Three Smart Oil Stocks to Buy in 2025

Energy stocks experienced a challenging year in 2024. The Energy Select Sector SPDR Fund, which comprises energy stocks listed in the S&P 500, achieved a modest return of just 2%, significantly lagging behind the S&P 500’s impressive 23% return. The sluggish performance of oil stocks over the past year can be attributed to relatively stable oil prices, which, despite an initial rally, ultimately ended the year nearly where they started. However, as investors look toward the future, 2025 may present a more favorable landscape for oil stocks. Three companies, in particular—Devon Energy, ConocoPhillips, and Chevron—are poised for potential growth this coming year. Below, we break down why these stocks stand out as smart investment choices for 2025.

Devon Energy: A Strong Play on Oil and Natural Gas

Devon Energy (NYSE: DVN) is one of the largest independent oil and natural gas producers in the United States, emphasizing both commodities with a well-balanced portfolio. The company boasts a production split of approximately 50% oil and 50% natural gas and natural gas liquids. Its low break-even point of around $40 per barrel of oil positions it favorably in a market that could see rising energy prices in 2025.

Additionally, Devon maintains an impressive inventory that will sustain drilling operations for a decade. The company’s recent acquisition of production assets in the Williston Basin strengthens its already robust portfolio. While the company may endure some headwinds if prices fall, its upside potential makes it an attractive option for investors betting on a rebound in energy markets. Moreover, as an independent producer, Devon is effectively leveraged to benefit from an increase in energy prices. Should oil markets recover, Devon’s financial metrics are likely to improve significantly, potentially leading to substantial stock appreciation.

ConocoPhillips: An Acquisition-Driven Growth Strategy

ConocoPhillips (NYSE: COP) recently completed its acquisition of Marathon Oil, a strategic move that is expected to significantly enhance its operational capacity. This transaction adds approximately 2 billion barrels of low-cost resources in the lower 48 states, with an average supply cost of under $30 per barrel. Notably, this acquisition is projected to be immediately accretive to earnings and cash flow, thereby boosting returns to shareholders.

The company anticipates capturing over $1 billion in synergies within the first year, a substantial increase from initial estimates. This acquisition is expected to generate considerable free cash flow starting in 2025, which could empower ConocoPhillips to deliver meaningful capital returns to investors, including a recent 34% dividend increase. The company further expanded its share repurchase authorization by as much as $20 billion, intending to ramp up its buyback activities from $5 billion to $7 billion annually in the upcoming year. ConocoPhillips’s robust cash flow, coupled with its strategy to return capital to shareholders, positions it as an appealing option in the oil market.

Chevron: Strong Fundamentals with Growth Potential

Chevron (NYSE: CVX) closed 2024 on a less favorable note, but its current trajectory suggests that investing in this oil and gas giant may still yield positive returns. Chevron is leveraging its robust financial position to expand its portfolio while generating steady cash flow. With plans to allocate nearly $13 billion to its upstream business this year, Chevron’s investments include key areas such as the Permian Basin, the Gulf of Mexico, and the DJ Basin where deepwater projects are on the horizon.

The company is poised for production increases, projecting almost a 50% boost in Gulf of Mexico output by 2026. Additionally, Chevron is on track to finalize its $52 billion all-stock acquisition of Hess, having recently received necessary regulatory clearances. Chevron expects to achieve significant compound annual growth in production and free cash flow, with an impressive forecast of over 10% annual growth through 2027. Notably, Chevron’s commitment to dividend growth—having raised dividends for 37 consecutive years—combined with a current yield of 4.4%, solidifies its standing as a solid investment for the long term.

Conclusion: A Promising Outlook for Oil Investments

Despite a lackluster performance in 2024, 2025 presents a fresh opportunity for investors in the oil sector. Companies like Devon Energy, ConocoPhillips, and Chevron feature strong operational foundations, strategic growth plans, and a commitment to shareholder returns. By diversifying portfolios with these three smart oil stocks, investors are well-positioned to capitalize on potential rebounds in the energy market. Whether you are playing it safe with established leaders or taking a calculated risk on independent producers, the prospects for oil stocks may brighten as the industry navigates the new year ahead.