prices skyrocket. West Texas Intermediate crude prices recently hit their highest level since 2014 and topped $85 per barrel. And natural gas prices more than doubled in the first 10 months of 2021.

In the past, these sharp price spikes have been bullish for energy stocks. Energy was the top-performing S&P 500 sector in 2007 and 2016, for instance, when WTI prices surged 58% and 45%, respectively, in those calendar years.

Many investment firms and the U.S. Energy Information Administration (EIA) are forecasting higher energy prices to persist in 2022, which bodes well for fossil fuel energy stocks, even as the world is focused on going green. We'll explain why and tell you the best way to make a strategic investment in this sector. Returns and data are through Nov. 5, unless otherwise noted.

A Suppy and Demand Mismatch

What's revving up fossil fuel prices?

For starters, bad weather and lower oil production have hurt supply. Hurricane Ida hobbled operations in the oil-rich Gulf of Mexico in late August, and snow and ice storms in early 2021 froze natural gas pipelines in Texas, which produces 25% of U.S. natural gas, the EIA says.

On top of that, OPEC, the 13-country oil cartel, has been slow to bring crude production back to pre-pandemic levels since its record cut in spring 2020 of 10 million barrels per day (roughly 10% of the global oil supply). Analysts say OPEC production won't recover to pre-COVID levels until mid-2022. Until then, scarcity should keep oil prices elevated.

The world's shift to clean energy and investors' growing preference for companies that score high on ESG (short for environmental, social and governance) measures are crimping supply, too.

Investors have pressured traditional energy companies to spend less on new oil wells and other fossil fuel projects and instead reinvest profits into buying back shares and paying bigger dividends. Oil and gas execs have been "beaten over the head by investors and ESG proponents who say, 'stop the development of fossil fuels,'" says Stewart Glickman, energy analyst at CFRA, a Wall Street research firm.

It's part of the reason why the number of active rigs drilling for oil and gas in the U.S. is down 50% from their recent peak level in late 2018, according to Baker Hughes, a company that provides oilfield services to drillers. The dearth of domestic energy production should exacerbate fossil fuel supply shortages in the coming months.

Meanwhile, demand is on the rise, thanks in part to the economic recovery. The International Energy Agency, a Paris-based organization that advises countries on energy policy, projects global oil demand to recover to pre-COVID levels by the end of 2022. Add that to short supply, and what you have is "a perfect storm" that supports higher energy prices, says Mark Haefele, chief investment officer of UBS Global Wealth Management.

A Bumpy Transition to a Net-Zero Economy

Clean energy isn't ready to take over from fossil fuels, and that's also good for oil and gas companies in the near term. Renewables currently lack the bandwidth to supply enough power when demand spikes. And clean energy is also vulnerable to weather. If the sun isn't shining or the wind isn't gusting or the rain isn't falling, the renewable-energy grid becomes less reliable and more vulnerable to intermittent outages.

What's more, the buildout of wind farms, solar infrastructure and renewable-energy storage solutions hasn't been big enough – so far – to make up for the reduced investment in fossil fuel projects.

"We lack the ability to count on renewables in the same way we can count on fossil fuels," says CFRA's Glickman. All told, these shortcomings lead to periodic energy price spikes that cause oil and gas stocks to rally.

Energy Stocks Have Plenty of Gas Left in the Tank

The long-term investing outlook favors green-friendly energy firms, but shares of oil and gas companies tend to perform well in periods, like now, when crude and natural gas prices are on the rise and demand is outstripping supply. Energy sector analysts at BofA say crude could top $100 a barrel this winter if temperatures plummet, a roughly 20% jump from current prices.

And profits are rising. In 2022, analysts expect 30.2% profit growth for energy firms year-over-year, outpacing the broad market's 7.5% increase, according to earnings tracker Refinitiv. In recent earnings calls with analysts, executives at oil services firms Halliburton (HAL) and Schlumberger (SLB) described the recovery in their businesses as a "multiyear" event.

Another plus: Energy stocks are cheap. The S&P 500 energy sector trades at 12.3 times estimated 2022 earnings, compared with a P/E of 21 for the broad market, according to S&P Dow Jones Indices. Will Riley, comanager of Guinness Atkinson Global Energy, says current prices of energy stocks don't fully reflect the earnings benefits that companies typically derive from the sharp run-up in crude and natural gas prices.

If you're thinking of adding fossil fuel companies to your portfolio, a tactical, diversified approach is best. To gain broad exposure to old-economy energy names, consider Energy Select Sector SPDR ETF (XLE, price $58, expense ratio 0.12%), which owns oil giants such as Exxon Mobil (XOM), as well as companies with gas and oil reserves, such as EOG Resources (EOG) and Pioneer Natural Resources (PXD), and oil services firm Schlumberger. Over the past 12 months, Energy Select Sector SPDR ETF has returned 106%.

The biggest beneficiaries of rising energy prices are the companies that "own the oil and gas under the ground and sell it when it comes to the surface," says CFRA's Glickman. That makes iShares U.S. Oil & Gas Exploration & Production ETF (IEO, $66, 0.42%) and First Trust Natural Gas ETF (FCG, $19, 0.61%) attractive now. Both funds track a broad index of shares in companies that generate the bulk of their revenues from oil and natural gas, such as ConocoPhillips (COP), EOG Resources and Occidental Petroleum (OXY). The iShares fund has gained 159% over the past 12 months; the First Trust Natural Gas ETF is up 214%.

And don't rule out fossil fuel com­panies that are taking meaningful steps to reduce harmful emissions. BofA highlights stocks with this kind of upside, including Chevron (CVX), Devon Energy (DVN) and ConocoPhillips.

Finally, we're not turning our backs on renewable energy. We view this area of the energy sector as a solid long-term, albeit volatile, investment. Consider SPDR Kensho Clean Power ETF (CNRG, $110, 0.45%) and Invesco WilderHill Clean Energy ETF (PBW, $92, 0.61%), which is a member of the Kiplinger ETF 20 list of our favorites.

This spring, commodity traders and investors in energy stocks around the world looked on with astonishment at oil prices.

In April, West Texas Intermediate crude oil futures went negative for the first time in history, hitting -$37.63 on April 20, shocking global markets. One day trader ended up incurring a $9 million paper loss, as quote screens at brokerage firms like Interactive Brokers, were not programmed to go below $0. (IBKR's issues resulted in a $113 million loss for the firm, Interactive Brokers CEO Thomas Peterffy said.)

However, oil prices, like the broader stock market, did not stay depressed long; futures rebounded sharply, with West Texas Intermediate currently selling around $43 per barrel, and Brent (international) around $46 per barrel. Global demand is also normalizing at about 10% lower year-over-year, though the pace of recovery has been slower than the industry previously anticipated.

So what does this mean for investors in energy stocks?

Oil Prices Are at a Pivot Point for Global Producers

The good news is that between OPEC production cuts and reduced U.S. output, the crude market is broadly balanced.

The bad news: With Brent above $45 per barrel, OPEC might change course from a price-control strategy (production cuts) to a market-share strategy (pump more oil to keep U.S. producers from hedging forward).

A second risk to oil prices is if American producers find a forward curve at $45 attractive enough to resume drilling. The forward curve allows a producer to sell his oil out into the future at an agreed-upon price derived by the market today. But those barrels need to be stored until that future date, so the producer has to add those potential costs into the equation to determine if that future price is feasible.

An oil price high enough to allow American shale producers to continue to pump, store, and sell into the future is exactly what the Russians want to avoid.

As of June 2020, there were 5,729 drilled-but-uncompleted wells in the U.S.; in other words, a tidal wave of U.S. production is just waiting for the right price to rain down on this fragile market. Shale producers have debt obligations to the banks that financed their operations. But when prices are too low to cover costs of production and storage, shale producers can't use that forward curve to sell oil out into the future. That means making a difficult choice between shutting down production or possibly defaulting on debt obligations.

That's the outcome the Russians are hoping for: Keep oil prices just out of reach of shale producers' ability to sell forward, and force them to shut down production.

Russia's Warning

Russian officials have signaled that they would hedge above $45 per barrel. (Hedging is when producers sell their oil forward in the futures market to "lock in" a specific price.) Most likely, they were indicating to OPEC (specifically, Saudi Arabia) that they didn't want to see OPEC production cuts sponsor a recovery in U.S. shale.

In other words, this is an implicit warning from Russia to OPEC: "Kill shale, or we will hedge forward and turn up production, sending prices plunging."

The global oil market involves plenty of game theory for major producers. OPEC, non-OPEC and U.S. producers all work with and against one another based on their competing (but sometimes joined) interests. What one major producer like Russia does has domino effects for the others.

Russia signaling a major hedge at $45 could spook other large oil players such as Mexico, the 11th-largest oil producer, to move as well. Mexico desperately needs a stable oil income to meet its government expenditures. In Mexico's case, it might hedge to set a floor on their oil should futures contracts dip again like they did earlier this year.

Despite these headwinds, oil majors still look very attractive to those with a three- to five-year investment horizon. Even a hint of a working COVID-19 vaccine would see energy stocks fly higher. Eventual coronavirus relief, coupled with trillions of dollars in global stimulus, eventually will lead to inflationary pressures, which will make oil companies a must-have in any portfolio.

Additionally, regardless of who sits in the Oval Office come 2021, a large fiscal stimulus package seems likely, which will make energy stocks – along with agriculture and commodity plays in general – an attractive buy.

One Energy Stock for This Climate

Long ago, BP (BP, $21.14) changed its name from British Petroleum to Beyond Petroleum. It has heavily invested in renewables and is far ahead of its major peers in the renewable space. Thus, while it's still a major oil player, BP also is well-positioned to benefit from an inevitable move to renewable energy.

BP is, like most energy companies, reeling from 2020's plunge in oil prices. On Aug. 4, the company announced it had cut its dividend by 50% to 5.25 cents per share quarterly, pledging to use the remainder of its near-term cash flow to pay down debt. While the dividend cut is disappointing to investors, BP has pledged to keep the remaining dividend (which yields 5.9% at current prices) stable, and the move to reduce debt is a responsible one.

That announcement came along with second-quarter earnings that realized $19.06 per barrel, compared to $40.64 a year ago. But with oil prices back in the mid-$40s, BP should see a notable uptick in Q3 earnings that doesn't seem to be reflected in share prices currently.

One bright spot in BP's second-quarter report was its alternative energy unit. The company maintains 923 megawatts of wind energy capacity, as well as 2.2 gigawatts of solar capacity with plans to expand to 10 gigawatts by 2023. The Southeastern Pennsylvania Transportation Authority recently signed an agreement with BP to purchase 67,029 megawatt-hours of electricity that will be provided by two solar plants in Franklin County, Pennsylvania.

The alternative energy unit is much smaller compared to the company's oil and gas operations, and BP still will be largely reliant on fossil fuels for the foreseeable future. But BP's leading position in the renewables space makes it more diversified compared to its peers, shielding it from an uncertain future in fossil fuels.

A Biden presidency would only accelerate investments in renewables, benefiting BP. But regardless of who occupies the White House, an eventual move to renewables is a foregone conclusion.

These are truly strange times to invest in oil. As if the market gymnastics weren't enough, the price of U.S. crude oil – or at least the front-month futures contract – went negative in April, and not by a trivial amount. At the bottom, West Texas Intermediate was priced below negative $37 per barrel.

Unfortunately, if you're a retail investor, there are limits to how you can profit from this. You can't just show up at the storage sites in Cushing, Oklahoma, get paid $37 per barrel to load up your pickup truck with oil, then promptly dump the barrels on the side of the road as you drive home with your profits.

