MW 20 oil stocks passing a quality screen as Investors wonder what Iran will do next
By Philip van Doorn
Nobody knows how badly the international oil market might be disrupted by Iran. But if you want to take advantage of the uncertainty, a screen encompassing debt levels and cash flow can limit your risk.
If you believe this is the right moment to purchase oil stocks, you can take a broad approach by owning baskets of companies through exchange-traded funds. But if you wish to invest in individual companies involved in oil production and distribution, you need to be more careful. You can begin your research by looking at data points that might help limit risk.
Following the U.S. bombing attacks against nuclear facilities in Iran, there was no way of knowing how much of an effort Iran's government might make to follow through on threats of closing the Strait of Hormuz or otherwise disrupting the flow of oil.
A daily average of 20.9 million barrels of oil flowed through the Strait of Hormuz in 2023, which was "the equivalent of about 20% of global petroleum liquids consumption," according to the U.S. Energy Information Administration.
Early Monday, West Texas Crude Oil for July delivery (CL.1) was up slightly to $74.12 a barrel.
One obvious way to make a broad play on U.S. oil and natural gas producers is to hold shares of the Energy Sector SPDR ETF XLE. This exchange-traded fund holds all 23 stocks in the energy sector of the S&P 500 SPX, weighted by market capitalization. That means that its largest two holdings - Exxon Mobil Corp. $(XOM)$ and Chevron Corp. $(CVX)$ - together make up 39% of the fund.
The S&P 500 itself is weighted by market cap, which means the SPDR S&P 500 ETF Trust SPY that tracks it is also a rather concentrated play, with its top three holdings - Microsoft Corp. $(MSFT)$, Nvidia Corp. $(NVDA)$ and Apple Inc. $(AAPL)$ - making up a combined 20% of the portfolio.
The energy sector is still cheap
Here is a list of the 11 sectors of the S&P 500, sorted by forward price-to-earnings ratios, ascending. The full index is at the bottom of the list. These are weighted ratios of prices divided by consensus earnings-per-share estimates among analysts polled by FactSet. The table also shows total returns with dividends reinvested through Friday for 2025 and from the end of 2021 to incorporate the pattern of an 18% decline for the S&P 500 in 2022, followed by the bull market of 2023 and 2024.
Sector or index Forward P/E 2025 return through June 20 Return since end of 2021
Energy 15.7 5.1% 81.6%
Healthcare 16.2 -3.2% -0.6%
Financials 16.3 4.7% 37.1%
Utilities 17.7 7.5% 25.2%
Real Estate 17.9 3.5% -9.6%
Communication Services 18.9 4.3% 36.9%
Materials 20.0 3.5% 2.2%
Consumer Staples 22.7 5.5% 21.1%
Industrials 23.5 8.5% 42.3%
Information Technology 27.8 2.2% 58.3%
Consumer Discretionary 28.0 -7.1% 8.4%
S&P 500 21.4 2.1% 32.0%
Source: FactSet
The S&P 500 energy sector has the lowest forward P/E of the 11 sectors. This chart showing front-month WTI prices over the past 15 years can help explain why many investors have difficulty trusting the sector:
Leaving aside the brief and brutal disruption during the early phase of the COVID-19 pandemic, when front-month WTI prices dropped to zero because of a collapse in demand, the most significant event illustrated in the chart is the long decline that began in July 2014. The U.S. had become the world's largest oil producer. In hindsight, it was due to overproduction caused an imbalance that led to bankruptcies and mergers among less-robust domestic producers.
For many years, comments from U.S. oil executives during earnings conference calls have focused on careful production expansion, capital efficiency and rewarding shareholders with dividends and stock repurchases. The latter can lower share counts to boost earnings (and cash flow) per share.
Read: 20 companies in the S&P 500 whose investors have gained the greatest rewards from stock buybacks
An oil stock screen
This screen might he.p you begin your research into individual energy stocks.
Rather than simply screening the 23 companies in the S&P 500 energy sector, we expanded the list by beginning with the holdings of two broader ETFS.
