Even with the stock market indices surging to all-time highs this year, some stocks kept falling and are sitting near their 52-week lows now. While our instincts may urge us to stay away from such stocks, it could turn out to be a big mistake: When stocks of quality businesses go out of favor over macro factors and fears, it's a buying opportunity you wouldn't want to miss. Here are two such magnificent stocks that are near their 52-week lows now and are screaming buys.
A top-notch dividend stock
The oil and gas sector offers some of the best stocks to invest in, and there's no better time to load up on top stocks when they're hitting lows on oil price drops and market fears. Chevron(NYSE: CVX) is one such magnificent stock you'd want to buy right away. The oil stock has fallen more than 15% in one year, recently hit a 52-week low, and is now barely 5% off that low.
Chevron's biggest strengths are its balance sheet and financial flexibility. They have helped the oil and gas giant navigate some of the biggest economic storms over several decades and emerge stronger each time. Evidence of how skilfully Chevron balanced its debt levels, growth investments, dividends, and share buybacks over the decades lies in its dividend track record. Chevron has increased its dividend for 37 consecutive years despite the volatile nature of the oil industry.
Chevron is now all set for the next phase of growth. Chevron's impending all-stock acquisition of Hess for $53 billion, or $60 billion including debt, had run into regulatory hurdles but could soon get a green light.
With Hess, Chevron's free cash flow (FCF) could double by 2027. Even otherwise, Chevron expects its FCF to grow at an average annual rate of 10% through 2027 largely driven by its organic development pipeline. That should leave a lot of room for dividend growth as well, which is one of the many reasons Chevron is such a great stock to buy near 52-week lows. The oil stock currently yields 4.6%.
Expect big dividends from this stock when oil prices recover
Another oil and gas stock that just hit its 52-week low is Devon Energy(NYSE: DVN), and there are solid reasons to buy the stock at current prices.
Although shares of oil and gas producers typically fall with oil prices, there's another reason why Devon Energy stock has fallen out of favor – its dividends too have fallen alongside crude oil prices. That's because aside from a fixed dividend, Devon also pays a variable dividend of up to 50% of the excess free cash flow (FCF) it generates during a quarter. So when oil prices fall, Devon's cash flows and quarterly dividend payout drop.
However, that also means its dividends could zoom and its stock price could rise when oil prices do, and that's one of the biggest reasons why Devon Energy is such a great stock to buy now near 52-week lows. The stock yields 5.3%.
Devon Energy's key asset Delaware Basin, which accounted for 65% of its total volumes in the second quarter, has a low break-even level of only around $40 per barrel of West Texas Intermediate crude oil. To top that. Devon expects accretive cash flows from the recently acquired Grayson Mill in Williston Basin acquisition to boost its dividend payout in 2025.
In between, Devon's oil production hit a record high in the second quarter, encouraging management to raise its full-year production outlook for the second time this year. Thanks to higher production and Grayson acquisition, Devon also expanded its share repurchase program significantly by 67% to $5 billion through mid-2026. That indicates Devon's management believes its shares are cheap -- and they are.
Should you invest $1,000 in Chevron right now?
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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.
