Energy stocks are often wickedly volatile, especially now with all the uncertainty about the economy. Still, long-term returns may be enormous for those with enough patience to ride out the rough patches.
A fine example of this is the stock of oil giant Chevron Corp. (NYSE: CVX). Despite short-term volatility, the stock has done beautifully, posting annual returns of 16.7% during the past three years, 12.1% during the past five years and 10.3% during the past 10 years. One of my favorite energy stocks, Range Resources Corp. (NYSE: RRC), sports annual returns of 29.4% during the past three years, 23.4% during the past five years and 38.6% in the past 10 years, even though shares of the Texas-based natural gas producer have been known to fluctuate wildly.
Because of their long run-ups, Chevron and Range Resources are trading close to multi-year highs. I think they are unlikely to deliver above-average returns for several years, perhaps longer, based on current prices. (Because of this, I recently sold half my position in Range Resources to lock in some gains.) Plenty of other intriguing buying opportunities exist in the energy sector, though. One mid-cap stock I have my eye on particularly stands out.
The company is Murphy Oil Corp. (NYSE: MUR), an integrated oil company that, like Chevron and Range Resources, has done very nicely over the long haul. The stock has delivered yearly returns of 11.1% during the past 10 years, and 13.6% during the past 15 years. Yet less impressive are the three and five-year returns of 6.1% and 1.8%. The stock has been subjected to periodic selloffs recently, which have hit most mid-caps, including this one, very hard. As usually occurs in uncertain times, many investors have stampeded out of mid-cap stocks and other assets they consider risky and put their money into things they see as safer. But instead of seeing this as a negative, I see this as an opportunity for long-term investors.
In the process of panic selling, investors have dumped shares of perfectly good smaller companies like Murphy Oil, which has seen its stock drop more than 20% in the past three months and nearly 30% year-to-date.