-- The SPDR S&P Oil & Gas Exploration & Production ETF XOP holds 52 stocks of U.S. companies in the S&P Total Market Index that are in the "Oil, Gas and Consumable Fuels" Global Industrial Classification Standard (GICS) group. All the holdings are assigned equal weightings when the fund is rebalanced quarterly.
-- The iShares Global Energy ETF IXC tracks the S&P Global 1200 Energy Capped Index. It holds 52 stocks with a modified weighting that essentially limits individual holdings to 22.5% of the fund. Together, Exxon and Chevron make up 27.4% of the portfolio. Rounding out the top five holdings are Shell PLC UK:SHEL, TotalEnergies SE FR:TTE and ConocoPhillips COP. These five companies together make up 44.7% of the IXC portfolio.
Together, XOP and IXC hold 89 stocks of companies based in 16 countries.
Screening oil stocks for quality
A company's free cash flow is its remaining cash flow after capital expenditures. This money can be used to fund expansion, acquisitions, dividends, stock buybacks or other corporate purposes.
If we divide the consensus estimate of a company's free cash flow per share for the next 12 months by its share price, we have its estimated free-cash-flow yield. This can be compared with its dividend yield to see if there appears to be "headroom" for excess cash to be deployed through higher dividends, share buybacks or other actions that would hopefully be good for shareholders.
Starting with our list of 89 companies held by XOP and/or IXC, we narrowed the list to 74 for which estimates or ratings were available from at least nine analysts working for brokerage or research firms polled by FactSet.
Among the remaining 74 companies, estimated forward FCF yields were available for 66 companies.
Getting back to the industry focus on capital efficiency, we narrowed the list further by looking at ratios of long-term debt to equity. For XOP, the weighted debt-to-equity ratio is 62%, according to FactSet. For IXC, the debt/equity ratio is 55%. Among the largest oil companies, debt/equity ratios are low.
So we pared the remaining list of 66 companies further by excluding any for which the debt-to-equity ratio was higher than 70%. This reduced the list to 41 companies. These 20 have the highest FCF headroom indicated by the estimates:
Company Ticker Estimated FCF headroom Dividend yield Estimated FCF yield Debt/ equityCountry Inpex Corp. JP:1605 12.29% 4.24% 13.16% 24%Japan SM Energy Co. SM 10.61% 2.90% 11.12% 62%U.S. Devon Energy Corp. DVN 9.35% 2.80% 12.42% 62%U.S. Ovintiv Inc. OVV 9.20% 2.89% 11.20% 67%U.S. Matador Resources Co. MTDR 7.99% 2.43% 10.09% 60%U.S. Diamondback Energy Inc. FANG 7.72% 2.69% 10.44% 36%U.S. PetroChina Co. Ltd. HK:857 7.09% 7.65% 12.95% 23%China Antero Resources Corp. AR 6.73% 0.00% 7.70% 53%U.S. Shell PLC UK:SHEL 6.44% 3.91% 10.91% 43%U.K. Permian Resources Corp. PR 6.14% 4.07% 8.74% 44%U.S. Baker Hughes Co. BKR 5.79% 2.36% 8.41% 35%U.S. Coterra Energy Inc. CTRA 5.67% 3.19% 8.44% 32%U.S. Viper Energy Inc. VNOM 5.23% 2.95% 8.70% 31%U.S. Chord Energy Corp. CHRD 5.19% 4.90% 7.49% 10%U.S. Range Resources Corp. RRC 5.01% 0.83% 6.63% 46%U.S. Cenovus Energy Inc. CA:CVE 4.93% 3.98% 8.45% 36%Canada Tenaris S.A. IT:TEN 4.74% 4.58% 8.94% 3%Luxembourg ConocoPhillips COP 4.67% 3.29% 9.00% 36%U.S. Magnolia Oil & Gas Corp. MGY 4.29% 2.50% 5.56% 21%U.S. Imperial Oil Ltd. CA:IMO 4.10% 2.58% 6.07% 17%Canada Source: FactSet
MW 20 oil stocks passing a quality screen as Investors wonder what Iran will do next
By Philip van Doorn
Nobody knows how badly the international oil market might be disrupted by Iran. But if you want to take advantage of the uncertainty, a screen encompassing debt levels and cash flow can limit your risk.
