Is now the time to buy oil stocks?

They have been the best-performing stocks for the past year, but over the past decade they've been the worst.

| More on:
Oil rig worker standing with a clipboard.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

There's no question the $4 trillion energy sector has been home to the best-performing stocks on the market recently.

Over the past year, energy stocks have gained 72% on average while the next closest sector, utilities, rose less than 15%. In comparison, the broad market S&P 500 Index (SP: .INX) index lost 1%, and that started long before Russia invaded Ukraine.

It hasn't been much different in 2022 either, with the oil and gas stocks, in particular, leading the way. Energy is again on top with a 58% gain as utilities again ranked second with a less than 5% increase in value.

Yet over longer periods, the high cost of exploration and resource exploitation has made the energy sector a lagging sector for investors.

Technology stocks were the market darlings only until recently and over the past decade energy stocks ranked dead last with simple double-digit increases when virtually every other sector was sporting triple-digit gains. 

Oil and gas stocks are the stars these days, but is now the time to buy them?

Beating up on big oil

President Joe Biden recently said he hoped Americans could come out of the current energy crisis less dependent on fossil fuels. Alternative energy sources are already a rising component of the world's energy consumption, about 30% of the total, and that number is continuously growing.

Where the energy sector accounted for 29% of the stocks weighted in the S&P 500 in 1980, today they represent just 3.7%. Back then, seven of the top 10 stocks in the popular index were oil and gas stocks, led by ExxonMobil (NYSE: XOM); today there are none. 

And in a sign of how the world is further changing, Exxon was booted out of the Dow Jones Industrial Average in 2020 -- a spot it has held for nearly 100 years -- leaving only Chevron (NYSE: CVX) to represent the industry. Oil and gas stock investing isn't what it used to be.

Oil, oil everywhere

Yet that doesn't mean you shouldn't invest in the energy sector. It is simply too ingrained in the global economy to disappear.

For example, the U.S. Energy Information Association forecasts global "conventional" light-duty vehicles will nearly double from 1.31 billion in 2020 to 2.21 billion at their peak in 2038, but that will still far outstrip electric vehicle usage.

General Motors (NYSE: GM) has said it wants to produce only electric vehicles (EVs) by 2035 while Ford Motor Company (NYSE: F) is shooting for 40% of its fleet.

Tesla (NASDAQ: TSLA), in contrast, says it wants to sell 20 million EVs by 2027. However, the EIA predicts EV usage will grow from just 0.7% of the global LDV fleet to 31% in 2050, or just 672 million vehicles. Not an insignificant number, but still trailing gas-powered vehicles.

Petroleum products account for about 90% of all energy usage in the U.S. transportation sector, with gasoline accounting for 56% of the total.

Distillates, primarily diesel fuels, accounts for another 24%, and jet fuel, 9%. And jet fuel usage is growing rapidly with the EIA expecting consumption to increase at a faster rate than any other liquid transportation fuel through 2050.

And fossil fuels are in almost every product consumers use today, with petroleum appearing in everything from cosmetics and personal care products, to everyday items such as smartphones, computers, TVs, shoes, sporting goods, flooring, furniture, and medical supplies.

Grand View Research estimates the global petrochemicals market size was valued at $556.1 billion in 2021 will grow at a 6.2% compound annual rate through 2030, driven primarily by construction, pharmaceuticals, and automotive needs, as well as our industrial economy.

And though petroleum itself is not as important of a component for plastics manufacturing, natural gas and natural gas processing is. 

Still a gusher of an opportunity

The chances that alternative energy replaces fossil fuels for the foreseeable future are incredibly low. That's why I think the energy sector generally, and oil stocks in particular, are great buys, even today at their elevated levels.

Fossil fuels will be around for a long, long time meaning investors are to look very closely at some of the best energy stocks in the space as a long-term growth investment.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Rich Duprey has positions in Chevron and ExxonMobil. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

AI written in blue on a digital chip.
International Stock News

Warren Buffett has 23% of Berkshire Hathaway's portfolio invested in 2 AI stocks up 600% and 900% in the last decade

Here's what investors should know about these two stocks.

Read more »

Happy woman working on a laptop.
International Stock News

Want to invest in quantum computing? 3 stocks that are great buys right now.

They all give investors direct exposure to quantum computing, but aren't the all-or-nothing bets that some investors may regret going…

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
International Stock News

Billionaire Dan Loeb just sold Meta and Tesla stocks and piled into this hot AI stock up 1,500% over the past 5 years

Let's see what investors are thinking about these stocks today.

Read more »

A head shot of legendary investor Warren Buffett speaking into a microphone at an event.
International Stock News

Warren Buffett just spent $1.8 billion on 7 stocks. Here's the best of the bunch

Buffett's relatively small investments could be big opportunities for individual investors.

Read more »

Woman and man calculating a dividend yield.
International Stock News

This monster streaming stock has quietly crushed Netflix in 2025. Could a stock split be on the horizon?

Streaming stocks have crushed the market this year, and one name in particular has blown Netflix out of the water.

Read more »

Amazon boxes stacked up on a doorstep.
International Stock News

Why Amazon stock still looks like a long-term winner

Now might be a great time to add this dominant enterprise to your portfolio.

Read more »

A woman wearing a black and white striped t-shirt looks to the sky with her hand to her chin contemplating buying ASX shares today as the market rebounds
International Stock News

Is Google the cheapest "Magnificent Seven" stock you can buy today?

Let's take a look.

Read more »

A corporate team or board stands together and looks out the window.
International Stock News

Magnificent Seven shares set for a comeback: expert

The US Mag 7 stocks appear to have lost some of their lustre with investors. But perhaps not for long.

Read more »