2 Cheap Energy Stocks to Buy Now and Never Sell

Last year was very good for investors in the energy sector. While the broader markets were in turmoil, energy stocks delivered huge gains, with some doubling in value. What’s more, plentiful free cash flow led many companies to pay hefty dividends — meaning energy investors reaped ample income too.

So let’s have a look at two energy names that, despite rising in value, remain cheap stocks worth owning now and well into the future: Coterra Energy (CTRA 1.26%) and Exxon Mobil (XOM 1.82%).

Image source: Getty Images.


Sometimes the obvious choice is also the right one. And when it comes to owning energy stocks, ExxonMobil has been an obvious choice for decades. 

This fully integrated energy behemoth offers size, stability, and strength. Its market capitalization of $465 billion makes it the largest American energy company and the seventh-largest American company overall.

What’s more, its fundamentals back up its reputation as one of the mainstays of the American corporate landscape. Exxon recorded $389 billion in revenue and $90 billion in gross profit over the last twelve months. Its free cash flow of $59 billion is its highest in over a decade.

XOM Free Cash Flow data by YCharts

Higher prices for crude oil and natural gas have undoubtedly contributed to Exxon’s surging revenue, profits, and free cash flow. But it’s what the company has done with those figures that has impressed Wall Street.

Exxon has committed to returning cash to shareholders rather than ramping up its capex spending. In the third quarter, the company once again hiked its quarterly dividend, this time to $0.91 per share, up from $0.88. Total cash returned to shareholders during the quarter, including share buybacks, increased to a stunning $8.2 billion.

Moreover, Exxon’s shares remain cheap. On a forward price-to-earnings basis, the company trades at a multiple of 10. That’s actually lower than at the start of 2022, when shares traded for about 10.9. For investors looking for a buy-and-hold energy stock, ExxonMobil fits the bill.

Image source: Getty Images.


With a market cap of $19 billion, Coterra is tiny compared to its large-cap energy competitors like ExxonMobil, Chevron, and Conoco Philips. Nevertheless, Coterra is a name that energy sector investors should know. The company’s superb free cash flow, hefty dividend payments, and product mix make it a valuable piece of any balanced energy portfolio.

Let’s start with free cash flow. Coterra generated $1.06 billion in its most recent quarter (ended Sep. 29, 2022). That equates to a free cash flow yield of 17.2%, which is well ahead of competitors like Diamondback Energy (12.7%), EOG Resources (8.2%), and Pioneer Natural Resources (12.1%). A high free cash flow yield shows that a company generates ample free cash flow compared to its market cap.

CTRA Free Cash Flow Yield data by YCharts

And because of Coterra’s plentiful free cash flow, the company can afford to pay fat dividends to its shareholders. Over the past 12 months, Coterra has paid $2.61 per share in dividends. That equates to a roughly 9% annualized trailing dividend yield, which puts it near the top of S&P 500 companies. Like many energy companies, Coterra pays a complex dividend comprising a modest base dividend and a variable payment, with both occurring quarterly.

Finally, Coterra’s product mix is worth noting. The company generates about 72% of its revenue from natural gas (and natural gas liquids) rather than oil. And while natural gas and crude oil often move in tandem, that is not always the case. Investors with significant exposure to crude oil producers may consider Coterra to provide some diversification to their energy portfolio.

On a valuation basis, Coterra remains very affordable. The shares trade at a forward P/E of 6.4, which is up slightly from a year ago, but still low in absolute terms. On a price-to-book basis, the shares look even cheaper. Coterra’s price-to-book value is only 1.6. That’s low, even among energy companies. 

So for investors looking to add a smaller energy name with big dividends and more exposure to natural gas, Coterra is for you.

Jake Lerch has positions in Diamondback Energy, EOG Resources, and Pioneer Natural Resources. The Motley Fool has positions in and recommends EOG Resources. The Motley Fool recommends Pioneer Natural Resources. The Motley Fool has a disclosure policy.