3 Stocks to Consider as Tension Builds in Energy Markets

Key Points

• As tensions increase with Russia's oil in the market, there are three stocks investors should consider watching to cushion against any price shocks.
• Directly tied to oil prices, these names could weather the volatility and provide decent upside.
• Dividend income, EPS beats, further growth, and a significant discount are all on the menu.

Geopolitical tensions don’t stop at the current trade tariff negotiations between the United States and its major trading partners; other complications are now brewing in the energy markets as well. New measures have been implemented to prevent countries from purchasing oil from Russia in an effort to de-escalate the ongoing war with Ukraine.

Considering that Russia is one of the largest players in the oil business, markets are now worried that these measures may disrupt supply chains and production volumes, directly impacting the price of oil. With this in mind, it would make sense for investors to start looking into a few names in the energy sector to find potential upside in the coming months.

Some of these names are centered at the middle of the value chain, and are some of the biggest in the space as well; others focus on the top of the value chain and offer tremendous earnings growth potential, albeit with a much smaller size. Creating a watchlist made up of Exxon Mobil Corp. NYSE: XOM, Chevron Corp. NYSE: CVX, and Transocean Ltd. NYSE: RIG can give investors better odds from now until 2025 is over.

Why Exxon May Outperform Shortly

With the second-quarter earnings season in full swing, investors are watching closely to gauge what the back half of the year could hold for specific sectors and economies. Exxon’s recent earnings-per-share (EPS) beat is a prime example, setting the stage for a potentially higher ceiling in the quarters ahead.

Wall Street analysts had expected the company to report $1.47 in EPS. Instead, it posted a significant beat of $1.64. This demonstrates resilience in the brand’s global reach and scale, as it outperforms expectations even in the first half, when oil prices remained at the lower end of historical ranges.

As most investors know, where EPS growth goes, so does the stock price, and trading at only 85% of its 52-week high, Exxon Mobil provides enough room for the market to price in this earnings beat and any future growth potential.

Chevron Stock Hits the Trifecta

Now trading at 95% of its 52-week high, Chevron stock seems to be leading the pack in today’s list. The market has good reason to reward this name with bullish momentum, which can continue for months to come, even if oil prices don’t experience a shock from the Russian situation.

Sporting another EPS beat of $1.77 compared to the $1.58 expectation, Wall Street analysts had to react accordingly with revised valuations and ratings for this company. The consensus view is now for a Hold and a $164.1 price target on Chevron stock, though some analysts were willing to stand out.

Josh Silverstein from the UBS Group has reiterated a Buy target alongside a new $186 per share valuation for Chevron stock, calling for 20% further upside and a new 52-week high to be made in this name.

Of course, the potential for higher oil prices and continued EPS growth isn't the only factor driving interest in this stock; there’s another critical factor to consider.

By paying $6.84 in dividends to its shareholders, Chevron stock is now offering an annualized dividend yield of 4.4% to beat inflation rates and the benchmark 10-year treasury bond yield in the United States, a benefit most investors would be happy to have in today’s market.

The Full Force of Transocean’s Earnings Swing

Yet another beat in this list, Transocean stock offers the most potential growth and discount for investors. However, the caveat is that this $2.9 billion company is also the most volatile out of the group. The reason for the volatility lies in the company’s business model itself, but that is also where most of the reward comes from.

As a drilling equipment manufacturer and lessor, Transocean’s revenue and demand are directly tied to oil prices, meaning investors only receive payment if a price shock occurs in the future. Looking at this deal from a risk-to-reward perspective, it’s clear that it is an asymmetrical setup today.

Oil prices could fall by $10 per barrel on the risk side, but they could also rally by $40 per barrel on the reward side. This is why Wall Street analysts forecast a net EPS figure of eight cents for the fourth quarter of 2025 in Transocean, enough of a jump from today’s net loss of $0.10 to send the stock flying.