If you believe this is the right moment to purchase oil stocks, you can take a broad approach by owning baskets of companies through exchange-traded funds. But if you wish to invest in individual companies involved in oil production and distribution, you need to be more careful. You can begin your research by looking at data points that might help limit risk.
Following the U.S. bombing attacks against nuclear facilities in Iran, there was no way of knowing how much of an effort Iran's government might make to follow through on threats of closing the Strait of Hormuz or otherwise disrupting the flow of oil.
A daily average of 20.9 million barrels of oil flowed through the Strait of Hormuz in 2023, which was "the equivalent of about 20% of global petroleum liquids consumption," according to the U.S. Energy Information Administration.
Early Monday, West Texas Crude Oil for July delivery (CL.1) was up slightly to $74.12 a barrel.
One obvious way to make a broad play on U.S. oil and natural gas producers is to hold shares of the Energy Sector SPDR ETF XLE. This exchange-traded fund holds all 23 stocks in the energy sector of the S&P 500 SPX, weighted by market capitalization. That means that its largest two holdings - Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) - together make up 39% of the fund.
The S&P 500 itself is weighted by market cap, which means the SPDR S&P 500 ETF Trust SPY that tracks it is also a rather concentrated play, with its top three holdings - Microsoft Corp. $(MSFT.UK)$, Nvidia Corp. (NVDA) and Apple Inc. (AAPL) - making up a combined 20% of the portfolio.
The energy sector is still cheap
Here is a list of the 11 sectors of the S&P 500, sorted by forward price-to-earnings ratios, ascending. The full index is at the bottom of the list. These are weighted ratios of prices divided by consensus earnings-per-share estimates among analysts polled by FactSet. The table also shows total returns with dividends reinvested through Friday for 2025 and from the end of 2021 to incorporate the pattern of an 18% decline for the S&P 500 in 2022, followed by the bull market of 2023 and 2024.
Sector or index Forward P/E 2025 return through June 20 Return since end of 2021
Energy 15.7 5.1% 81.6%
Healthcare 16.2 -3.2% -0.6%
Financials 16.3 4.7% 37.1%
Utilities 17.7 7.5% 25.2%
Real Estate 17.9 3.5% -9.6%
Communication Services 18.9 4.3% 36.9%
Materials 20.0 3.5% 2.2%
Consumer Staples 22.7 5.5% 21.1%
Industrials 23.5 8.5% 42.3%
Information Technology 27.8 2.2% 58.3%
Consumer Discretionary 28.0 -7.1% 8.4%
S&P 500 21.4 2.1% 32.0%
Source: FactSet
The S&P 500 energy sector has the lowest forward P/E of the 11 sectors. This chart showing front-month WTI prices over the past 15 years can help explain why many investors have difficulty trusting the sector:
Leaving aside the brief and brutal disruption during the early phase of the COVID-19 pandemic, when front-month WTI prices dropped to zero because of a collapse in demand, the most significant event illustrated in the chart is the long decline that began in July 2014. The U.S. had become the world's largest oil producer. In hindsight, it was due to overproduction caused an imbalance that led to bankruptcies and mergers among less-robust domestic producers.
For many years, comments from U.S. oil executives during earnings conference calls have focused on careful production expansion, capital efficiency and rewarding shareholders with dividends and stock repurchases. The latter can lower share counts to boost earnings (and cash flow) per share.
Read: 20 companies in the S&P 500 whose investors have gained the greatest rewards from stock buybacks
An oil stock screen
This screen might he.p you begin your research into individual energy stocks.
Rather than simply screening the 23 companies in the S&P 500 energy sector, we expanded the list by beginning with the holdings of two broader ETFS.
-- The SPDR S&P Oil & Gas Exploration & Production ETF XOP holds 52 stocks of U.S. companies in the S&P Total Market Index that are in the "Oil, Gas and Consumable Fuels" Global Industrial Classification Standard (GICS) group. All the holdings are assigned equal weightings when the fund is rebalanced quarterly.