It doesn't work like that.

If you're an institutional investor or industrial oil trader with legitimate storage and transportation capacity, you can stockpile crude at today's prices, sell it in the futures markets months from now and mint money. But the rest of us have to be a little more creative in how we invest in oil.

Today, we're going to look at some dos and don'ts to show you how to invest in oil the right way.

DON'T: Buy an Oil ETF Without Knowing What You're Buying

The United States Oil Fund (USO, $2.57) might be the worst-conceived investment idea in the history of finance. And yes, we're including the 17th century Mississippi Land Scheme and Dutch Tulip Manias in the list.

USO was that poorly constructed.

You can't buy and hold most commodities, with a few exceptions, such as gold and precious metals. It's generally not practical, so anyone wanting to hold a basket of commodities will generally do so via the futures market. But a futures contract is very different than a stock.

For one, a futures contract has precise expiration date. USO's mandate was to simply buy the front-month light, sweet crude oil futures contract and perpetually roll it over once it expired. So, for instance, it would hold May futures until they expired, then roll those over to June futures.

There's a massive problem with that. Crude oil has been trading in "contango" for most of the past decade. When a market is in contango, longer-dated futures contracts are higher than shorter-dated contracts. If that's confusing, just think of the situation in oil today. No one wants oil today because there is painfully little end demand for it. Therefore, prices are low (or even negative).

But there is demand for oil in the future, so prices are still relatively high if you want delivery in six months or so.

In USO's case, the fund has been perpetually rolling over to more expensive contracts, only to sell them when they approach expiration. In other words, in a contango market, USO will get scalped every month, making less money when oil prices rise and losing more when prices fall.

USO has already had to change its investment mandate multiple times recently to fix these distortions, each time extending its contract exposure further into the future. Those are steps in the right direction, but it's difficult to recommend a fund that keeps changing its investment strategy every few days.

If you insist on playing the oil market with ETFs, consider the United States 12 Month Oil Fund (USL, $10.35). It spreads its portfolio equally over the following 12 months of futures contracts. It doesn't fully escape the contango issue, but it doesn't get utterly slaughtered by it like USO does. Year-to-date, USL has lost 55% vs. a 80% loss in USO.

DON'T: Go Dumpster Diving in E&P

The United States will not stop pumping oil entirely and cede the market to Saudi Arabia and Russia. That's not going to happen. But there will be a shakeout, and it's already happening. Whiting Petroleum (WLL) filed for bankruptcy on April 1, while Diamond Offshore filed on April 27. They won't be the last. Most of the worst-performing stocks of the past 11 years have been in the energy exploration and production sector. Many oil and gas stocks could face a fate similar to Whiting and Diamond Offshore.

Murphy Oil (MUR), Devon Energy (DVN), Range Resources (RRC): All of these should be viewed as highly speculative today. Most will probably escape bankruptcy, but they're still looking at reduced capacity ahead and what is likely to be several more difficult years.

If you want to speculate, by all means, go for it. A moonshot might be just the right move if you're, say, trying to figure out how to invest your stimulus check. Just make sure you're only risking money you can afford to lose.

DO: Focus on Quality and "Pickaxes"

They might not be wildly sexy, but the integrated supermajors are likely your best bet for a long-term recovery in energy prices. These mega-cap energy stocks have the financial strength and the access to capital to survive a long energy drought. Real financial distress is not in the cards any time soon. Yet the stocks are trading at multi-decade lows.

Consider Exxon Mobil (XOM, $43.94). The stock is trading today at prices first seen in 2000 and yields a whopping 8.0%. Depending on how long energy prices remain weak, Exxon may opt to reduce its dividend at some point in the next few years. We can't rule that out. But if you're buying the stock at prices first seen 20 years ago, that's probably a risk worth taking.

Chevron (CVX, $89.71) is in slightly better financial shape than Exxon and a little less likely to cut its dividend. In fact, the company said last month that it expected to keep its dividend intact, come what may from the price collapse.

Of course, you could also go the "pickaxe" route, buying companies that provide services to the industry without having much exposure to energy prices. It's said that the only people who made money during the California gold rush were the shopkeepers selling pickaxes, as the actual miners mostly went bust.

Pipeline operators such as Kinder Morgan (KMI, $15.02) have seen their stock prices collapse this year. But most have limited exposure to energy prices, getting more of their revenues from fixed take-or-pay contracts. Furthermore, most of the major pipeline operators transport far more natural gas than crude oil, and natural gas is still needed to heat homes and power appliances.

If you're going to invest in oil, it's important to remember that today's problems are mostly short-term in nature. It's true that the market is structurally oversupplied, and that doesn't get fixed overnight. But once the economy begins to open up again, energy demand will return to something resembling normal.

Oil stocks, natural gas producers and other commodity-based firms stand apart from one another based on factors such as where they're located and how efficient their operations are. But much of their success boils down to this simple idea: The higher the price of the commodity, the bigger the profits.

Unfortunately, the inverse is also true, which is why many energy stocks are getting pummeled right now.

Oil prices were already struggling with the fallout from the U.S.-China trade war and its effect on the global economy. But the coronavirus' economic ripple effect across the world – combined with Saudi Arabia's volley against other oil producers – has sent West Texas Intermediate (U.S. crude) oil prices to around $20 per barrel. Those are lows not seen since February 2002.

The specific issue: Oil prices (and natural gas, for that matter) are well below the cost of production for even some of the leanest companies out there. Thus, many energy producers are losing money simply by virtue of operating their businesses. Mounting losses, rising debts, cut dividends and even bankruptcies are all on the table.

Here are seven oil stocks and natural gas producers that are in considerable danger at the moment. While it's understandable that investors might want to seek out values in the beat-up energy sector, these are seven stocks to avoid.

Data is as of March 29. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

• Market value: $332.6 million
• Dividend yield: N/A
• Chesapeake Energy (CHK, $0.17) has long been the poster child for energy excess and heartbreak long before the coronavirus came into play.

Chesapeake Energy, which was founded in 1989, was one of the first natural gas and oil stocks to dive into fracking shale with gusto. To do that, CHK took out a staggering amount of debt to buy acreage, accumulate equipment and keep the oil and natural gas pumping. That was fine as long as both commodities enjoyed high and rising prices, but the 2014-16 bear market in energy prices forced Chesapeake to re-evaluate its model. Chesapeake sold assets, paid off some debt, invested in technology and focused on higher-quality/lower-production-price shale regions.

It helped, but now, all that still might not be enough.

After reporting a small net profit in 2018, Chesapeake fell into the red in 2019. That was with an average price of $56.98 per barrel for WTI, and natural gas prices averaging $2.57 per million Btu (MMBtu). With oil recently below $20 per barrel and natural gas recently below $1.80 per MMBtu, and still no light at the end of the tunnel, CHK could face some ugly results for Q1 2020, and possibly for another few quarters.

The company's $9.5 billion in total debt is problematic, too. In late February, some of Chesapeake's second-lien bonds due in 2025 had declined to 66 cents on the dollar – a worrisome sign of investors' confidence in CHK's ability to pay its debts.

Chesapeake was an S&P 500 component as recently as two years ago. It has since dropped into the S&P MidCap 400, which jettisoned the company in February. Now, CHK is a penny stock with a poor outlook as long as oil and gas prices remain in the cellar.

• Market value: $716.7 million
• Dividend yield: N/A

More than a decade ago, when oil prices were in the realm of $150-$160 per barrel, energy firms were willing to pay north of $600,000 per day to rent the most state-of-the-art deep-water drilling rigs. This was manna from heaven for Transocean, (RIG, $1.17), whose portfolio featured some of the most advanced rigs on the planet, capable of digging deep to find large pockets of crude in the oceans.

But at $20 per barrel, it simply doesn't make sense to give Transocean a call.

For the three months ended Dec. 31, 2019, the company brought in $792 million in revenues – better than the $748 million in sales it registered in the year-ago quarter, but a far cry from the $3 billion-plus quarterly revenues it earned during "peak oil." Utilization rates did rise a bit, but the total number of rigs in Transocean's fleet continues to drop. Several of its deepwater-drilling rigs are sitting idle; if oil prices remain depressed, it's unlikely these rigs will be utilized anytime soon.

Debt, which as you'll see, is problematic for a number of oil stocks, is a real concern at Transocean. It has $8.7 billion in long-term IOUs, with $4.3 billion of that set to mature by 2024. It needs every rig in its fleet working and churning out as much cash as possible to pay that off. Credit agency Moody's isn't optimistic about RIG's prospects, however, downgrading its "corporate family rating" on March 23 from an already-junk B3 to Caa1, one level down. Moreover, it increased Transocean's default potential and issued a "negative outlook" on its debt.

"The commodity price collapse in the first quarter of 2020 poses a substantial challenge for the company to improve its cash flow outlook, as near-term improvement of offshore fundamentals is unlikely," writes Moody's senior analyst Sreedhar Kona. "Transocean's very high financial leverage could worsen making its capital structure untenable."

• Market value: $940.8 million
• Dividend yield: N/A

Out of the frying pan and into the fire could be the best way to describe the value proposition at CNX Resources (CNX, $5.03).

Pittsburgh-based natural gas firm CNX Resources formerly operated as Consol Energy before spinning off its coal business in November 2017. That coal business retained the Consol Energy (CEIX) name, while the natural gas business was renamed CNX. Why were the two companies broken apart? Cheap and abundant natural gas, as well as a focus on lower carbon emissions, has basically driven coal to the brink of extinction. The split was meant to unlock value in the natural gas side of the business.

However, CNX has spent most of its time post-spinoff trending lower, and it has been particularly hard-hit of late as natural gas prices have sunk into the ground.

CNX already lowered its full-year 2020 estimates for natural gas prices in the company's fourth-quarter earnings report, from $2.40 per MMBtu to $2.27. At that number, it expected organic free cash flow to hit $200 million, but natural gas has plumbed far lower levels since then. Meanwhile, CNX's "fully burdened" cash costs of production had jumped nearly 11% year-over-year.

If there's any good news, it's that CNX's total debt of $2.9 billion is far less than the oil and gas stocks we've discussed so far. But while CNX might not be headed toward bankruptcy, it appears extremely risky given the current cost of natural gas and no discernable end in sight to the commodity's weakness.

• Market value: $3.2 billion
• Dividend yield: 2.4%

Many oil and gas stocks are known for its big personalities, and Harold Hamm has to rank right up there. Under his leadership, Hamm managed to guide Continental Resources (CLR, $8.52) into the Bakken shale long before anyone else, giving it plenty of prime acreage in the low-cost region.

But even the low-cost Bakken is too costly for Continental given current energy prices.

In mid-March, CLR announced a 55% decrease in its capital expenditures budget for the rest of the year. The oil and gas producer originally planned to spend $2.65 billion to fund its drilling program, but that has been hacked down to $1.2 billion. Average rig count in the Bakken will slump from nine to just three. Overall production is expected to decline 5% year-over-year.

Most importantly, however, is that Continental said in the same release that the company expects to be cash flow-neutral with oil under $30 per barrel.

Two problems: 1.) Continental stands to be in worse shape with oil now closer to $20 per barrel. 2.) CLR shareholders have been getting used to excess cash flows. With oil in the $50s, the low-cost Bakken producer was generating a decent amount of cash – cash that was used to reduce debt, buy back stock and even initiate a dividend in 2019.

But being cash flow-neutral (and having just $39.4 million in the bank) means that Continental likely will have to raise cash from asset sales or debt if it wants to keep those dividends and buybacks flowing. Considering CLR already has $5.3 billion in debt – including about $1.1 billion in senior notes due in 2022 – it's clear the company is between a rock and a hard place.

