Wall Street’s Interest in Oil Stocks Amid Middle Eastern Conflicts

Wall Street is currently buzzing about oil stocks, and it makes sense considering the geopolitical tensions are tightening supply and pushing energy prices up significantly. But, truthfully, this kind of volatility isn’t really new for the energy sector, which has a history of ups and downs.

For most investors, the goal should be to focus on well-established, financially robust integrated energy companies. U.S.-based Chevron and Exxon Mobil have proven their worth over the years, effectively navigating through the energy cycles. However, I recently took a different approach and invested in a major French player: TotalEnergies. I think this choice might interest you too.

Why Consider an Integrated Energy Company?

The energy market is, let’s face it, quite unstable. Many are thrilled about soaring oil prices, which inevitably boost stocks across the sector. Yet, because oil and natural gas are commodities, their prices fluctuate constantly. Eventually, the tensions in the Middle East will subside, likely leading to a relief in supply constraints and a drop in commodity prices. It’s just a matter of time, but history suggests this is how it usually plays out.

When looking into energy stocks, caution is advisable. The industry generally splits into three segments: upstream (production), midstream (transportation), and downstream (refining and chemicals). Upstream and midstream are often driven by commodities, making them unpredictable. In contrast, midstream operations tend to generate more stable cash flow, given they’re fee-based.

If you’re inclined to follow oil price trends, companies like Devon Energy or Diamondback Energy could be your go-to options. But if you prefer a steadier, more conservative approach, larger integrated companies with diversified operations may be a better fit. This approach can help balance performance over the long haul.

Take Exxon and Chevron for instance: both have rewarded their investors with consistent dividend growth over the years. Chevron is particularly appealing with a robust balance sheet—its debt-to-equity ratio stands around 0.2x, compared to Exxon’s at 0.25x—and boasts a higher dividend yield of 3.8% compared to Exxon’s 2.7%.

TotalEnergies: A Long-Term Player

TotalEnergies is also a significant integrated energy player, offering a 4.6% yield. However, U.S. investors should keep in mind that they will be subject to French taxes and fees, some of which can be reclaimed later. But beyond its yield, what draws me to TotalEnergies is its approach toward clean energy.

While Exxon and Chevron seem to be sticking closely to their traditional operations with minimal forays into clean energy, TotalEnergies aims to broaden its clean energy investments. By 2025, their dedicated clean energy division is expected to make up almost 12% of their business—pretty ambitious, I think.

Essentially, TotalEnergies is channeling profits from its fossil fuel segment to develop a substantial clean energy business. This strategic move aligns the company with the growing global demand for clean energy. I see a parallel in my own investment in Enbridge, a Canadian midstream firm also exploring clean energy avenues. It’s encouraging to see TotalEnergies report strong earnings, largely thanks to its trading unit capitalizing on fluctuating energy prices. Still, I’m keeping a keen eye on the long-term evolution of the energy landscape, knowing that the oil market will eventually stabilize.

TotalEnergies: Suited for Now and the Future

Oil and natural gas are likely to remain critical energy sources for many years. Investors should maintain a stake in this sector, with integrated energy companies presenting some of the best options available. Exxon and Chevron make solid choices for conservative investors.

However, the shift toward cleaner energy cannot be overlooked. TotalEnergies offers a way to invest in a reputable energy giant while minimizing risks associated with the transition to renewables. For me, that seems like the most prudent long-term choice in the energy sector.