Energy Trio from Kiplinger's

04/02/2015 9:00 am EST

Focus: STOCKS

Buying energy stocks might feel like stepping in front of a Mack truck these days. Yet, with the sector deep in bear-market territory, share prices may already reflect much of the bad news, suggests Daren Fonda in Kiplinger's Personal Finance.

For one thing, oil prices may have already bottomed. Kiplinger's forecasts that oil will recover to $70 a barrel this spring. If we’re right, energy stocks are likely to post sharp gains.

But even with oil in the $50 range, well-managed companies can make money. That’s certainly true of Chevron (CVX).

Although the behemoth’s earnings plunged 30% in the fourth quarter to $3.5 billion, its refining operations saw profit growth, offsetting weakness in the production side of the business.

The company is spending billions each year to replace depleted wells and says it’s on track to boost oil-and-gas production by 21% by 2017. Chevron recently cut its capital budget and suspended share buybacks, but it has made protection of its $1.07-per-share quarterly dividend a priority.

A stock with more potential (and more risk) is Chesapeake Energy (CHK). Under former CEO Aubrey McClendon, the company acquired vast acreage throughout US shale basins.

Faced with a debt-laden balance sheet, current CEO Doug Lawler sold $5 billion worth of assets last year to shore up the firm’s finances and he’s now focusing on improving profitability and buying back shares, says UBS analyst William Featherston, who recommends the stock.

Helmerich & Payne (HP), an energy-services stock, has tumbled more than 30% in the past six months. The firm mostly provides rigs to land-based oil and gas producers.

Helmerich & Payne expects drilling activity and US day rates for its rigs to decline sharply. Yet Helmerich, the largest US land driller, is likely to dig out of this hole and emerge stronger.

The firm used the last downturn in oil prices to bolster market share from 9% in October 2008 to 16% at the end of 2014.

Its land rigs are more profitable (on a daily operating basis) than those of major rivals and its fleet is considered one of the most advanced and efficient.

On top of that, the stock yields a robust 4%. The company boasts a strong balance sheet and has ample cash to support the dividend.

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