Continental doesn't seem likely to go away outright unless oil prices drop precipitously more from here. But any further weakness in oil is likely to weigh on CLR's stock. Shareholders also shouldn't ignore the possibility of reductions to the dividend and/or buybacks, at least temporarily.

• Market value: $10.4 billion
• Dividend yield: 3.8%

Commodity busts typically are marked by a large deal that instantly goes bad.

For the recent shale downturn, the deal was Occidental Petroleum's (OXY, $11.61) buyout of Anadarko. In the end, the M&A move was too expensive and came at the wrong time.

Occidental's deal value for Anadarko came to $55 billion, including the assumption of Anadarko's debt. Anadarko financed it through a variety of bridge and term loans, as well as a $10 billion cash infusion from Warren Buffett's Berkshire Hathaway (BRK.B).

In August 2019, OXY estimated that its 79-cent-per-share dividend was sustainable long-term with WTI as low as $40 per barrel. But plunging oil prices forced Occidental's hand, and the company on March 11 slashed its payout by 86% to 11 cents per share, snapping a 17-year streak of dividend increases. The company also has been forced to reduce its capital expenditure budgets twice in roughly a month – from $5.2-$5.4 billion to $3.5-$3.7 billion, then again to $2.7-$2.9 billion.

It's hard to imagine things getting too much worse considering OXY shares have already plummeted by more than 70% year-to-date. But Fitch and Moody's both recently cut Occidental's debt rating to junk, and some of its bonds due in 2020 had been trading at a 40% discount.

Warren Buffett gets it right a lot of the time, but a perfect storm has turned this into one of his rare awful bets so far. Look to Berkshire's next 13F, due out in May, to see if he has rethought his investment.

• Market value: $73.3 million
• Dividend yield: N/A

While previously mentioned Continental was the first to hit the Bakken, Whiting Petroleum (WLL, $0.80) came into the game much later. As a result, WLL never achieved the kind of acreage CLR could score, nor the quality of assets. That's proving calamitous amid historically low oil prices.

For the final quarter of 2019, Whiting saw an average price of nearly $57 per barrel. And that still wasn't enough for the company to overcome losses in the period. In fact, even its adjusted losses accelerated versus the same period a year ago, from $4.8 million to $20.4 million. Nonetheless, Whiting at least managed to be cash flow-positive.

It's hard to see that continuing with oil prices down near $20.

Whiting has about $2.9 billion in debt, which is a staggering figure for a company worth just more than $70 million. More importantly, Bloomberg reports that about $1 billion of that debt is coming due over the next 52 weeks. "Its notes due March 2021 are trading around 18 cents on the dollar with a yield of 286%, which suggests they will never be repaid," Bloomberg's David Wethe and Allison McNeely wrote on March 9. At that yield/cost, investors are predicting they probably won't be repaid.

Whiting announced Feb. 27 it would slash its capital expenditures budget by $185 million, or 30%, to preserve cash and improve liquidity. Then on March 27, it said it would draw $650 million on its credit facility.

Over the past month, Whiting has racked up eight Sell calls and two Holds, with many analysts failing to even provide price targets – but those who have looking at targets such as $1.00, 75 cents and even 50 cents. WLL has the potential for violently productive snap-back rallies that traders can take advantage of, but right now, this is no place for long-term buy-and-holders.

• Market value: $65.2 million
• Dividend yield: N/A

Occidental Petroleum had long been a huge producer of energy in California. These traditional wells featured high costs but steady production. However, Occidental wanted to shed those assets to focus on higher growth areas, so after some activist pressure, it spun off California Resources (CRC, $1.32).

Unfortunately, Occidental saddled California Resources with more than $6 billion in debt – just as oil prices cratered back in 2014.

The good news is that the company's long-term debt has been pared from about $6.4 billion in 2014 to $4.9 billion as of the end of 2019. But that debt still is too high when considering the firm's cash position and Brent oil (the London benchmark California uses) well below the company's breakeven costs.

The firm tried to do a debt exchange to rid itself of nearly $1 billion in current liabilities. However, it was forced to terminate the deal, citing "recent developments in the commodity and financial markets." A quick glance at California Resources' bonds shows many of them trading for pennies on the dollar, at yields in excess of 90%. Here again, traders aren't expecting to get any sort of return back for their investment.

On March 27, Bloomberg reported the company is "seriously considering bankruptcy," according to people with knowledge of the matter. That doesn't make bankruptcy a sure thing by any means. But given California Resources' financial situation, it does make CRC shares appear riskier than most other oil stocks.

Certain sectors of the stock market have gained a reputation for being income-friendly. If you want dividends, you know to look at utilities, consumer staples and real estate investment trusts (REITs). Energy stocks – which include numerous high yielders – aren’t always first to mind, however.

Why? Energy stocks – which are tied to energy prices, which are tied not just to supply and demand, but also politics and currency strength, can be volatile over the short-term. Weak oil, natural gas and other commodity prices made energy stocks grossly underperform the market in 2014-15, for instance, but recoveries stoke outperformance like what we’re seeing so far in 2019.

Dividend investors should consider the opportunity in the energy sector right now. For one, West Texas Intermediate crude oil currently is near the $65-per-barrel mark, well off its recent low of $49 in December. Higher prices mean higher revenues – and oil companies, which were forced to improve their operations to squeeze more profits out of low oil prices, are generating even better earnings and cash from those revenues. Greater profitability naturally encourages investors to drive share prices higher, and that cash is used to fund generous and sometimes growing payouts.

Also, many integrated oil companies as well as dedicated exploration and production firms are being prudent about their capital expenditures, instead budgeting with an eye toward generating cash and funding dividends from existing projects.

Here are 10 energy stocks and funds to buy for a 1-2 combo of dividends and growth. These picks vary in their balance – some are slow-moving high yielders, some are growthy plays with modest yields and some fall squarely in between.

Data is as of April 7, 2019. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price.

• Market value: $240.2 billion
• Dividend yield: 3.8%
• Chevron (CVX, $162.42) is one of the world’s largest integrated oil majors – which means it’s involved in every step of the process, from finding energy sources to delivering refined products to end customers.

Chevron’s recent history shows a clear priority of dividends over stock buybacks. When plunging oil prices cramped the energy sector in 2014-15, Chevron suspended its share repurchases and didn’t resume until 2018. Meanwhile, even as pundits questioned whether CVX’s dividend was safe, the company continued its decades-long streak of payout increases – it remains a Dividend Aristocrat, with 32 consecutive years of annual dividend hikes.

Roughly 58% of the company’s earnings go toward funding the dividend, which means the payout is quite sustainable. But naturally, because profits fluctuate with oil prices, so too does that ratio – so sometimes, it can feel like Chevron is just getting by.

Chevron’s capital expenditures have contracted significantly, from $38 billion in 2013 to $13.8 billion in 2018. It will increase that figure to $20 billion in 2019, but Chevron management clearly sees a priority in not overextending itself.

Morgan Stanley analysts started CVX shares at “Overweight” (equivalent of “Buy”) at the start of April, citing Chevron’s focus on generating strong cash flow and writing that “cash flow drives stock performance in Big Oil.”

• Market value: $36.2 billion
• Dividend yield: 4.3%

Refiner Valero (VLO, $86.69) is another generous yielder that hovers around (in this case, above) the 4% mark.

Valero – the world’s largest independent petroleum refiner – owns and operates 16 refineries across the U.S., Canada and Wales. Whereas exploration and production companies tend to simply become more profitable as oil prices rise, refiners like Valero are a bit more complicated. Oil refiners make money off the “crack spread” – basically, the difference between the cost of buying the oil, and what price they can get for the refined product (say, gasoline).

Valero, unlike Chevron, did have to cut its dividend in relatively recent history (2010). However, it has been much more aggressive about growing it in the aftermath. The payout has more than doubled during the past five years, from 40 cents to 90 cents. That includes a 12.5% dividend increase announced in January of this year.

Morningstar analyst Allen Good thinks the refiner made the right moves years ago to position itself well for today. “We think Valero moved deftly to capitalize on the downturn in 2008-09 by divesting underperforming assets and adding strategic assets cheaply to high-grade the overall portfolio, which should lead to higher returns,” he writes. “Adding ethanol facilities out of bankruptcy should allow Valero to lower costs and position itself for government mandates that appear to be here to stay.”

Also in January, Valero completed the acquisition of its affiliated master limited partnership (MLP), pipeline operator Valero Energy Partners. That follows a string of similar moves throughout the energy sector of parent companies merging with their MLPs – a response to a change in federal tax law that knocked out a key benefit for these partnerships.

• Market value: $349.3 billion
• Dividend yield: 4.0%

Rather than restraining capital expenditures and increasing dividends to shareholders, as other major integrated oils have been under pressure by investors to do, Exxon Mobil (XOM, $82.49) – one of the largest integrated oil majors in the world – is accelerating its capex.

Exxon has a plan to drive profits from $15 billion in 2017 to $31 billion by 2025, as well as improve return on invested capital from 7% in 2017 to 15% by 2025. Under this plan, XOM would spend $24 billion on capital projects this year, $28 billion next year and an average of $30 billion from 2023 to 2025. This plan stands in stark contrast to many of Exxon’s other peers.

That shouldn’t worry income investors, however. A Bank of America analysis finds that Exxon Mobil can fund its expansion while still funding (and increasing) its dividend.

Exxon certainly cares about consistently raising its payout. Like Chevron, Exxon Mobil is a Dividend Aristocrat, boasting 36 years of consecutive annual increases.

• Market value: $5.0 billion
• Dividend yield: 3.4%

Global exploration and production company Murphy Oil (MUR, $28.89) finally buckled under pressure in 2016. After years of dividend growth, it actually made a cut to its payout – from 35 cents per share to 25 cents, where the dividend has been stuck ever since. The silver lining is that the cut was less drastic than what several other energy stocks had to execute: ConocoPhillips (COP), for instance, hacked its payout by two-thirds in 2016.

However, even after Murphy’s reduction, shares still yield well more than 3% at current prices. That dividend cut also helped Murphy shore up its financials. In December 2018, for instance, Murphy’s upgraded the company’s debt from Ba3 to Ba2 – still on the high end of “junk,” but a step closer to investment-grade.

Standard & Poor’s/CFRA notes that even at the high end of management’s guidance range of $1.3 billion to $1.5 billion in capital expenditures, Murphy is likely to generate “meaningful” free cash flow and is well-positioned to continue funding its dividend at current levels.

• Market value: $50.9 billion
• Dividend yield: 4.7%

E&P giant Occidental Petroleum (OXY, $68.04) has in recent years sold less-valuable assets and used the proceeds to invest in higher-return projects in the Permian Basin, located in west Texas and southeastern New Mexico.

That should help growth in the long-term, though Oppenheimer analyst Tim Rezvan, who has shares at “Hold,” says that story might need a little time to play out – though investors will collect a considerable sum of income to wait.

“Occidental will focus growth on its workhorse Permian asset (24% growth CAGR through 2022), and we see long-term international catalysts, but nothing near term to increase the ~2% dividend growth CAGR since 2015,” he writes. “We believe the 4.8% dividend yield sets a floor for OXY shares at $60, but we see shares rangebound as the next stages of upstream growth unfold.”

Wells Fargo analysts like Occidental’s strong balance sheet and its production levels in one of the top shale fields in Permian Basin. They also believe OXY can continue increasing its dividend payments – something it has already done for 16 consecutive years.

