Alpha Buying: Volatility Be Damned—These Energy Stocks Have a Plan

Energy markets are in a bit of flux at the moment.

Last week, the idea of $120 oil and continued disruption from the Middle East conflict was at the top of expert minds.

This week, we seem to be back to everlasting peace, bliss, everlasting cooperation, rainbows, unicorns, and prosperity for all.

Oil prices have begun falling again, and the same experts who warned of spikes last week now expect to see crude back into the upper 50s.

Here is what I know about crude oil. The market has had a failed rally and is now back below the 50-week moving average by a smidge (highly technical term). Cash prices are opening right at the 200 days moving average.

For now Crude is still in a bearish mode in spite of last week's volatility related to the Iranian difficulties

Hedging volume by US producers soared last week as prices rose. Even as they locked in higher prices for future delivery, many producers were also buying out of the money call options just in case things got a little dodgier in Iran.

Producers were hedging and speculating a bit on a sustained conflict, but there is another group who looked at the price of the energy-related businesses they operate recently and decided that no matter what happened in the Middle East, the price of their stock was just too low.

The High-Yield Play: Mach Natural Resources MACH

Sometimes the market serves up opportunities that seem almost too good to be true. Mach Natural Resources is one of those situations that demands a closer look, if only because of that eye-popping 15% plus distribution yield.

Mach operates in the Anadarko Basin, focusing on natural gas production across Western Oklahoma, Southern Kansas, and the Texas panhandle. This is not some wildcat exploration story. They are working proven reserves in established fields, which reduces the geological risk that plagues many energy ventures. The company went public in 2023, making it relatively new to the public markets but not new to the business of extracting hydrocarbons from the ground.

What immediately catches your attention is the ownership structure. William Wallace McMullen owns nearly 72% of the company, with Bayou City Energy Management controlling 66% overall. This level of insider ownership is unusual in public markets and suggests management has serious skin in the game. When McMullen dropped $4 million to buy another 280,400 shares this month, he was not making a token gesture.

The company has a variable dividend policy that over the last year has paid out over 18% in dividends. Yields that high usually signal either exceptional value or exceptional risk. In Mach’s case, analysts believe it is the former. Five analysts covering the stock have unanimous “Strong Buy” ratings with price targets averaging $24, suggesting 81% upside from current levels.

The company reported $0.61 in earnings per unit for the first quarter, slightly missing expectations but still generating substantial cash flow. Management projects $2.31 per unit in free cash flow for 2025, which provides reasonable coverage for the distribution at current commodity prices. The key phrase there is “current commodity prices.” Natural gas has been volatile, and Mach’s fortunes are tied directly to those price movements.

From a balance sheet perspective, Mach carries a debt-to-equity ratio of 0.64 with a current ratio of 1.24, indicating reasonable financial health. The return on equity of 24.33% reflects the leverage inherent in the business model, while the 14.53% return on invested capital suggests efficient managements.

The risk here is obvious: natural gas prices. If prices remain depressed, that distribution becomes unsustainable quickly. But with analysts projecting higher natural gas prices in 2025 and the company’s low-cost production profile, Mach appears positioned to benefit from any commodity recovery.

The Deep Value Turnaround: Amplify Energy AMPY

While Mach offers high current income, Amplify Energy presents a classic deep value opportunity with the potential for substantial capital appreciation. The stock has been beaten down significantly, trading near its 52-week low of $2.58 after reaching $8.15 earlier in the cycle. Sometimes the market’s pessimism creates opportunity.

Amplify operates across multiple regions, giving it geographic diversification that many smaller energy companies lack. Their assets span Oklahoma, the Rockies, federal waters offshore Southern California, East Texas, North Louisiana, and the Eagle Ford. The California offshore operation, known as the Beta field, represents significant potential upside but requires oil prices above $60 per barrel to justify development.

The first quarter results told an interesting story. While revenue of $72 million slightly missed expectations, earnings per share of $3.80 crushed analyst estimates of $0.21. This dramatic outperformance suggests the company’s operational improvements are gaining traction. Management has focused on cost reduction and cash flow improvement, with debt reduction being a primary goal.

What really gets my attention is the insider activity. In the past 30days, insiders have purchased 391,176 shares worth $1.31 million. Last week director Christopher Hamm bought 77,176 shares at $3.67, while COO Daniel Furbee added 10,000 shares at $2.97 at the end of May. When management is backing up their optimism with personal capital, it is worth paying attention.

The analyst community sees substantial upside. With price targets ranging from $8.50 to $11.00 and an average of $9.67, the Street is pricing in 150% upside potential. Seven analysts have issued buy ratings with zero holds or sells in the current month. This level of optimism from professionals who have studied the company’s assets suggests the current price reflects excessive pessimism.

The Steady Eddie: ConocoPhillips COP

If Mach and Amplify represent the more speculative end of energy investing, ConocoPhillips stands as the sector’s steady performer. With a $121 billion market cap, this is one of the world’s largest independent exploration and production companies, offering global diversification and operational scale that smaller companies cannot match.

ConocoPhillips operates across six segments spanning Alaska to Asia Pacific, but their crown jewel remains the Lower 48 operations. They produce 833 thousand barrels of oil equivalent per day from the Permian Basin alone, making them a major player in America’s most important shale field. Add in 296 thousand barrels daily from the Eagle Ford and 151 thousand from the Bakken, and you are looking at a company with tier-one assets in tier-one basins.

The first quarter showed the company’s resilience. Despite a 6% decline in realized prices to $53.34 per barrel, production increased 487 thousand barrels daily year-over-year to 2.389 million barrels equivalent. This volume growth helped deliver $2.8 billion in earnings, up from $2.6 billion in the prior year. Management’s ability to grow production while reducing both capital expenditure guidance to $12.3-12.6 billion and operating cost guidance to $10.7-10.9 billion demonstrates operational excellence.

What sets ConocoPhillips apart is their shareholder-friendly capital allocation. The quarterly dividend of $0.78 per share yields 3.58% annually, with a sustainable payout ratio of 38.98%. Management raised the dividend 34% in the third quarter of 2024, signaling confidence in cash flow sustainability. Beyond dividends, the company returned $9.1 billion to shareholders in 2024, including $5.5 billion in share buybacks.

The share repurchase program deserves particular attention. Management increased their authorization by $20 billion and plans to return $10 billion to shareholders in 2025. At current prices, this represents meaningful ownership accretion for remaining shareholders. When combined with the dividend, total shareholder yield approaches impressive levels.

Recent insider activity reinforces management confidence. Executive Vice President Kirk Johnson purchased 5,300 shares at $94.24 last week, investing nearly $500,000 of personal capital.

Institutional ownership exceeds 75%, with JPMorgan Chase holding 47.2 million shares and Price T. Rowe Associates owning 40.3 million shares. Berkshire Hathaway’s continued position adds Warren Buffett’s implicit endorsement to the investment thesis.

Eighteen Wall Street analysts cover the stock with a strong buy consensus, setting price targets averaging $113.50 with a range from $95 to $130. This suggests 20-21% upside potential, which when combined with the 3.58% dividend yield, offers attractive total return prospects.

Insiders have been slowly accumulating energy stocks for several months now.

This is not about end demand and pricing for crude oil and natural gas over the next few months.

It is about the growing demand we will ss over rh next several decades.