Energy stocks have been more risky than ever lately, as plunging oil prices have threatened the survival of many smaller companies. Investors want to see stocks that can make it through the tough times and even thrive on the misfortunes of others to give their long-term shareholders big returns over the long haul.
To give you some good long-term buy-and-hold candidates, we turned to three Motley Fool energy analysts to put on their research hats and come up with their best ideas. Take a look at the three stocks they chose, and see which of them you think has the best prospects going forward.
Oil producers will continue to see their business results swing with the "boom-and-bust" cycle of oil prices, which can be a real impediment for successful long-term investing in that segment. While there are some solid producers -- and integrated majors like ExxonMobil have a lot of stability because of their participation in so many parts of the oil value chain -- I really like how Phillips 66 management is focused on building the company to benefit from demand, and be less affected by prices.
Today, the refining and marketing segments produce well more than half of profits, and by all accounts will remain strong for years to come. But the future of the business will be in no small part tied to its petrochemical and midstream segments, which could combine to surpass the refining/marketing business in earnings power in the next few years.
Even better, the demand for those pipelines will be measured in decade-long contracts that will lead to huge and dependable cash flows. The petrochem business will also see strong demand, as its products are used in almost everything you can imagine, from tires to tablets to trousers.
Factor in a plan to regularly return about half of free cash to shareholders every year in dividends and buybacks, and you've got a stock that's worth committing to.
Tyler Crowe: It seems that nowadays we have enough oil coming out of the ground that we barely know what to do with it anymore. If we take a step back, though, there are some major trends going on in the world of oil production:
Offshore drilling -- especially in extremely deep waters -- is becoming a much larger component of the global production mix.
Shale, tight, and other unconventional methods of drilling are still in their nascent stages just about everywhere outside the U.S.
Conventional sources that require minimal effort to access are becoming fewer and fewer.
What this ultimately translates to is that the equipment we will need to access oil for the next 20 years will need to almost completely transform from what we use today, and there is no better company suited to supply the world with the next generation of drilling technology than National Oilwell Varco (NYSE:NOV). Thanks to National Oilwell Varco's standardized approach to parts and equipment, it pretty much ensures a customer for more than 20 years every time that it sells a new rig. And thanks to its integrated model of supplying everything from the disposable drill bit to the entire suite of equipment on a deepwater rig, it has been able to capture more than 60% of the offshore rig market.
National Oilwell Varco has a massive customer base that will be buying parts from the company for decades to come. There's also a growing demand for the advanced equipment that will be needed to fuel the future of the oil industry. As a result, there are few companies out there better suited to handle the next several decades than National Oilwell Varco.
Dan Caplinger: The drop in oil prices hasn't just hurt the companies that explore for and produce energy; it has also crushed oil-services companies like Schlumberger (NYSE:SLB), which have had to deal with their oil-company customers cutting back on demand for the supplies and services they provide. For Schlumberger, which is the world's biggest oil-services company, oil's drop will have huge ramifications this year, with shareholders expecting a massive 16% drop in revenue from 2014 levels that could lop off almost 40% from last year's profit figures.
In the long run, though, Schlumberger's global reach gives it some substantial advantages over many of its peers. Even as the U.S. economy has soared on the back of unconventional energy finds, other areas of the world have only begun to tap into the natural gas and oil reserves from shale plays and similar formations.
Lower energy prices might slow the pace of developing those resources, but given a long enough time horizon, investors can count on oil and gas companies taking advantage of energy assets around the world. Schlumberger will be ready to provide the materials and services support they'll need to produce efficiently and effectively.
Schlumberger shares have already taken a bigger hit than big-picture energy market trends warrant. If they fall further during 2015's inevitable poor results, long-term investors should see it as a huge opportunity to buy in for the decades to come.
Dan Caplinger has no position in any stocks mentioned. Jason Hall owns shares of Phillips 66. Tyler Crowe owns shares of National Oilwell Varco. The Motley Fool recommends National Oilwell Varco. The Motley Fool owns shares of National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.