• Market value: $20.8 billion
• Distribution yield: 5.6%*
• Cheniere Energy Partners LP (CQP, $42.11) is an MLP that deals in liquefied natural gas (LNG) terminals and natural gas pipelines. Its facilities include the Sabine Pass LNG terminal near the Gulf of Mexico, as well as the Creole Trail Pipeline in Louisiana. Revenue has soared in the wake of the Sabine Pass’ opening in 2016, and expansion in 2017 and 2018.

Companies such as CQP – which was formed by LNG company Cheniere Energy (LNG) in 2006 – tend to be a little more insulated from energy-price fluctuations because they don’t make money by selling the product – instead, it’s based off the amount of product that flows through their facilities. Think of it as a toll taker of sorts.

Natural gas exports have increased dramatically over the past two years, and thanks to the shale revolution (e.g., fracking and horizontal drilling), this trend appears likely to continue. Driven by these tailwinds, Cheniere Energy Partners LP should continue to generate large (and growing) cash distributions over the next several years. While the company’s payout remained fixed at 43 cents quarterly for roughly its first decade of operations, the payout inched ahead to 44 cents at the end of 2017 … and has grown every quarter since, to a current 59 cents.

Further, Cheniere has plans to expand. The company’s Corpus Christi liquefaction facility’s first “train” produced its first LNG in November 2018. The second train will reach “substantial completion” in the back half of this year, followed by a third train to be completed by the second half of 2021.

* Distributions are similar to dividends but are treated as tax-deferred returns of capital and require different paperwork come tax time.

• Market value: $7.0 billion
• Distribution yield: 8.0%
• Tallgrass Energy LP (TGE, $24.81) is a mid-cap MLP that transports crude oil and natural gas from the Rockies, Midwest and Appalachian regions. Its operations span 8,300 miles of natural gas pipeline and more than 800 miles of crude pipeline – as well as 300-plus miles of water pipeline.

The company – which since inception in 2012 has already split into MLP and general partner, then merged back – has grown its distribution every quarter since mid-2015, from 7.3 cents per share at the time to a current 51 cents. But the company isn’t stretching to meet its obligations; in fact, its debt was assigned an investment-worthy credit rating by Fitch in September 2018.

But Tallgrass Energy also has significant growth prospects. Its expansion plans include a joint venture with pipeline behemoth Kinder Morgan (KMI) to increase pipeline capacity in the Rockies, as well as projects designed to transport crude to export facilities.

• Market value: $13.8 billion
• Yield: 3.1%*
• Expenses: 0.13%

Investors wanting to make a broader bet on the energy sector across more than one or two stocks may want to consider an exchange-traded funds (ETFs).

The first one we’ll cover is the Energy Select Sector SPDR Fund (XLE, $67.71), the largest ETF (by assets under management) dedicated to energy stocks.

The XLE provides investors access to numerous energy industries, including E&P, refining, marketing, and even equipment and services firms. It also holds many of the stocks we’ve highlighted – Exxon Mobil, Chevron, Occidental and Valero are all top-10 holdings.

Just understand that XOM and CVX both hold significant sway on this fund – they combine to command 42% of the fund’s assets, which means big gains or losses in those two firms will say a lot about how XLE performs.

Still, this 29-stock fund is a more diversified bet than buying just a couple of the sector’s companies. And despite XLE’s problems during the 2014-15 energy swoon, Morningstar still has given it a five-star rating over the trailing five- and 10-year periods for its high total returns and low risk.

* Dividend yield represents the trailing 12-month yield, which is a standard measure for equity funds.

• Market value: $208.6 million
• Yield: 2.4%
• Expenses: 0.47%

Investors who wish to avoid investing in fossil-fuel producers could consider the iShares Global Clean Energy (ICLN, $10.10) ETF, which invests entirely in companies that deal in renewable sources of energy, such as solar and wind.

When U.S. investors typically think of “green” stocks, they often think of solar stocks such as First Solar that don’t deliver dividends. However, ICLN is heavily international in nature, and several foreign green-energy companies do return cash to shareholders. A little more than one-third of this 31-stock portfolio is in American stocks – another 22% is invested in China, 10.4% in New Zealand and 8% in Brazil, with smaller amounts dedicated to a handful of other countries.

Top holdings include Spain’s Siemens Gamesa Renewable Energy (GCTAY), Denmark’s Vestas Wind Systems (VWDRY) and Brazil’s Companhia Energetica Minas Gerais (CIG).

• Market value: $2.1 billion
• Yield: 0.9%
• Expenses: 0.35%

The final ETF certainly leans much more heavily toward growth than income, and it in fact boasts the thinnest yield on this list. But it’s still worth a look.

The SPDR S&P Oil & Gas Exploration & Production ETF (XOP, $31.81) is an industry ETF that focuses on a small, specific subset of energy stocks – E&P players. Unlike stocks such as Exxon Mobil and Chevron that have their hands across various “streams” of the energy chain, XOP invests in companies that are focused solely on upstream – exploring for assets and then tapping them to produce oil and natural gas.

Because of this industry’s reliance on commodity prices – as well as a relatively modest median market cap of about $2.7 billion – this fund can swing strongly on changes in prices of crude and nat gas.

But this is a broader portfolio than the previous two funds; XOP invests in more than 60 stocks. Top holdings include California Resources (CRC), Whiting Petroleum (WLL) and Oasis Petroleum (OAS).

Royalty trusts can be great holdings for investors who want income that rises in sync with commodity prices. These trusts hold interests in oil, gas or mineral production and collect more income when energy prices rise, resulting in bigger distributions (similar to dividends) and high yields for their investors.

So far in 2018, royalty trust investors have benefited from a 12% improvement in sale prices for benchmark West Texas Intermediate (WTI) crude oil, which was recently trading at $67 a barrel. Prices are now up nearly 150% from their low of about $27 per barrel two years ago.

Royalty trusts typically offer high yields, frequently better than 7%. And many of these trusts have increased their distributions multiple times this year thanks to higher energy prices.

The principal drawback: Distributions decline over time because the trust’s energy reserves deplete; royalty income from oil and gas sales gradually drops to zero. Royalty trusts are required to disclose and annually update estimates of their remaining reserve life – though conservative estimates mean many trusts live on well past their expected termination date.

Royalty trust distributions also can move along with energy prices, which means they don’t just rise – they can drop, too. And that tax advantage comes with more complex tax reporting; investors sometimes must pay income taxes to multiple states if the trust’s assets are spread over several jurisdictions.

Still, royalty trusts’ high-income potential should earn them a spot in most portfolios. These 10 royalty trusts in particular offer high yields that fly far under Wall Street’s radar.

Data is as of Aug. 8, 2018. Distribution yields are calculated by annualizing the most recent distribution and dividing by the share price. Distributions are similar to dividends but are considered a return of capital, rather than income, and taxed at the lower capital gains rate. Taxes also are deferred until the trust is sold or terminated.

• Ticker: SBR
• Market value: $679.4 million
• Distribution yield: 6.1%

Founded in 1982, Sabine Royalty Trust (SBR, $46.95) collects royalties on oil and gas properties in Florida, Texas, Louisiana, Mississippi, New Mexico and Oklahoma. Its portfolio of drilling properties covers nearly 2.1 million acres.

During 2017, Sabine’s distributable income rose 26% to $34.7 million, or $2.38 per share, as a result of increased oil production and higher average selling prices. Oil volume increased 6% to more than 550,000 barrels and selling prices improved 18% to nearly $47 a barrel. These gains were modestly offset by lower production of natural gas due to reduced demand from a warmer-than-usual winter.

Experts estimated Sabine had enough oil and gas reserves to last nine or 10 years at the time the trust was established – 36 years ago. Since then, new discoveries obviously have extended the trust’s life, produced oil and gas volume more than twice original reserve estimates and enabled the trust to reward investors with more than $1.31 billion in distributions. The most recent analysis by petroleum engineers estimated the remaining life of Sabine’s reserves at eight to 10 years.

Sabine makes monthly distribution payouts and has already increased distributions five times since the beginning of 2018. Of course, there were a couple of declines, too, including from 28.12 cents in July to 23.99 cents in August. Still, the year-to-date payout annualized would come to $3,01, or a roughly 6.4% yield.

• Ticker: PBT
• Market value: $427.4 million
• Distribution yield: 7.1%
• Market value: $427.4 million
• Distribution yield: 7.1%
• Permian Basin Royalty Trust (PBT, $9.19) generates royalty income from oil and gas wells located on the Waddell Ranch site in Crane County, Texas and 33 other Texas locations. Waddell Ranch is the trust’s principal asset. The owner/operator of the drilling properties is ConocoPhillips (COP) subsidiary Burlington Resources. Burlington established the trust in 1980 and since then has drilled nearly 1,000 producing gas wells across 79,000 acres of Waddell Ranch oil and gas properties.

Production from the Permian trust properties increased 11% last year to roughly 545,000 barrels. Volume gains, higher selling prices and a third consecutive year of lower production costs generated 50% growth in the trust’s distributable income, which rose to $29.3 million, or 63 cents per share.

The value of Permian’s remaining reserves is estimated at $129.9 million and the trust’s remaining life is likely to range between eight and 11 years. These reserve estimates may prove conservative since Burlington plans to invest an extra $3 million in drilling activities this year. Burlington plans to work over two wells, improve infrastructure and complete several well redevelopment projects that began last year.

Monthly distributions are tracking changes in production, so they’ve been up and down throughout the year. But applying the average monthly rate from the first seven payouts of the year to full-year 2018 suggests a distribution of 70 cents – up 11% year-over-year and good for a yield of 7.6%.

• Ticker: CRT
• Market value: $91.7 million
• Distribution yield: 9.9%
• Cross Timbers Royalty Trust (CRT, $15.09) has existed since 1991 and earns royalty income from Texas, Oklahoma and New Mexico drilling properties. Most of the trust properties are located in the prolific San Juan Basin and all are owned and operated by the XTO Energy subsidiary of Exxon Mobil (XOM). Production comes from 4,900 oil and gas wells spread across nearly 60,000 acres.

Reduced gas production and higher development costs in 2017 caused trust distributable income to decline by 5% to $6.05 million, or $1.009 per share. Production volume and the monthly distribution have been erratic in 2018. Cross Timbers has paid out 82.5 cents per share to investors through seven months. As long as the average holds steady, CRT should pay out roughly $1.41 – a 9.3% yield that’s actually less than the projected forward yield using the most recent distribution.

Petroleum engineers recently estimated the value of Cross Timber trust’s remaining oil and gas reserves at $54 million and calculated a remaining reserve life of approximately 11 years.

• Ticker: MTR
• Market value: $26.4 million
• Distribution yield: 9.4%
• Mesa Royalty Trust (MTR, $14.25) was created in 1979 by legendary oilman billionaire T. Boone Pickens. Mesa’s property interests are in the Hugoton field in Kansas and the San Juan Basin formation across New Mexico and Colorado. These interests cover more than 140,000 acres and 3,000 producing natural gas wells.

Most of the trust’s resources have already been depleted, hence the tiny $26.4 million market capitalization. Engineers recently estimated the value of Mesa’s remaining proved reserves at $13.35 million, which is enough to support another three to five years of production.

Production from Mesa trust properties improved 65% last year and powered a 142% increase in trust distributable income to $2.94 million, or $1.58 per share.

Mesa’s monthly distributions are trending lower in 2018, unfortunately, due to reduced spot prices for natural gas and reduced production volume. Trust distributions have totaled 73.68 cents through seven payouts in 2018. Assuming the rate holds for the remainder of this year, distributions will be a step down from last year at $1.26 per share. Still, that would come out to an ample yield of 8.9%.

