2 Top Oil Stocks to Buy as Crude Falls to $70 a Barrel

Oil prices have fallen in recent months. West Texas Intermediate, the main US oil price benchmark, was recent around $70 per barrel. It is well below its peak of more than $85 a barrel several months ago on healthy supplies amid demand concerns from a potential global economic slowdown.

While the drop in oil prices will hurt oil companies’ profits, several producers are well equipped to cope with lower prices. Chevron (CVX -1.38%) and Devon Energy (DVN -4.85%) they are notable for their ability to thrive at lower oil prices. That’s what makes them great oil stocks to buy in the current environment.

Built to work at lower oil prices

Chevron has built an advantageous global portfolio of resources. This allows it to earn a high profit margin and return on its investments, meaning it can continue to thrive at lower oil prices.

The integrated global energy giant tested its portfolio for much lower oil prices. A downside scenario assumes a fixed oil price of $50 from 2025 to 2027. In this case, Chevron would generate enough cash flow from operations to cover its growing dividend and planned capital expenditures to grow its production at an annual rate of 3%. In the meantime, he can use his heavily cash rich balance sheet to buy back shares at the low end of $10-20 billion annual target range. It is enough to withdraw about 3% of it outstanding shares every year.

Meanwhile, the company’s positive scenario assumes a fixed oil price of $70 between 2025 and 2027. In this environment, Chevron could buy back shares at the upper end of the target range, enough to retire 6% of its outstanding shares each year. That price would also be enough to grow its free cash flow by more than 10% annually.

Chevron works to increase further its ability to thrive on lower oil prices through acquisition Hess. While arguing with ExxonMobil deferred this transaction, it would significantly enhance and expand Chevron’s production and free cash flow growth profile. At $70 oil, adding Hess would help more than double Chevron’s free cash flow by 2027.

With its stock down by double digits over the past year due to low oil prices and the delay in the Hess dealChevron looks like a bargain. Its particularly attractive for income-seeking investors, given the dividend yield of nearly 4.5%.

Cheap dirt and do something about it

Devon Energy has built a premier oil and gas business in multiple US basins. Its growing scale has reduced costs and increased its profitability. The company’s current funding level is $40 per barrel.

That means Devon can generate significant free cash flow at $70 a barrel. The free cash flow yield at that price point is about 9%. This is more than double the free cash flow yield of S&P 500 and triple that of Nasdaqwhich means Devon shares are very cheap.

Devon is working to improve its scale and profitability by acquiring Grayson Mill Energy to strengthen its position in the Williston Basin. The acquisition adds high-margin production, enhanced by average infrastructure in the region. The highly profitable acquisition will further increase Devon’s free cash flow, even at lower oil prices.

Despite its ability to print cash at $70 oil, Devon shares are down nearly 25% from their peak earlier this year. That causes the company to buy back more shares. It recently increased its share buyback authorization by 67% to $5 billion, which it expects to complete by mid-2026.

$70 oil is a lot of fuel for these oil stocks

Oil prices have fallen this year, which will reduce the cash flows produced by oil companies. However, Chevron and Devon Energy have such cheap operations that they can generate plenty of cash at $70 crude to thrive. In addition, they improve their ability to produce cash at lower crude oil prices by making increased purchases. They look like great oil stocks to buy in the current environment. It should also continue to produce solid returns while providing ample upside if oil prices rebound.