Devon Energy (Ticker: DVN) is one of the largest onshore oil and natural gas exploration companies in the United States, making it an easy-to-understand business. However, how investors perceive this company can vary widely—some might see it as a buying opportunity, others could decide to sell, and still, some may choose to hold it for the long term. Each of these strategies might be correct, but regardless of the choice, one fundamental fact remains: Devon Energy is a high-quality energy stock.
Devon Energy boasts several key advantages. These include an investment-grade, stable balance sheet, low extraction costs allowing it to remain profitable even during periods of low oil prices, and over a decade’s worth of drilling-ready land reserves.
One highlight worth emphasizing is Devon Energy’s recent acquisition of additional onshore U.S. assets in the second half of 2024. This accomplishment underscores not only its solid foundation in the energy business but also its ability to grow through acquisitions. Unlike oil and gas titans like ExxonMobil or Chevron, Devon Energy has the capacity to consolidate and integrate smaller-scale assets, further strengthening its position within the industry.
For those optimistic about the U.S. onshore oil and natural gas sector, Devon Energy is certainly an attractive choice.
However, the bullish thesis has one omission: it skips over one of the most critical factors in the energy sector—volatility in oil and natural gas prices. Unlike large-scale integrated energy companies—those that encompass upstream (exploration), midstream (transportation pipelines), and downstream (refining and chemicals) operations—Devon Energy operates solely as an upstream-focused company. Its revenues and profits are directly tied to oil and gas prices, making the company’s overall performance more susceptible to significant price swings in these commodities.
For investors seeking stability in their portfolios, Devon Energy stock might feel a bit too “thrilling.” The inherent volatility of oil prices, combined with its upstream focus, could lead to erratic stock price movements that are better suited for risk-seeking investors.
On the other hand, Devon Energy may still appeal to patient, long-term investors. Its acquisitions in 2022 and 2024 demonstrate not only its commitment to growth through strategic expansion but also its focus on acquiring complementary assets to steadily strengthen its business model.
Industry downturns, while challenging, may also prove to be opportunities for investors willing to maintain their positions or even expand them during difficult times. Such downturns could also push weaker competitors to sell assets, creating more acquisition opportunities for Devon Energy.
To be fair, holding onto Devon Energy stock won’t always be easy. Volatility in oil prices can be nerve-wracking, and the stock may experience significant downturns. However, historical trends point to oil prices eventually recovering, even after unprecedented shocks like the plunge during the initial stages of the COVID-19 pandemic. For those with a high-risk tolerance and a positive long-term outlook on the U.S. onshore drilling sector, Devon Energy could potentially be a strong addition to the portfolio.
Devon Energy is undoubtedly a well-run company with strong fundamentals and growth opportunities, both internally and externally. However, its performance will always be heavily tied to oil and gas prices, resulting in short-term volatility that may not suit all investors. For conservative individuals, the stock may feel too risky, but for those seeking exposure to the energy sector and willing to ride through the ups and downs, Devon Energy presents itself as a solid, high-quality energy stock worth considering.
