Oil prices surged after the U.S. military strike on Iran, with Brent crude topping $100 per barrel and West Texas Intermediate quickly approaching that threshold. Energy stocks immediately became the focus of capital inflows, pushing the sector broadly higher.
However, Goldman Sachs pointed out in its latest report that the pure oil price hike is no longer the sole driver of this rally. The four energy stocks selected by the investment bank not only benefit from the pricing tailwinds caused by the geopolitical conflict but also attract both passive income-seeking and value-oriented capital due to their robust cash flows, potential for steady dividend growth, and valuations that are not yet overbought.
Goldman Sachs noted that while some large exploration and production giants have seen impressive gains over the past six months and now trade at lofty valuations, there are still many companies within energy sub-sectors that offer excellent entry points. These firms not only provide reliable dividend yields but also have the potential to increase payouts in the future.
Below are Goldman Sachs’ latest top picks among energy stocks. All receive Buy ratings, offer double-digit upside to their price targets, and have dividend yields approaching as high as 5%.
Headquartered in Midland, Texas, Diamondback Energy is an independent oil and gas exploration company focused on the development of unconventional, onshore oil and natural gas reserves in the Permian Basin of West Texas. The company’s operations cover core areas including the Spraberry, Wolfcamp, and Delaware Basin formations. It also owns 770 miles of crude oil and natural gas gathering pipelines and an integrated water system. The stock currently offers a dividend yield of 2.29% and appears poised to move higher. Goldman Sachs has set a price target of $212, implying 20% upside from current trading levels.
Ovintiv is an oil and natural gas exploration and production company with operations in both Canada and the U.S. While it may fly under the radar for many investors, Goldman sees it as a compelling total return play. The company’s business covers the marketing of oil, natural gas liquids (NGLs), and natural gas, with assets including the Anadarko Basin, Montney, and Permian Basin. Ovintiv’s dividend yield stands at 2.20%. Goldman Sachs has a $66 price target on the stock, representing an estimated 13% gain.
Permian Resources is an independent oil and gas company focused on the core areas of the Delaware Basin within the Permian. It aims to deliver sustainable returns through the acquisition, optimization, and development of oil and gas properties. The stock currently trades at just 8.5 times earnings and offers a dividend yield of 3.15%, giving it strong total return potential. The company’s asset base includes over 479,500 net leasehold acres and approximately 94,900 net royalty acres. Goldman Sachs’ price target of $22 implies a 14% return for investors.
Viper Energy is a mid-cap energy play that owns and acquires mineral and royalty interests in oil and gas properties within the Permian Basin. It stands out among the four picks with its massive dividend yield of 4.998%. The company’s assets cover approximately 75,000 square miles, with about 1.197 million gross royalty acres and 34,217 net royalty acres. Proved reserves total roughly 179.2 million barrels of oil equivalent. Goldman Sachs has a $59 price target on Viper Energy, suggesting a striking 35% upside from current levels.
In summary, these four energy stocks selected by Goldman Sachs not only ride the wave of rising oil prices but also provide a solid buffer through their robust dividend payouts. For investors seeking stable passive income while wanting to tap into the energy sector’s upside, these names remain worth watching in the current market environment.