• Ticker: MSB
• Market value: $370.0 million
• Distribution yield: 8.8%

Established in 1961, Mesabi Trust (MSB, $28.25) holds interests in iron ore production from mines located along the Mesabi Iron Range in St. Louis County, Minnesota, covering roughly 9,700 acres. Mesabi Trust collects overriding royalties, which are determined by mining volume and iron ore selling prices, and royalty bonuses, which kick in when iron ore sells above a certain price.

Iron ore production from the trust mines rose 30% last year to 4.8 million tons and fueled a nearly threefold improvement in trust distributable income to $33.2 million or $2.53 per share.

Iron ore producers like Mesabi received a major boost this year from President Donald Trump’s new tariffs on imported steel. Iron ore is used in steel manufacturing, and U.S. steel producers are buying more iron ore and gearing up to meet increased domestic steel demand. The owner/operator of the trust mines, Cleveland-Cliffs (CLF), plans to invest $75 million in mine upgrades this year that will boost production capacity by 3 million tons. It also recently broke ground for a new iron-making facility that will serve customers in the Great Lakes region.

The trust’s proved and probable iron ore reserves were recently assessed at 793.2 million tons. This implies a remaining life of approximately 16.5 years.

As a result of higher selling prices, Mesabi’s royalty income increased 40% in the first quarter of 2018 even though iron ore production was relatively unchanged year-over-year.

Despite the rise in income, Mesabi paid a first-quarter 2018 distribution of 45 cents per share that was 18% below last year’s first quarter payout. The second-quarter rate was 22 cents. Annualized out, that would come to $1.34 per share – a mere 4.7% distribution yield. But the highly erratic nature of this trust’s distributions means that could change for the better in just a few quarters.

• Ticker: VOC
• Market value: $96.0 million
• Distribution yield: 14.5%
• VOC Energy Trust (VOC, $5.52) is a relative newcomer compared to most other royalty trusts. This trust was created in 2010 by VOC Brazos Energy Partners LLP to receive royalty income from oil and gas assets covering nearly 90,000 acres across Kansas and Texas. The operator of the trust properties has developed more than 800 oil and gas wells at these sites.

VOC will terminate in one of two ways: It will expire either at year-end 2030 or after the proceeds from the sale of 8.5 million barrels of oil and gas have been distributed to investors. That’s it. In the past eight years, VOC has distributed proceeds from the sale of approximately 4.1 million barrels of oil and gas.

VOC Energy Trust’s proved reserves recently were estimated at 4.29 million barrels and petroleum engineers look for production declines averaging 6.6% a year. However, trust reserves have increased four years in a row and may rise again over the next three years as property operator VOC Brazos plans to invest approximately $22.3 million in drilling and well redevelopment activities.

Although VOC production volume dropped 10% last year, higher selling prices propelled 2017 distributable income 73% higher to $8.5 million, or 39.5 cents per share.

VOC pays out quarterly. Distributions have improved for four consecutive quarters, to 20 cents per share in the most recent period. If the average of the first two payments holds out, 2018 distributions could total 72 cents – nearly twice last year’s payout – yielding almost 13%.

• Ticker: NDRO
• Market value: $114.6 million
• Distribution yield: 9.9%
• Enduro Royalty Trust (NDRO, $3.50) was founded in 2011 by owner/operator Enduro Resource Partners LLC and owns interests in drilling properties located in New Mexico’s Permian Basin and in East Texas. Enduro Resource Partners has an active drilling program on these sites, drilling 14 new wells last year. The production mix from its wells is approximately 75% oil and 25% natural gas.

Due to aggressive drilling, trust reserves grew 20% last year to 4.2 million barrels. These reserves had an estimated value of $66.1 million and a remaining life of just over four years.

Trust distributable income rose four-fold in 2017 to $44.7 million, or $1.36 per share, mainly due to sale proceeds totaling $37.5 million from the divestiture of interests in some properties. Excluding this one-time item, the distribution totaled 20.8 cents per share last year.

This particular trust does have an additional risk to watch out for: Enduro Resource Partners recently filed for bankruptcy and has begun the process of divesting its remaining oil and gas assets. If the trust assets are sold to a less efficient property operator, the trust distributable income could decline.

Enduro has paid out 29.13 cents so far this year, already eclipsing last year’s adjusted distribution. Projected out, that would be a full-year distribution of about 50 cents per share, or a whopping 14.3% yield.

• Ticker: ROYT
• Market value: $91.7 million
• Distribution yield: 19.6%
• Pacific Coast Oil Trust (ROYT, $2.38) is a perpetual trust, meaning there is no pre-determined termination event or date. Perpetual trusts offer the advantage that estate taxes are paid only once. Descendants of the original trust holder pay no pay estate taxes on their inheritance.

Pacific Coast Trust holds interests in properties located onshore in California’s Santa Maria and Los Angeles Basins and was created in 2012. The property operator, Pacific Coast Energy Holdings LLC, sells most of its oil and gas production to a nearby Chevron (CVX) refinery.

Energy production from trust properties declined 5% in 2017, but a 40% increase in selling prices produced a nearly 18-fold improvement in trust distributable income, which rose to $4.36 million or 11.3 cents per share last year.

The value of the trust proved reserves was recently estimated at $84.7 million, and the site operator is budgeting nearly $10 million for 2018 drilling projects that are likely to improve trust cash flows and boost return on capital.

Pacific Coast trust was off to a slow start in 2018 due to a temporary shutdown of a nearby pipeline that forced some wells to stop production. The shutdown, which began in December, resulted in a 40% decline in production during the first quarter. The pipeline resumed operations in April, and production from trust assets has returned to normal levels.

Despite the shutdown, the trust paid distributions of 12.5 cents during the first half of 2018, exceeding last year’s full-year payout by 11%. Distributions this year could exceed 31 cents per share, which would amount to a 13.3% yield.

• Ticker: PER
• Market value: $144.4 million
• Distribution yield: 17.5%
• SandRidge Permian Trust (PER, $2.82) owns royalty interests in oil and natural gas properties located along the Permian Basin in Andrews County, Texas. Unlike other royalty trusts, the site operator is no longer actively drilling, and the trust’s production is declining every quarter.

Oklahoma-based driller Sandridge Energy (SD) formed this trust in 2011 and holds a 25% ownership stake. SandRidge also operates two other Permian Basin trusts with property interests in Kansas and Oklahoma. SandRidge Permian Trust is scheduled to terminate in 2031 – and on the termination date, 50% of trust royalty interests will revert to SandRidge Energy, and 50% will be sold, with the sale proceeds distributed to trust investors.

The trust’s proved reserves are valued at $123.2 million, and production has been declined steadily from 1.17 million barrels in 2015 to 869,000 in 2016 and 714,000 in 2017. With no new wells planned, the annual decline is likely to continue.

Trust distributable income has followed a similar pattern, dropping from $81.0 million in 2015 to $25.6 million in 2016 and $24.3 million in 2017. Although higher selling prices are softening the impact of production declines, the general trend in quarterly distributions is lower.

The trust paid a 12.5-cent distribution in the first quarter of 2018, and recently paid out 12.9 cents just a few days ago. Thus, the company is on pace for a 50.8-cent distribution, which would produce an overall yield of about 18%. But this rich rate and yield might be a little misleading, given the high likelihood that distributions will continue to decline with the steady depletion of the trust’s remaining reserves.

• Ticker: SJT
• Market value: $272.7 million
• Distribution yield: 11.9%
• San Juan Basin Royalty Trust (SJT, $5.84) was established in 1980 and derives virtually all its royalty income from sales of natural gas. As a result, distribution growth is strongly tied to natural gas prices, which improved 40% in 2017 and are predicted to remain flat this year and next year, according to the Energy Information Administration.

The trust properties are operated by Hilcorp, one of the largest privately owned oil and gas exploration and production companies in the U.S. Hilcorp acquired these assets last year from ConocoPhillips. The trust assets encompass roughly 152,000 acres along the northwestern New Mexico portion of the San Juan Basin.

The trust has natural gas reserves of nearly 98 billion cubic feet, expected to last 12.5 years at planned production rates and valued at $137 million.

While natural gas production from trust assets declined 8% last year, trust distributable income jumped 81% in 2017 to $39.1 million, or 84 cents per share, mainly as a result of higher selling prices. Distributable income also benefitted from $7.5 million received from a litigation settlement.

Distributions are paid monthly, and so far, they’ve come to 20.25 cents. That would mean a full-year payout of 40.5 cents, which would translate to a 6.9% yield – not as much as the forward rate based on July’s distribution, but still respectable nonetheless.

The Dividend Aristocrats are an elite group of 53 stocks that have at least one thing in common: They have raised their annual payout in at least each of the past 25 years, if not longer.

But just because a company consistently raises its dividend doesn’t necessarily make it a compelling investing proposition.

Market experts advise a further layer of research before diving into these “elite” dividend stocks. You should always check that the company holds up to scrutiny – this means an encouraging business outlook and strong fundamentals. That way you’re “covered” twice: You have an attractive income proposition that should only get better over time, and chances are if you ever want to sell, you can do so at a profit.

We have used TipRanks’ market data to pinpoint the highest-rated Dividend Aristocrats right now. TipRanks scans the latest stock ratings from over 4,800 Wall Street analysts to be able to compile a list of stocks with the most Street support from analysts and top analysts.

The following are seven of the best dividend growth stocks on the market right now, in the eyes of the “pros.” This includes the average analyst price target, to give you an idea of how much upside potential Wall Street sees in these companies.

Data is as of July 4, 2018. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Companies are listed alphabetically.

• Market value: $238.3 billion
• Dividend yield: 3.6%
• TipRanks consensus price target: $140.75 (13% upside potential)
• TipRanks consensus rating: Strong Buy

Energy giant Chevron (CVX, $124.73) is one of the top Dividend Aristocrats from the oil patch. Even in the face of volatile oil and natural-gas prices, Chevron has consistently ramped up dividends for 31 years and counting, including a roughly 4% increase to the payout announced in January. Better still, CVX yields a generous 3.6%, which looks much better than the average material stock’s 2.2% annual dole.

Chevron currently sports a consensus “Strong Buy” ranking from the Street. If we look only at top-ranked analysts, the picture is even more bullish, with CVX receiving five buy ratings with an average price target of $146 (17% upside potential).

Most recently, Raymond James analyst Pavel Molchanov (view Molchanov’s TipRanks profile) upgraded CVX to “Outperform” (equivalent of buy). His move came with a $140 price target (12% upside potential). He believes Chevron has the best exposure to higher oil prices of its peers – and Molchanov predicts that oil prices will hit cyclical highs in the next six to 12 months. Indeed, Brent crude oil recently hit highs of nearly $75 even as OPEC companies move to stabilize oil supply.

Molchanov adds that Chevron’s low exposure to West Texas Intermediate oil should boost earnings and cash flow.

• Market value: $77.6 billion
• Dividend yield: 2.0%
• TipRanks consensus price target: $105.90 (10% upside potential)
• TipRanks consensus rating: Strong Buy

Retail home improvement chain Lowe’s (LOW, $95.06) ticks most boxes. This “Strong Buy” Dividend Aristocrat has received 11 buy ratings in the past three months compared to just two holds. And on the dividend front, investors have received 55 consecutive years of payout growth.

“We recommend LOW as a top pick … upon the view that amid a still very healthy backdrop within the Home Improvement sector, positive change is now underway at the company,” cheered five-star Oppenheimer analyst Brian Nagel (view Nagel’s TipRanks profile) on June 4.

For a long while, operating margins at LOW have lagged those of rival Home Depot (HD). However, change is now afoot, and a big activist investor has spurred a board shakeup. Lowe’s named Home Depot veteran Marvin Ellison as CEO in May – he took the role July 2 – and CFO Marshall Croom announced his retirement in June.

