3 of the Best Energy Stocks to Buy Right Now

Chevron plans to increase production 7–10% in 2026 and is cutting operating costs, contributing to a ~30% YTD rally; it yields 3.6% and trades at ~25.6x estimated 2026 earnings. Energy Transfer, an MLP, offers a 7.1% forward yield and targets 3–5% annual distribution growth driven by projects like the Hugh Brinson Pipeline. ExxonMobil raised expected Pioneer synergies from $2B to $3B, repurchased $20B of stock last year, yields 2.6%, and trades at ~21x forward earnings; rising oil prices could meaningfully boost sector earnings.

Analysis

Chevron’s playbook—aggressive production growth plus ongoing cost-out—creates an asymmetry: if oil stays elevated, incremental barrels convert to free cash flow far faster than historical guidance implies, but the same actions also raise the probability of a medium-term supply bump into takeaway constraints. That suggests a bifurcated impact across the midstream complex: firms with firm long-term contracts and excess capacity (or expansion optionality) capture the upside in volume flows, while pipelines operating near capacity or exposed to basis swings face margin compression and variable distribution sustainability.

Energy Transfer’s payout profile makes it an attractive ‘carry while you wait’ trade, yet its sensitivity to regional basis differentials and project execution (e.g., permitting/timing on new segments) is underappreciated; a 5–10% move in regional crude spreads can swing distribution coverage materially. Exxon’s incremental cost saves and buybacks reduce downside, but market positioning prices in a lot of that optionality — the alpha will come from execution relative to peers and from timing of buyback cadence, not headline oil prices alone.

The consensus underweights two second-order risks: 1) a coordinated production step-up across majors that increases short-term supply and pressures prices inside 6–18 months, and 2) midstream basis volatility that can erode distributable cash flow even as volumes rise. Tactically, prefer asymmetric option structures and relative-value pairs that isolate execution and basis outcomes rather than naked commodity exposure; treat high-yield midstream positions as carry trades with explicit tail hedges tied to basis and contract-risk events.

Key Decisions for Investors

• Long CVX via a 12–18 month bullish call spread (buy 10–15% OTM LEAP call, sell ~30–40% OTM call to finance). Size: 1.0–1.5% portfolio. R/R: if oil holds and Chevron’s execution continues expect +25–40% upside; max loss = premium (~3–5% notional). Stop: cut if oil < -20% from current levels or if Chevron issues materially weaker production guidance.
• Relative-value pair: Long CVX / Short XOM equal notional for 3–9 months to isolate execution/capital allocation. Size: 1.0% net long-equity exposure. Target 8–15% relative return if Chevron out-executes Exxon; unwind if pair moves >8% against or if broad oil move >20% (systematic shock).
• Income + hedge on ET: Buy ET units for yield (3–5% position) and sell near-term OTM covered calls to enhance yield; buy 12-month puts sized to cover ~30% of notional to protect distribution risk. Target 8–12% total return over 12 months; downside risk: distribution cut/large basis blowout could cause ~25–35% drawdown mitigated by put hedge.
• Portfolio tail protection: Buy 6–9 month WTI puts (or put spreads) sized 0.5–1% portfolio to protect against a >20% oil price collapse. Cost: ~0.5–1% of portfolio; payoff: large asymmetric protection if the commodity reverts, preserving capital for redeployment into beaten-down names.