Since the supply shock of 2022, the energy sector has been driven by growth in oil refiners who have benefited from favorable spreads between the price of oil and its distillates. However, growth has not been limited to refiners, with explorers and producers, equipment and services gaining ground as well.

Geopolitical factors have played the most significant role, as they did in 2022. The threat of a broader conflict with Iran has increased with the inauguration of President Donald J. Trump. U.S. sanctions on Iranian oil exports can compound, driving up prices. Iran remains one of the top 10 global oil producers.

However, the biggest driver of growth in the sector might be Trump revoking bans on offshore oil and gas drilling in most U.S. coastal waters as he famously announced that America was going to “Drill, baby, Drill” in his inaugural speech. Trump’s moves are being looked at as nullifying executive orders made by President Biden, which includes revoking his recent decision to bar drilling rigs in around 625 million acres of coastal waters. The Trump administration expects that new offshore oil auctions will be a way to raise federal revenue.

Also, if Trump were to act on his warnings and raise tariffs by 25% on imports from Canada and Mexico — something that he has not yet officially signed but says that he expects to do by Feb. 1 — the pressure on Canadian crude prices will push oil prices up again.

Oil prices were little changed on Tuesday, falling 1 cent, or 0.01%, to close at $80.14/barrel, as investors took stock of Donald Trump's visions about boosting oil and gas production in the U.S. Brent crude. WTI crude slid 60 cents, or 0.8%, to $76.79/barrel. However, with the day being a public holiday, there were no settlements.

The Trump administration has withdrawn from the Paris Climate Accords, again. It will be safe to gauge that with “Drill, baby, Drill” being a policy direction, energy and oil in particular might be entering a phase of tremendous activity. It will be prudent to look into stocks that are currently well placed to invest into.

Our Choices

The stocks below flaunt a Zacks Rank #1 (Strong Buy) or Rank #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here, V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.

Berry Corporation BRY is an independent upstream energy company from the western United States. BRY’s expected earnings growth rate for the current year is 17.7%. The Zacks Consensus Estimate for its next-year earnings has improved 21.4% over the past 60 days. This Zacks Rank #2 company has a VGM Score of A.

CNX Resources Corporation CNX is an independent natural gas and midstream company. CNX’s expected earnings growth rate for the next year is 27.1%. The Zacks Consensus Estimate for its next-year earnings has improved 16% over the past 60 days. This Zacks Rank #2 company has a VGM Score of B.

EnLink Midstream, LLC ENLC is a midstream energy services company in the United States. ENLC’s expected earnings growth rate for the next year is 94.2%. The Zacks Consensus Estimate for its next-year earnings has improved 1.6% over the past 60 days. This Zacks Rank #2 company has a VGM Score of B.

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