Energy stocks have been relative laggards since the current bull market began in October 2022, but the sector’s story depends entirely on your timeframe. While energy has underperformed tech and other growth sectors recently, it still outperforms the S&P 500 by 34% since the start of 2022—a reminder that sector rotation often rewards patient investors.
More importantly, the energy sector has undergone a fundamental cultural transformation. After decades of chasing production growth at all costs, management teams now focus on capital discipline, free cash flow generation, and returning money to shareholders through dividends and buybacks. This behavioral shift makes energy stocks more investible than they’ve been in years.
With oil prices remaining relatively stable and balance sheets healthier than ever, several energy names are showing compelling technical setups for those willing to look beyond the recent underperformance.
Valero Energy Corporation (VLO)
Valero stands out as the clear leader among refining stocks. The company has already broken through key resistance levels and established a strong uptrend that separates it from sector peers struggling with sideways price action.
The stock found meaningful support at $136 earlier this year—a level that previously acted as significant resistance before becoming a launching pad for the current rally. This technical transformation from resistance to support suggests institutional buyers have stepped in at these levels.
Valero benefits from several structural advantages. The company operates one of the most sophisticated refining systems in North America, with facilities positioned to process cheaper heavy crude oils into higher-value refined products. This operational flexibility becomes particularly valuable during periods of crude price volatility.
The refining business model offers natural hedges against energy price swings. When crude prices fall, Valero’s input costs decrease faster than refined product prices, expanding margins. This dynamic has supported consistent cash generation even during challenging industry conditions.
Management has embraced the sector’s new capital discipline philosophy, prioritizing shareholder returns over growth capital expenditures. The company maintains a strong balance sheet while returning significant cash through dividends and share repurchases.
Marathon Petroleum Corporation (MPC)
Marathon Petroleum represents another refining success story with even stronger technical momentum than Valero. The stock shows no meaningful selling pressure, with the 200-day moving average beginning to turn upward—a bullish technical development that often precedes sustained rallies.
Marathon’s business model combines refining operations with midstream assets and a retail network spanning thousands of gas stations. This integration provides multiple revenue streams and helps stabilize cash flows across energy price cycles.
The company has consistently generated substantial free cash flow, enabling aggressive shareholder return programs. Marathon’s capital allocation strategy emphasizes buybacks and dividends over growth spending, aligning with investor preferences for cash returns rather than production increases.
Recent operational improvements have enhanced Marathon’s competitive position. The company completed major refinery upgrades that increased efficiency and expanded processing capacity for discounted crude oils. These improvements should support margin expansion as refined product demand recovers.
The technical picture remains constructive as long as the stock holds above its 200-day moving average. This level provides a clear risk management point for investors looking to participate in the refining recovery.
Baker Hughes Company (BKR)
Baker Hughes offers exposure to the energy services sector, which tends to leverage recovery in drilling activity and capital spending by oil and gas producers. The stock recently completed a “golden cross” pattern, with its 50-day moving average breaking above the 200-day—a technical signal that often marks the beginning of sustained uptrends.
The company provides technology and services essential for oil and gas exploration and production worldwide. Baker Hughes’ international exposure provides geographic diversification beyond North American shale activity, which can be particularly volatile.
The oilfield services industry operates with significant operating leverage. When drilling activity increases, service companies can generate substantial incremental profits from their existing infrastructure and workforce. Baker Hughes is positioned to benefit disproportionately from any increase in industry capital spending.
The stock faces a key technical test around $50, where it encountered resistance earlier this year. A decisive break above this level on strong volume could trigger acceleration toward higher targets. The August lows around $42 provide a logical stop-loss level for risk management.
Baker Hughes has maintained stronger balance sheet discipline than many oilfield services peers, avoiding the excessive debt burdens that plagued the sector during previous downturns. This financial strength positions the company to gain market share as weaker competitors struggle.
Phillips 66 (PSX)
Phillips 66 operates across multiple energy segments, including refining, chemicals, midstream, and marketing. While the stock lacks the clean uptrend of Valero and Marathon, it offers value potential for investors betting on sector rotation.
The company’s diversified business model provides more stability than pure-play refiners, though this diversification can also limit upside during strong refining cycles. Phillips 66’s chemical operations and pipeline assets generate steadier cash flows that complement the more cyclical refining business.
Management has been particularly aggressive with shareholder returns, maintaining substantial dividend payments while executing large share buyback programs. The company’s capital allocation strategy reflects confidence in long-term cash generation capabilities.
The stock has established support around $120, a level that held during summer weakness. Any breakdown below this level would suggest underlying business challenges, making it a logical exit point for risk-conscious investors.
Phillips 66’s midstream assets, including pipelines and storage facilities, provide strategic advantages that become more valuable as North American energy production continues growing. These infrastructure assets generate fee-based income that’s less sensitive to commodity price volatility.
Chevron Corporation (CVX)
Chevron represents the most conservative energy play among these selections, offering dividend reliability and balance sheet strength that appeals to income-focused investors. However, the stock’s recent technical performance has been disappointing despite the company’s fundamental strengths.
The integrated oil model combines upstream production, downstream refining, and chemical operations across global markets. This diversification provides natural hedges against commodity price cycles while generating cash flows from multiple business segments.
Chevron’s dividend yield exceeds 3%, backed by one of the industry’s strongest balance sheets. The company has maintained dividend payments through multiple energy downturns, establishing credibility with income investors seeking reliable cash flows.
The stock’s massive buyback program continues reducing share count, which should boost per-share metrics even with modest business growth. As analyst Josh Brown notes, “I looked at the dividend and buyback — both are massive.”
Chevron faces the challenge of proving its stock can participate in any energy sector recovery. While the dividend and buyback provide downside protection, the stock needs to establish a clearer uptrend to attract momentum investors.
The Energy Investment Thesis
These five energy stocks represent different approaches to participating in the sector’s potential recovery. Refiners like Valero and Marathon offer the cleanest technical setups with strong operational leverage to margin expansion. Baker Hughes provides services exposure with international diversification. Phillips 66 and Chevron offer more conservative approaches with diversified business models and strong shareholder return programs.
The sector’s cultural shift toward capital discipline creates a more attractive investment environment than energy’s previous boom-bust cycles. Management teams focused on cash flow generation and shareholder returns should produce better investment outcomes than the growth-at-any-cost strategies that historically destroyed value.
Energy’s recent underperformance has compressed valuations while improving risk-reward profiles. For investors willing to look beyond recent performance, these stocks offer exposure to essential industries with improved capital allocation and stronger balance sheets than previous energy cycles.
