The Best Oil Stocks to Buy Now, According to the Pros

Oil stocks have been rare winners in an otherwise dismal year for equities, but volatility (opens in new tab) in energy prices is making it tougher to find the best oil stocks to bet on for 2023.

Crude oil (opens in new tab) futures, which have already come down well off their highs, fell sharply on Monday amid increased anxiety about demand from China, one of the world's largest energy consumers.

Indeed, U.S. benchmark crude oil futures have lost more than 15% since Nov. 4, and briefly gave up all of their 2022 gains at one point during Monday's session. 

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That price action has been felt in the S&P 500's oil & gas sector. True, it's up a whopping 70% so far in 2022, but the index lost 2.4% of its value over the past five sessions.

While it's far too soon to bail out on the energy trade (opens in new tab), it's probably fair to say that the easiest of money has already been made. With that in mind, it seemed like a good time to see which S&P 500 exploration and production oil stocks get the highest recommendations from industry analysts. 

To that end, we screened the S&P 500's oil & gas sector for oil stocks with the highest consensus recommendations, based on S&P Global Market Intelligence data.

A quick note on S&P Global Market Intelligence's ratings system: S&P surveys analysts' stock recommendations and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score equal to or below 2.5 means that analysts, on average, rate the stock at Buy. The closer a score gets to 1.0, the stronger the consensus Buy recommendation.

Below please find Wall Street's three highest rated oil stocks to buy now. (Stocks are listed in reverse order of analysts' consensus recommendations, from lowest to highest conviction. Ratings and market data are as of Nov. 28.)

3. Diamondback Energy

• Market value: $25.3 billion
• Dividend yield: 6.0% 
• Analysts' consensus recommendation: 1.70 (Buy)

Diamondback Energy (FANG) is an independent oil and natural gas company with production focused in the Permian Basin of West Texas. Shares are up by 33% so far this year, which is actually something of a disappointment.

That's because FANG is actually a sector laggard. The S&P 500's energy sector is sitting on a YTD price gain of more than 60%. But analysts say FANG's relative underperformance just sets it up for more outsized gains ahead. With an average target price of $181.40, the Street gives the stock implied price upside of 26% in the next year or so.

Add in the generous dividend yield, and the implied 12-month total return comes to around 32%. 

Bulls cite FANG's compelling valuation – and management's commitment to returning cash to shareholders through buybacks and dividends – as reasons to be constructive on the name. 

Meanwhile, no one is quibbling with Diamondback's capital plan as it pertains to investors.

"Management is committed to returning more than 75% of free cash flow to shareholders, with buybacks and variable dividends supplementing the growing base dividend," writes Susquehanna Financial Group analyst Biju Perincheril, who rates shares at Positive (the equivalent of Buy). 

Of 30 analysts issuing opinions on FANG, 15 rate it at Strong Buy, 11 say Buy, two call it a Hold and two say sell. That sort of conviction solidifies Diamondback Energy's status as one of the best oil stocks to buy now. 

2. ConocoPhillips

• Market value: $154.3 billion
• Dividend yield: 1.9%
• Analysts' consensus recommendation: 1.68 (Buy)

Shares in ConocoPhillips (COP (opens in new tab)) are up 72% so far in 2022 and analysts say they still have room to run. 

"We continue to believe that a company's balance sheet strength and place on the cost curve are critical, and favor those exploration and production companies that are well positioned to manage a potentially long period of volatile oil prices," writes Argus Research analyst Bill Selesky (Buy). "We believe that COP is one of these companies."

Selesky and other COP bulls emphasize the company's size, scale and combination of "both long-cycle and unconventional short-cycle projects." ConocoPhillips' record of "disciplined investment, strong free cash flow and consistent returns of cash to shareholders through dividends and stock buybacks" also supports the Buy case for long-term investors. 

And, like many of the best oil stocks to buy now, COP shares still look relatively cheap. Uncertainty regarding the future course of oil prices has COP stock changing hands at just 9.2 times analysts' 2023 earnings per share (EPS) estimate. That's quite a bargain when compared against the stock's five-year average of 21.2 times projected EPS, per Refinitiv Stock Report Plus.

With that as the backdrop, it should come as no surprise that bullishness abounds on the Street. Of the 28 analysts issuing opinions on COP tracked by S&P Global Market Intelligence, 15 call it a Strong Buy, 9 rate it at Buy, two have it at Hold and two say Sell.

With an average target price of $137.85 and dividend yield of 1.9%, the Street gives COP an implied 12-month total return of about 13%. 

1. EOG Resources

• Market value: $80.3 billion
• Dividend yield: 2.3%
• Analysts' consensus recommendation: 1.55 (Buy)

EOG Resources (EOG (opens in new tab)) is another oil and gas exploration and production company that analysts say is primed to pump gushers of free cash flow back to its shareholders.

Although the market certainly agrees, sending EOG stock up by more than 53% so far this year, Wall Street says this oil stock is just getting started. 

"We believe that EOG benefits from strong drilling opportunities, above-industry-average returns, and a disciplined management team," writes Argus Research's Selesky, who rates shares at Buy and has them on the firm's Focus List of best ideas. "EOG is among the leading players in the Bakken shale and one of the largest producers in the Eagle Ford. We expect the company’s extensive presence in these key shale areas to support long-term production growth."

Selesky also praises the company's "strong balance sheet and record of dividend growth," and he's hardly alone.

Of the 29 analysts covering EOG tracked by S&P Global Market Intelligence, 18 have it at Strong Buy, seven say Buy, three call it a Hold and one rates it at Sell. Their average price target of $156.67 gives this oil stock implied upside of about 15% in the next 12 months or so. Add in the dividend yield, and the implied total return is closer to 18%.

Where EOG really stands out is in its valuation, however. Shares change hands at just 8.8 times analysts' 2023 EPS estimate. That's a cheap price to pay for a company forecast to generate average annual EPS growth of nearly 29% over the next three to five years.