Oil Stocks Are Surging. Here Are 2 to Buy and Hold for Decades.

Core Viewpoint - The recent attacks on Iran have led to a rise in oil prices, highlighting the importance of oil stocks in a diversified portfolio, with companies like Devon Energy and Diamondback Energy being considered excellent value stocks for North American oil production exposure [1][2]. Group 1: Oil Price Dynamics - Oil prices have increased from around $57 per barrel at the beginning of the year to approximately $88 currently, making it challenging to predict future price movements due to geopolitical tensions [2]. - Protecting against prolonged high oil prices is sensible, especially since both companies have adapted their strategies to remain profitable even if oil prices drop to $50 per barrel [4]. Group 2: Company Strategies - Diamondback Energy focuses on low-cost production in the U.S. and has a disciplined capital allocation strategy, which includes improving drilling rig productivity and developing secondary assets rather than pursuing acquisitions [7][8]. - The disciplined approach allows Diamondback to generate sufficient cash flows to support a base dividend of $4.20 per share, yielding 2.2%, while also utilizing hedging strategies to mitigate downside risks [8]. Group 3: Devon Energy's Growth - Devon Energy's merger with Coterra Energy is expected to create significant synergies, nearly doubling its acreage in the Delaware Basin and resulting in a break-even price of less than $40 per barrel for the combined company [10][11]. - The new Devon Energy will have most of its inventory with a break-even price below $50 per barrel, enhancing its financial stability [11]. Group 4: Investment Appeal - Both Diamondback and Devon Energy are trading at low price-to-free cash flow multiples, making them attractive investment options [12]. - The combination of favorable valuations, low break-even prices, and potential for high oil prices makes these stocks compelling for investors seeking energy sector exposure [14].