Energy stocks are in freefall because the virus containment in China almost completely froze most activity in the region. This lowered demand and sent oil prices to the $44.76 level for WTI crude at the end of last week. Long-term investors who are used to the wild energy cycle will want to accumulate energy stocks at this time.
Exxon (NYSE:XOM) pays a dividend that yields around 6.8%. BP plc. (NYSE:BP) is also compelling. The stock closed at new lows last week but its dividend now yields over 8%. These vertically integrated firms will not go bankrupt any time soon.
For years, they cut costs to improve margins. They prepared for a low oil price environment. If the company needs higher cash flow, it may temporarily cut dividends to service its debt or to buy back shares. Either way, energy companies will maximize shareholder returns depending on the market conditions.
Exxon is particularly attractive. The firm will restart its Baton Rouge refinery in Louisiana. The higher output will increase sales volumes to offset the lower price.
Predicting the end of the virus containment in the world is impossible.
But as the warmer weather approaches, the spread may end. And when this cold-like virus is contained, the demand for energy will increase as the economy resumes output.
Disclosure: the author owns BP stock.