Following the switch, Nagel – who has a “Buy” rating on Lowe’s, with no price target – is predicting a bright future: “We are optimistic that under the direction of new senior leadership, LOW will strengthen operational disciplines and improve sales and profitability at the chain.”

• Market value: $123.7 billion
• Dividend yield: 2.6%
• TipRanks consensus price target: $186.67 (19% upside potential)
• TipRanks consensus rating: Strong Buy

The world’s largest and most recognizable food chain is also a premium dividend stock. McDonald’s (MCD, $156.48) boasts a decent 2.6% yield, but more importantly, 41 years of consecutive annual increases. The latest was a 7% improvement back in September 2017.

Dividends aside, this is a company with a very bullish Street outlook. “After its generally encouraging or better-than-expected 2017 results, which reflected a relatively healthy increase in global comparable sales, we see a continuing momentum in 2018,” writes CFRA’s Tuna Amobi (view Amobi’s TipRanks profile). He has just reiterated his “Buy” rating with a $195 price target (25% upside potential).

Amobi says investors should keep an eye on McDonald’s international expansion. He is predicting “potentially significant upside in China and other emerging markets.” Not only do these countries have fewer restaurants per capita, but they also offer a growing middle class with disposable income and a taste for burgers and milkshakes.

Amobi expects McDonald’s earnings to hit $7.16 per share in 2018, up from $6.37 last year. If we fast-forward to 2019, he sees MCD raking in earnings of $7.61.

• Market value: $116.0 billion
• Dividend yield: 2.3%
• TipRanks consensus price target: $95.38 (12% upside potential)
• TipRanks consensus rating: Moderate Buy

Medical device maker Medtronic (MDT, $85.48) recently announced a 9% dividend boost – its 41st consecutive year of payout hikes.

Medtronic recently held an analyst day where leadership stressed that its top priority is execution – a vague term, but more specifically, the company says that means improving operating margins and free cash flow. The company gave clear guidance from there and solid pipeline details.

For Bank of America’s Bob Hopkins (view Hopkins’ TipRanks profile), “The detail MDT provided on its pipeline definitely increased our confidence in revenue growth.” He called the analyst day a “solid step forward” but only time will tell if Medtronic can truly achieve its goals. Nevertheless, Hopkins remains bullish, arguing that “MDT’s revenue growth, MDT’s new restructuring, and the move in the dollar over the last year gives us confidence.”

Medtronic has a cautiously optimistic “Moderate Buy” rating from the Street – over the past three months, six analysts have published buy ratings on MDT, while three have announced holds.

• Market value: $20.5 billion
• Dividend yield: 1.9%
• TipRanks consensus price target: $181.67 (38% upside potential)
• TipRanks consensus rating: Strong Buy

With half a century of dividend growth under its belt, Stanley Black & Decker (SWK, $131.84) represents one of the most-established Dividend Aristocrats.

This Fortune 500 company, a manufacturer of industrial tools and household hardware, has a disruptive growth opportunity in emerging markets. These markets only represent 15% of total sales, but they offer double-digit revenue growth potential – so says top B. Riley FBR analyst Liam Burke (view Burke’s TipRanks profile). He sees the e-commerce platform as accelerating growth in countries like China, where distribution channels remain “antiquated.”

He concludes: “With an ever-improving global market position in the specialty tool sector, we see a stronger overall business capable of growing into its multiple beyond 2018.”

Good news for investors: His $195 price target suggests robust upside potential of 48%.

• Market value: $40.7 billion
• Dividend yield: 3.4%
• TipRanks consensus price target: $87.33 (15% upside potential)
• TipRanks consensus rating: Strong Buy

Discount chain-store Target (TGT, $76.63) is one of the more generous retail stores when it comes to dividends. The company pays a 3.4% yield at current prices, and currently sits on a streak of 47 consecutive payout increases.

This dividend growth should continue going forward if estimates for $7 billion in cash flow for 2019 pan out.

“TGT’s significant economic operating cash flow will continue to fund its strategic initiatives and enhance shareholder returns through ongoing dividend increases and share repurchases,” writes top Tigress Financial analyst Ivan Feinseth (view Feinseth’s TipRanks profile).

Feinseth likes how Target is differentiating itself from other retailers, be it through same-day delivery, shop upgrades, exclusive offers or savvy digital initiatives. For example, DriveUp enables customers to preorder their shopping for pickup, while discount app Target Cartwheel offers instant savings.

“Target’s strong brand equity and strategic initiatives will continue to drive increased sales growth, increasing Return on Capital, greater Economic Profit growth and increasing shareholder value creation,” Feinseth writes.

• Market value: $31.9 billion
• Dividend yield: 2.3%
• TipRanks consensus price target: $88.75 (9% upside potential)
• TipRanks consensus rating: Moderate Buy*

From one retail stock to another, VF Corporation (VFC, $81.49) describes itself as a global brand leader. While you may not have heard of VFC, you almost certainly know its brands: the company owns everything from Lee and Wrangler to The North Face and Kipling. And while it doesn’t offer a compelling current yield, at just 2.3%, it has grown its payout for 45 consecutive years, meaning investors enjoy ever-growing yields on their original investments.

Five-star Susquehanna analyst Sam Poser (view Poser’s TipRanks profile) has just met with VFC management. “It was clear to us that the team’s confident tone about the strengths and opportunities that lay ahead is commensurate with a company that is seeing the key elements of its growth drivers accelerate,” he wrote.”

Poser lists three key brands to keep a close eye on. Most notably, Vans is continuing to see “exceptional” growth. North Face sales also appear promising; after recent years of selling goods at high discounts, Poser is relieved to see North Face returning to innovation-led full price goods. Meanwhile workwear brand Williamson-Dickie “is shaping up to quickly become VFC’s next $1B brand,” Poser says. VFC snapped up W-D back in 2017 for $820 million.

*While this stock has a “Moderate Buy” analyst consensus rating, if we shift to only top analysts, the consensus rating becomes a more bullish “Strong Buy.”

Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 4,700 Wall Street analysts as well as hedge funds and insiders. You can find more of TipRanks’ stock insights here.

Heading into 2016, energy stocks seemed poised to end their swoon. Yet January is shaping up to be a cruel month for the sector, which has slumped about 10% so far this year. Despite a recent rally to $32 per barrel, oil prices are still nearly $5 below where they stood at the end of 2015. As bears see it, so much oil is now being pumped around the world—with more to come as Iran ramps up production—that further price declines are inevitable.

Should you wash your hands of oil stocks? Doing so now may be selling near the bottom. Although the price of oil could dip into the low $20s, it isn’t likely to stay there for long. Global demand is growing. And the surge in supplies over the past few years is likely to taper off as producers scale back on plans to discover and drill for more oil. Kiplinger’s expects a barrel of West Texas crude oil to fetch between $35 and $40 by May. A year from now, prices are likely to be higher.

If you’re looking for bargains in the energy sector, take a look at our seven promising stock picks.

Stock prices and returns are as of January 21, 2016; the price of oil, as of January 22.

• Symbol: XOM
• Price: $74.10
• Yield: 3.9%
• SEE ALSO: 26 Best Stocks for 2016

Exxon, the supertanker of energy stocks, earns money from both oil-and-gas production and refining and gas stations. With its latest financial results due out on February 2, Exxon is expected to report a 38% slide in revenues for 2015 to an estimated $255 billion. But Exxon is getting leaner, slashing operating costs and trimming its budget for new projects to help shore up profits. Exxon is also one of only three publicly traded companies with a higher credit rating than Uncle Sam (though Standard & Poor’s says it may trim the firm’s triple-A rating within the next two years).

Exxon’s oil-and-gas production isn’t rising as fast as that of smaller companies. But Exxon still aims to boost 2017 production by 5% from 2015 levels. The business has historically earned higher returns on capital (a measure of profitability) than major rivals. And Exxon’s financial strength gives it flexibility to buy distressed companies with assets that could boost its bottom line.

Exxon also pays investors to wait for a rebound with a dividend that’s sacrosanct. Even with profits expected to plunge 46% in 2015, the company hiked its payout by 5.8% in April, pushing its streak of annual dividend increases to 33 years.

• Symbol: CVX
• Price: $81.05
• Yield: 5.3%

Chevron, another colossus, made some massive bets in recent years, plowing more than $107 billion into projects ranging from a liquefied natural gas plant in Australia to oil wells off the coast of West Africa. With several of those projects now up and running, the payoff to investors should be on the way. Wall Street sees Chevron’s earnings per share diving 28% in 2016, to $2.50. In 2017, however, the firm should more than double its profits, making an estimated $5.31 in earnings per share.

In the near term, Chevron isn’t making enough money to fully cover its dividend. But CEO John Watson has said his priority is to keep payments intact and raise the dividend over time. To bridge the funding gap, the company is scaling back on natural-gas drilling in the U.S. and on other projects, and it’s cutting its budget for oil-and-gas. Those moves should help shore up its finances until 2017, when Chevron expects free cash flow (cash flow minus the capital expenditures needed to maintain or expand the business) to cover its dividend.

• Symbol: OXY
• Price: $60.85
• Yield: 4.9%

One of the largest domestic energy companies, Occidental is like a “mini major,” with a mix of oil-and-gas production, pipelines and chemical refineries. Its balance sheet is relatively healthy, with $6.9 billion in long-term debt offset by $2.5 billion in cash. Moreover, although most domestic drillers are spending more on capital projects than they are generating in cash flow simply to keep production flat, Oxy should be able to both boost production and deliver robust levels of free cash flow, says BMO Capital Markets.

Underpinning its business, Oxy owns a deep inventory of wells in the Permian region of Texas and New Mexico, one of the areas in the U.S. that is most conducive to the economic production of oil. If oil manages to stay above $60 a barrel—a price at which it becomes profitable to drill a lot more wells—Occidental estimates that it has 27 years’ worth of production in that region alone. Occidental also owns a 40% stake in a natural-gas production business in the United Arab Emirates, and it’s expanding into chemical production with a new ethylene plant slated to start up in 2017.

Oxy’s stock isn’t the cheapest—at 1.5 times book value, it trades above the industry average. But the company is one of the best positioned to weather a long period of low oil prices, making the stock compelling, says BMO. Oxy should also be able to keep hiking its dividend, which it has raised 13 years in a row.

• Symbol: EOG
• Price: $63.75
• Yield: 1.1%
• SEE ALSO: 8 Best Dividend Stocks of the Dow

EOG may not make much money if the price of a barrel of oil stays in the $20s or $30s. But the domestic U.S. producer has some key advantages that could make it a home-run investment if the commodity rebounds.

EOG owns some of the premier oil-shale locations in the U.S., says Barclays, with vast acreage in areas such as North Dakota’s Bakken region, as well as the Permian and Eagle Ford basins of Texas. EOG runs a tight ship, too. It isn’t laden with debt, so it has the ability to buy assets. And it’s well managed financially, earning an 8.8% return on invested capital, compared with an industry average of 4.8%.

Low oil prices are forcing EOG to slash spending on exploration, and Wall Street expects the company to post a loss of $3.6 billion in 2015, largely due to some big asset write-offs. Yet rather than pump more oil at rock-bottom prices, EOG is waiting for a rebound before completing 320 of its wells. Moreover, EOG can make plenty of money if oil recovers into the $50s: Its “best and largest” well opportunities generate 40% after-tax returns with oil priced at $50 per barrel, according to Barclays, which rates the stock an “outperform.”

