One of the only sectors of the market that is skyrocketing amid broad market weakness in 2022 is the energy sector.
Oil, natural gas and coal prices have soared as the war in Ukraine combined with surging economic reopening demand has created an energy crisis around the world. Even after significant year-to-date gains throughout the energy sector, there are still a handful of high-yield energy stocks that have both valuation upside and at least a 6% dividend yield, according to Bank of America analysts.
Here are seven of their top high-yield energy sector stocks to buy.
China Petroleum & Chemical Corp ADR SNP
China Petroleum & Chemical, also known as Sinopec, is China's largest domestic oil refiner and chemical producer.
Investing in Chinese stocks is not for the faint of heart in 2022 thanks to crackdowns on public companies by both Chinese and U.S. regulators. However, as the Chinese stock market has tumbled this year, Sinopec shares are up 6.5% year-to-date. Analyst Matty Zhao says Sinopec has an attractive valuation at around 0.5 times book value and has a stable earnings source in its downstream business. Sinopec shares also have a 9% dividend yield, the highest of any stock on this list.
Bank of America has a Buy rating and $66.30 price target for SNP stock.
Ecopetrol SA EC
Ecopetrol is Colombia's national oil company.
In the first quarter, Ecopetrol reported an impressive 223% year-over-year EBITDA growth, including 321% growth in upstream EBITDA, 240% growth in downstream EBITDA and 43% growth in transportation EBITDA. Analyst Frank McGann says Ecopetrol is benefiting from strong near-term trends but struggling with macroeconomic challenges, including rising interest rates, inflation and political uncertainty in Colombia ahead of the May 29 presidential election. Fortunately, McGann says the oil industry is so critically important to the Colombian economy that policy changes will likely be limited. Ecopetrol has a 9% dividend.
Bank of America has a Buy rating and $26.50 price target for EC stock.
MPLX LP MPLX
MPLX is an energy master limited partnership that specializes in transporting and terminalling in the U.S. Midwest and Gulf Coast regions and natural gas gathering and processing in the Northeast.
MPLX returned $4.2 billion in capital to its shareholders in 2021, and analyst Chase Mulvehill says cash returns are central to the MPLX bull thesis given its attractive free cash flow profile in 2022. Mulvehill says MPLX's transportation business is resilient and is supported by its sponsor, Marathon Petroleum Corp MPC. MPLX has an 8.7% dividend yield.
Bank of America has a Buy rating and $41 price target for MPLX stock.
Western Midstream Partners LP WES
Western Midstream Partners specializes in gathering, compressing, treating, processing and transporting natural gas; and gathering, stabilizing and transporting condensate, NGLs and crude oil.
Western Midstream disappointed the market with its 2022 guidance in February, but analyst Neel Mitra says the company's new cash return strategy is bullish for investors. Wester Midstream announced a base distribution increase of 53% in the first quarter of 2022 and has $1 billion available for share buybacks through 2024. WES currently has an 8.2% dividend.
Bank of America has a Buy rating and $28 price target for WES stock.
Enterprise Products Partners L.P. EPD
EPD is an integrated provider of natural gas and natural gas liquids services, including processing, fractionation, storage, transportation, and terminal operations.
Mulvehill says EPD's recent first-quarter earnings beat was not an outlier, and the company's NGL and Petchem segments should continue to perform well throughout the remainder of 2022. In addition, he says EPD should benefit from 2023 natural gas egress constraints, as well as opportunities for organic growth, acquisitions and buybacks. In the meantime, the stock pays a 7.1% dividend.
Bank of America has a Buy rating and $33 price target for EPD stock.
Energy Transfer LP ET
ET is a leading provider of U.S. midstream oil and gas infrastructure, with a focus on logistics of liquids.
Mulvehill says ET is his top stock pick in the Midstream/MLP Energy group. He says the company's geographic diversification and exposure to different hydrocarbons differentiate it from peers, and its bullish 2022 outlook and Permian new build pipe proposal suggest valuation upside for investors. Mulvehill says energy shortages will likely lead to a ramp in Bakken production, another tailwind for ET. ET pays a 6.3% dividend.
ank of America has a Buy rating and $16 price target for ET stock.
PetroChina Company Limited ADR PTR
PetroChina is the largest oil and gas producer in China, and about 87% of its shares are state-owned.
Like Sinopec, PetroChina shares have been one of the few bright spots among large cap Chinese stocks in 2022, gaining 12.6% year-to-date. Zhao says PetroChina is now primarily focused on the upstream business following the spin-off of its gas pipeline assets, and it has large reserves and output growth momentum. Even after its 2022 rally, Zhao says PetroChina shares trade at an attractive valuation of less than half the company's book value. The stock also pays a 7.5% dividend.
Bank of America has a Buy rating and $73.30 price target for PTR stock.
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