-- The iShares Global Energy ETF IXC tracks the S&P Global 1200 Energy Capped Index. It holds 52 stocks with a modified weighting that essentially limits individual holdings to 22.5% of the fund. Together, Exxon and Chevron make up 27.4% of the portfolio. Rounding out the top five holdings are Shell PLC UK:SHEL, TotalEnergies SE FR:TTE and ConocoPhillips COP. These five companies together make up 44.7% of the IXC portfolio.
Together, XOP and IXC hold 89 stocks of companies based in 16 countries.
Screening oil stocks for quality
A company's free cash flow is its remaining cash flow after capital expenditures. This money can be used to fund expansion, acquisitions, dividends, stock buybacks or other corporate purposes.
If we divide the consensus estimate of a company's free cash flow per share for the next 12 months by its share price, we have its estimated free-cash-flow yield. This can be compared with its dividend yield to see if there appears to be "headroom" for excess cash to be deployed through higher dividends, share buybacks or other actions that would hopefully be good for shareholders.
Starting with our list of 89 companies held by XOP and/or IXC, we narrowed the list to 74 for which estimates or ratings were available from at least nine analysts working for brokerage or research firms polled by FactSet.
Among the remaining 74 companies, estimated forward FCF yields were available for 66 companies.
Getting back to the industry focus on capital efficiency, we narrowed the list further by looking at ratios of long-term debt to equity. For XOP, the weighted debt-to-equity ratio is 62%, according to FactSet. For IXC, the debt/equity ratio is 55%. Among the largest oil companies, debt/equity ratios are low.
So we pared the remaining list of 66 companies further by excluding any for which the debt-to-equity ratio was higher than 70%. This reduced the list to 41 companies. These 20 have the highest FCF headroom indicated by the estimates:
Company Ticker Estimated FCF headroom Dividend yield Estimated FCF yield Debt/ equityCountry Inpex Corp. JP:1605 12.29% 4.24% 13.16% 24%Japan SM Energy Co. SM 10.61% 2.90% 11.12% 62%U.S. Devon Energy Corp. DVN 9.35% 2.80% 12.42% 62%U.S. Ovintiv Inc. OVV 9.20% 2.89% 11.20% 67%U.S. Matador Resources Co. MTDR 7.99% 2.43% 10.09% 60%U.S. Diamondback Energy Inc. FANG 7.72% 2.69% 10.44% 36%U.S. PetroChina Co. Ltd. HK:857 7.09% 7.65% 12.95% 23%China Antero Resources Corp. AR 6.73% 0.00% 7.70% 53%U.S. Shell PLC UK:SHEL 6.44% 3.91% 10.91% 43%U.K. Permian Resources Corp. PR 6.14% 4.07% 8.74% 44%U.S. Baker Hughes Co. BKR 5.79% 2.36% 8.41% 35%U.S. Coterra Energy Inc. CTRA 5.67% 3.19% 8.44% 32%U.S. Viper Energy Inc. VNOM 5.23% 2.95% 8.70% 31%U.S. Chord Energy Corp. CHRD 5.19% 4.90% 7.49% 10%U.S. Range Resources Corp. RRC 5.01% 0.83% 6.63% 46%U.S. Cenovus Energy Inc. CA:CVE 4.93% 3.98% 8.45% 36%Canada Tenaris S.A. IT:TEN 4.74% 4.58% 8.94% 3%Luxembourg ConocoPhillips COP 4.67% 3.29% 9.00% 36%U.S. Magnolia Oil & Gas Corp. MGY 4.29% 2.50% 5.56% 21%U.S. Imperial Oil Ltd. CA:IMO 4.10% 2.58% 6.07% 17%Canada Source: FactSet
(MORE TO FOLLOW) Dow Jones Newswires
June 23, 2025 11:05 ET (15:05 GMT)
MW 20 oil stocks passing a quality screen as -2-
Dividend yields are based on trailing payouts. Some energy companies pay variable dividends each quarter, so if you are considering individual stocks and counting on dividend income, look back and see how recent payouts have been made.
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-Philip van Doorn
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June 23, 2025 11:05 ET (15:05 GMT)
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