• Symbol: VLO
• Price: $63.43
• Yield: 3.2%

The world’s largest independent refiner, Valero is raking in profits these days. Falling prices for crude oil and natural gas (its primary “feedstocks”) have boosted profit margins on its refined products. And with demand running strong, Valero reported net income of $1.4 billion in the third quarter of 2015, up 30% from the same period a year earlier. Valero also hiked its quarterly dividend by 25%, to 50 cents a share, bringing its total payout increase for 2015 to a whopping 82%.

One of Valero’s big advantages is the prime location of its refineries, which are along the Gulf Coast of Texas and Louisiana and not far from oil fields in the region. Valero also looks well positioned to export more refined products to Latin America and other areas where demand is climbing, says Robert Thummel, a fund manager at Tortoise Capital Advisors, an investment firm in Kansas City, Kan., that specializes in energy.

Valero’s good times would end if oil rebounded to $70 a barrel; profit margins would shrink, and demand for various fuel products could slump. Yet Valero has other revenue streams to help it stay afloat. It controls Valero Energy Partners (VLP), a master limited partnership that owns pipelines as well as storage and logistics businesses. Valero also sells fuel at more than 7,000 gas stations and operates 11 ethanol plants.

• Symbol: SEP
• Price: $41.92
• Yield: 6.0%
• SEE ALSO: Income Flows From Energy Partnerships

As a master limited part­nership, Spectra shells out most of its available cash to investors every three months. Its 5.9% yield isn’t the highest among MLPs, which pay 10% on average. But Spectra has raised its distribution for 32 quarters in a row, and it shows no signs of ending the streak. The firm plans to raise its distribution at an annual rate of 8% to 9% through 2017.

Fueling growth are plans to spend $20 billion on new pipelines and other projects. Spectra already owns key pipelines in the gas-rich Marcellus/Utica shale regions of Pennsylvania and Ohio. Plans are under way to expand the network to deliver more gas to customers in the Northeast and Canada, along with manufacturing plants in the South, where demand for the commodity is high. Moreover, low gas prices aren’t a problem for Spectra because 95% of its pipeline capacity has been booked in advance, and customers pay by the volume of gas shipped, not the price.

All told, Spectra has “one of the most visible slates of opportunities” in the business, says Credit Suisse analyst John Edwards, who rates the stock an “outperform.” (Keep in mind that MLPs have tricky tax consequences; consult your tax adviser before investing.)

• Symbol: SLB
• Price: $61.45
• Yield: 3.3%

There’s no sugarcoating the fact that things look bleak for Schlumberger, the world’s largest energy-services company. Customers are cutting spending on drilling and exploration, the industry has excess capacity, and prices are being squeezed. Yet business won’t stay this bad forever. Spending on oil-and-gas projects is likely to revive in 2017, fueling a rebound in sales, says RBC Capital Markets. Paris-based Schlumberger bought oil-well equipment maker Cameron International in 2015, expanding its suite of services. Even before that deal, Schlumberger had industry-leading technologies to help drillers squeeze more oil from wells and trim production costs. The firm’s non-U.S. business should improve, too, boosted by drilling projects that may not make money here with oil at $50, but can do so overseas.

Betting on Schlumberger won’t pay off if oil prices stay in the tank. But analysts see sales climbing 11.8% from 2016 to 2017, reaching $34.6 billion, with profits jumping 37% (after slumping in 2015 and 2016). At its current share price, Schlumberger’s “upside opportunity” beats the downside risk, says RBC analyst Kurt Hallead, who rates it “outperform.”

Picking stocks isn’t the only way to play a recovery in oil. Funds can get the job done, too. One way to keep it simple: Stick with a passively managed exchange-traded fund, such as Energy Select Sector SPDR ETF (XLE). Tracking the energy stocks in Standard & Poor’s 500-stock index, the ETF recently held 38% of its assets in three global giants: ExxonMobil, Chevron and Schlumberger. The fund yields 4.1%, but that didn’t prevent it from losing 28% over the past year. Its annual expense ratio is just 0.14%.

Another worthy unmanaged fund is iShares U.S. Oil & Gas Exploration & Production ETF (IEO). Focusing mainly on domestic producers, the ETF had 31% of its assets in refiners, such as Phillips 66 and Valero. These businesses make more money when oil prices are low, giving the ETF some support if the commodity stays depressed. The fund, which charges 0.43% annually, lost 34% over the past year.

If you prefer an actively managed fund, consider Fidelity Select Energy Portfolio (FSENX). The fund, which lost 29% over the past year, beat 91% of its rivals over the past five years. Manager John Dowd says he’s focusing on high-quality domestic drillers with “prime acreage” in major U.S. shale regions—stocks that should climb sharply if oil prices eventually perk up. Annual fees of 0.79% are reasonable.

Yield-hungry investors in recent years flocked to master limited partnerships seeking steady income. Now they're feeling the ground shake beneath their feet.

That shaking isn't an oil gusher -- it's MLPs plummeting amid a sharp decline in oil and natural gas prices. But for investors willing to pick through the MLP rubble, says Mark Litzerman, co-head of real asset strategy at Wells Fargo Investment Institute, “there are some very good long-term opportunities here."

MLPs are publicly traded partnerships focused largely on the transportation, storage, exploration and production of oil, natural gas and other natural resources. In a low-yield era, they've become a favorite of income investors because they generally distribute most of their income to investors.

Because many MLPs operate pipelines and earn fees based on the volume of oil and gas they transport, many investors assumed the partnerships wouldn't be hit too hard by a decline in energy prices. But the oil-price plunge upended that theory. West Texas Intermediate crude oil fell from a mid-2014 peak of more than $100 per barrel to less than $40. Spooked by this collapse, many MLP investors dumped shares. The Alerian MLP Index dropped nearly 40%, on a total return basis, from January through early December 2015.

Despite the industry's troubles, MLPs' generous distributions remain a powerful draw for income investors. The Alerian MLP Index yields about 9.3%. And a number of MLPs are well positioned to boost cash distributions in 2016. Among these is Magellan Midstream Partners (symbol MMP, recent price $60, yield 4.9%), which is engaged primarily in transporting and storing refined petroleum products and crude oil. This is a relatively stable, fee-based business, helping to insulate Magellan from commodity price swings. Distributable cash flow -- the cash available for payouts to unit-holders -- was enough to cover 135% of expected cash distributions in 2015, Magellan said in early November. And the partnership is committed to boosting cash distributions by at least 10% in 2016. "I'm very confident these distributions are safe, and they'll continue to grow," says Josh Peters, director of equity-income strategy at Morningstar.

MLPs With Cash Flow

Peters also likes Spectra Energy Partners (SEP, $38, 6.4%), which is focused primarily on the storage and transportation of natural gas and crude oil. The business generates steady fees supported by long-term contracts. The partnership has boosted cash distributions for 32 consecutive quarters, and it expects annual cash distributions to rise roughly 8% this year and next.

Another relatively conservative MLP is Enterprise Products Partners (EPD, $23, 6.7%), whose pipelines transport natural gas, natural gas liquids, crude oil and other products. Management retains a significant chunk of its distributable cash flow so that it doesn't have to load up on debt or issue new equity in order to reinvest in capital projects. Even so, Enterprise has raised its distribution rate for 45 consecutive quarters.

One downside of an MLP is its tax complexity. If you invest directly in MLPs, you'll receive a K-1 partnership tax form instead of the simpler 1099. You'll generally owe taxes on your distributions only when you sell.

You won't have to decipher a K-1 if you invest in MLP-focused funds, which offer broader diversification than a direct MLP investment. Still, they have their own pitfalls. The Alerian MLP exchange-traded fund, for example, is structured as a corporation and therefore must pay corporate taxes. That wrinkle has caused the fund to underperform its benchmark index by 3.25 percentage points annually from its inception through September 30, 2015, according to Morningstar.

By holding any index-tracking product, "you're buying the bad with the good," Litzerman says. "You need to accept the incremental volatility that would go with that."

Buying energy stocks might feel like stepping in front of a Mack truck these days. Oil prices have collapsed, and major energy producers are playing a game of chicken as they pump at full throttle to try to drive weak producers out of business. Yet, with the sector deep in bear-market territory, share prices may already reflect much of the bad news.

For one thing, oil prices may have already bottomed. West Texas Intermediate crude, the U.S. benchmark, fell below $44 a barrel before rebounding to $52 in early February (at that price, it’s down 49% since last summer). But the market looks balanced between supply and demand. The world is expected to consume 92.4 million barrels a day this year, and the U.S. Energy Information Administration sees supplies touching 93 million barrels. That leaves scant spare capacity in case of a supply disruption. “Prices will go up, probably sooner rather than later, and people will be surprised at how fast they rise,” says Mike Breard, an analyst with Hodges Capital Management, in Dallas.

Kiplinger’s forecasts that oil will recover to $70 a barrel this spring. If we’re right, energy stocks are likely to post sharp gains. But even with oil in the $50 range, well-managed companies can make money. That’s certainly true of Chevron (symbol CVX, $110). Although the behemoth’s earnings plunged 30% in the fourth quarter, to $3.5 billion, its refining operations saw profit growth, offsetting weakness in the production side of the business. The company is spending billions each year to replace depleted wells and says it’s on track to boost oil-and-gas production by 21% by 2017. Chevron recently cut its capital budget and suspended share buybacks, but it has made protection of its $1.07-per-share quarterly dividend a priority. (Share prices are as of February 6.)

A stock with more potential (and more risk) is Chesapeake Energy (CHK, $21). Under former CEO Aubrey McClendon, the company acquired vast acreage throughout U.S. shale basins. Faced with a debt-laden balance sheet, current CEO Doug Lawler sold $5 billion worth of assets last year to shore up the firm’s finances, and he’s now focusing on improving profitability and buying back shares, says UBS analyst William Featherston, who recommends the stock. And if oil prices rebound to $80 a barrel, the stock will be worth at least $40 a share, says Tom Sudyka, comanager of the LK Balanced Fund.

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Helmerich & Payne (HP, $68), an energy-services stock, has tumbled more than 30% in the past six months. The firm mostly provides rigs to land-based oil-and-gas producers. And although earnings rose 17% in the October–December quarter from the same period a year earlier, CEO John Lindsay warned that the results were “overshadowed by a rapidly deteriorating energy market.” Helmerich & Payne expects drilling activity and U.S. day rates for its rigs to decline sharply.

Yet Helmerich, the largest U.S. land driller, is likely to dig out of this hole and emerge stronger. The firm used the last downturn in oil prices to bolster market share from 9% in October 2008 to 16% at the end of 2014. Its land rigs are more profitable (on a daily operating basis) than those of major rivals, and its fleet is considered one of the most advanced and efficient.

On top of that, the stock yields a robust 4%. The company boasts a strong balance sheet and has ample cash to support the dividend. “The stock’s upside potential is much greater than the downside risk,” says Breard.

The oil glut has energy stocks plunging, but analysts say there are opportunities in the market's wreckage. Natural gas companies in particular could benefit from oil’s woes. And, though most oil companies will struggle if prices linger below $60 per barrel, the group has been pummeled so mercilessly over the past few months that some of the better-positioned oil stocks have become too cheap to pass up. “This is not a homogenous group,” says Mark Hanson, an energy sector strategist at Morningstar. “The companies with less debt, lower-cost production and production hedges in place are in the best position to ride this out.”

After several years of relative stability, oil prices started to slide last summer. The decline accelerated earlier in December after OPEC chose to do nothing to constrict supply. West Texas Intermediate crude, which sold for $108 a barrel in June, closed at just under $56 on December 16. With demand weakened by a combination of slower growth overseas and increased use of alternative energy sources, experts think oil prices could stay down for some time to come.

As oil prices have fallen, investors have bailed out of energy stocks. From July 24 through December 16, the S&P 500 Energy index sank 31%. The decline in energy stocks is predictable. Falling oil prices will lead to lower profits for nearly all energy companies, and many producers will lose money. But the carnage in the energy sector also creates opportunity for long-term investors willing to pick through the rubble for the likely survivors. Below, we identify eight such stocks. (All prices are as of December 16.)

Oil and gas producer Occidental Petroleum (OXY, current price $74.41; 52-week high, $101.38) has one of the lowest cost structures in the industry. That allows Oxy to profit even when oil prices dip to $60 a barrel, says Morningstar’s Hanson. To be sure, Oxy will struggle if oil lingers below that watermark, but the Houston-based company has a strong balance sheet and has proved to be an exceptional steward of its capital. That’s no accident. Oxy executives approach new exploration projects cautiously, stress-testing them to make sure they’d remain profitable even when oil prices plunge. Hansen thinks the shares are worth $99.

Cimarex Energy (XEC, $100.94; 52-week high, $150.71) has an even lower cost of production -- in the $50-per-barrel range -- which could allow it to continue drilling even when other companies have to mothball their wells. Cimarex also has little debt on its balance sheet. Hanson estimates that the stock is worth $113 today -- 12% more than its current share price.

Among domestic oil producers, Pioneer Natural Resources (PXD, $134.80; 52-week-high, $234.60) may be the most defensive stock, Hanson says. That's because the Irving, Texas, company has used futures contracts to lock in higher prices for 80% of its future output, and that will drastically mute the impact of falling prices on its profit and loss statement. Hanson thinks the stock is worth $187.

Companies that focus on natural gas production have also seen their share prices drop. Those declines are especially unwarranted, says Karl Chalabala, an analyst with Canadian investment bank Canaccord Genuity. For starters, gas producers have had to contend with lower prices for years, thanks to the fracking boom. And those prices are actually up substantially from their lows. Gas prices fell to as low as $2 per million British thermal units in 2012, but have since rebounded to $3.62 per million Btu’s.

The slide in oil prices could help boost natural gas even more, says Ronald Barone, an analyst with Maxim Group, a New York City investment banking firm. The reason: About 4% of the nation’s natural gas is produced as an ancillary benefit of pumping oil. If oil gets too cheap, fewer oil wells will be put into production, which will also reduce the supply of natural gas. Consulting firm Rystad Energy recently estimated that $150 billion in oil and gas projects may be shelved or delayed if oil prices remain depressed over the coming year.

At the same time, demand for natural gas is increasing at a brisk pace for a variety of reasons. More coal-based utility plants are being converted to gas to comply with environmental regulations. Next year, the U.S. will for the first time allow export of liquefied natural gas into the energy-starved European and Asian markets. Companies in energy-intensive industries, such as chemical manufacturing, are also bringing their manufacturing operations back to U.S. soil to take advantage of the nation’s cheap fuel costs, Barone says. That combination is likely to keep demand brisk for years to come.

With that backdrop, Barone’s favorite stock is EQT Corp. (EQT, $77.62, 52-week high, $111.47), which produces natural gas and natural gas liquids. The Pittsburgh company boasts one of the lowest cost structures in the industry and is capable of boosting production at a 20% annual pace for years to come. Barone thinks the shares will reach $134 within a year.

Rice Energy (RICE, $23.88; 52-week high, $34.34), formed in 2007, has developed some innovative drilling techniques, which are now being copied by other players that aim to get oil and gas from shale. The company's exposure to the oil market is negligible -- about 5% of production -- so the drop in its stock price “makes no sense,” says Canaccord’s Chalabala. And because the Canonsburg, Pa., company is young and small, it’s on a rapid growth trajectory. Chalabala expects Rice to more than double production next year, and thinks the stock will reach $42 in a year.

Range Resources (RRC, $58.22; 52-week high, $95.41), the first company to drill a vertical well in the Marcellus Shale basin a decade ago, has long-term leases on 1 million prime acres in western Pennsylvania. That allows Range, based in Fort Worth, Texas, to commit to long-term production contracts required by big utility companies. With production rising 20% to 25% a year, Range has both the experience and the reserves to be a major global player in natural gas, says Chalabala. His one-year price target: $76.

The slump in shares of Gulfport Energy (GPOR, $38.79; 52-week high, $75.75) is only partly related to the market’s malaise. The Oklahoma City producer replaced its chief executive early last year after the company made a number of missteps (for example, overestimating production and underestimating costs). His replacement slashed production estimates while spending money on a new well management system -- “all things you don’t want to hear.” But, Chalabala says, the moves were done for the right reasons, and now Gulfport is primed to meet Wall Street’s expectations. The company also now has the pipes in place to supply gas to the Midwest, where high demand for heating fuel means it commands premium prices. Chalabala thinks the stock will hit $55 within a year.

The safest way to play a dicey energy market is to go big. And no other energy company is bigger than ExxonMobil (XOM, $86.41; 52-week high $104.76). Not only does it have the financial muscle to weather a bad stretch, it is also well diversified. In fact, its refining and marketing arm (think gas stations) actually benefits from lower oil prices. Plus, the Irving behemoth pays a tidy dividend. At 3.2%, the stock’s yield is well above the market average. Morningstar analyst Allen Good says there’s little risk that Exxon will cut its dividend, which accounts for just 47% of profits. Good says the stock is worth $108.

There’s no question that lower oil prices are good for drivers: What’s not to like about gasoline at less than $3 a gallon? But the drop in crude prices is a mixed bag for the economy and the stock market—and therefore, for investors. To borrow a metaphor from Bank of America Merrill Lynch, lower oil prices can act as a lubricant for your portfolio—or they can be an oil slick. Here’s what you need to know to take advantage of plunging energy prices, while avoiding the pitfalls.

The price of West Texas Intermediate crude oil has plunged more than 30%, to roughly $75 per barrel, since mid June. Behind the fall is a classic tale of supply and demand. Production, particularly in the shale boomtowns of the U.S., has surged. The U.S. became the world’s largest oil producer earlier this year, unseating Saudi Arabia.

At the same time, demand has fallen, thanks to weakening overseas economies. Japan’s economy is in recession, for instance, and much of Europe is teetering near recession. The International Energy Agency had estimated demand growth of 1.3 million barrels per day for 2014. It recently revised its forecast to growth of just 700,000 barrels per day, below average demand growth for both 2012 and 2013.A strengthening dollar is doing its part to keep oil prices down, too. Because global oil markets are priced in greenbacks, the price of oil typically moves in the opposite direction of the dollar.

The key for investors is not how far oil has fallen already but whether it will stay low or fall even further. A dip below $75 per barrel in coming weeks can’t be ruled out, but Kiplinger sees WTI crude trending upward, to $85 to $90 a barrel by February. The longer prices stay low, the more pronounced the impact—for good or bad.Sustained lower prices are a net plus for the economy. “In our consumption-oriented economy, with 68% of gross domestic product driven by consumer spending, lower oil and other energy prices act as a tax cut for consumers,” says Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. For every $10 taken off the price of a barrel of oil on an annualized basis, add as much as one-quarter percentage point to growth in gross domestic product, figures BofA.

Corporate profits, however, are more geared toward business spending and commodity prices, so falling oil would not be good news for the majority of companies in Standard & Poor’s 500-stock index. Not surprisingly, energy companies see the biggest earnings hits when oil prices sink, followed by industrial companies and concerns that produce and process raw materials. If oil prices were to hold at current levels, it would shave $2 to $3 from estimated 2015 profits of $127 per share for the S&P 500, says BofA.

Nonetheless, stock market bulls need not surrender to oil’s woes. Brian Belski, chief investment strategist at BMO Capital Markets, says stocks have done just fine without the participation of the energy sector throughout much of the bull market, which celebrates its sixth birthday in March. His research shows that since 1970, the S&P 500 has gained an average of 19% in calendar years during which energy stocks lagged the market, but only 2% when energy beat the market.

Where can investors cash in on the slide in oil prices? Look for companies that will save on their own energy costs. Or find companies that cater to consumers who might be inclined to spend the money they’re saving on gas. Firms with the best prospects serve customers with below-average incomes, for whom savings at the pump have the most impact on the family budget.

Lower fuel prices provide an obvious jolt to transportation companies. And even though airlines have been the best-performing industry over the past two years, it’s not too late to buy, say strategists at Morgan Stanley. They give Delta Airlines (DAL, $45) and Jet Blue (JBLU, $13) their top rankings. Delivery giant United Parcel Service (UPS, $106) already enjoys a cost and efficiency advantage within its industry. UPS has a history of using the bountiful amounts of cash its business generates to buy back stock and raise its dividend, says S&P Capital IQ, which recommends the stock. (All share prices are as of November 18.)

Companies that make paints, stains and other coatings save on raw materials when energy costs fall. But the prices that consumers pay for their finished products tend to hold firm, resulting in improved profit margins, says portfolio manager Saira Malik, at TIAA-CREF. She recommends PPG Industries (PPG, $209), which makes house paint under the Glidden and Pittsburgh Paint brands. PPG also makes protective coatings for everything from cars to jets, as well as other industrial materials. Another stock to consider is Valspar (VAL, $85). The company recently launched a premium paint at Lowe’s and began to sell its Valspar brand at more than 3,000 Ace Hardware stores. The stock should be a profitable holding over the next three to five years, according to the Value Line Investment Survey, based on the company’s increasing share of a growing worldwide market and the stock’s dependable dividend.

A drop in oil prices delivers a twofold boost to Goodyear Tire & Rubber (GT, $26). Profit margins become plumper because of lower raw materials costs. Plus, more-affordable gasoline tends to increase the number of miles people drive, sending them to the tire store sooner. S&P Capital IQ recently boosted its call on the stock from “buy” to “strong buy.” Berry Plastics (BERY, $26) will also realize significant savings on raw-material costs. The company makes the drink cups you get at many fast-food restaurants, as well as other plastic packaging and containers, including prescription drug vials and caps and the plastic food wrapping used in grocery stores. Cliff Greenberg, manager of Baron Small Cap Fund (BSCFX), a member of the Kiplinger 25, is a believer; Berry is one of the fund’s biggest holdings.

Consumer-oriented stocks worth a look include warehouse club colossus Costco (COST, $139), which is already enjoying stronger profits on its gasoline sales. When gas prices are flat to down, “we save the customer more, and we make more,” chief financial officer Richard Galanti remarked during Costco’s most recent quarterly earnings call. Lower gas prices provide a meaningful lift for customers of Wal-Mart Stores (WMT, $84), recommended by Raymond James Securities. But its shares surged after the retailer reported better-than-expected earnings for the quarter that ended October 31, so you might want to buy in cautiously. Other retailers catering to bargain-hungry shoppers include Target (TGT, $68), Burlington Stores (BURL, $41) and Dollar General (DG, $66). All of them should produce greater returns than the market overall over the coming year, says BMO Capital Markets.

Finally, don’t overlook bargains in the oil patch itself—the companies aren’t, as indicated by the November 17 announcement that energy-services giant Halliburton (HAL, $49) will acquire its smaller rival Baker Hughes (BHI, $64) in a cash and stock deal worth nearly $35 billion.

Most wells remain profitable with oil prices at current levels, says BofA, with some still ahead all the way down to $40 a barrel. And integrated energy companies, which not only produce but also refine crude oil, are somewhat insulated against the effects of falling prices. Shares of integrated giant Chevron Corp. (CVX, $115) also yield an eye-popping 3.7%, well above the overall market’s 2.0% yield; Morningstar says the stock should trade for $132 per share.