This might be the best way to invest in oil stocks right now

MW This might be the best way to invest in oil stocks right now

By Philip van Doorn

Opinions on where oil prices are headed from here could be an important decision driver right now

A focus on free cash flow could be lucrative for investors if oil prices remain moderately higher than they were in 2025.

Following yesterday's spike and late-day fizzling of oil prices, it is time to look back at the action over the past year and consider whether or not oil and natural-gas companies remain in a position to increase their cash flow in a big way.

On Monday, prices for the continuous front-month contract for West Texas Intermediate crude oil (CL00) on the New York Mercantile Exchange shot up as high as $119.48 a barrel, before settling at $94.77.

In a note to clients on Monday, before that trading session's increase in crude oil prices was reversed, William Blair analysts Neal Dingmann and Bert Donnes wrote that a "$15 move in oil can cause FCF yield to more than double." This is based on the analysts' coverage group of 17 small-cap and midcap U.S. companies involved in oil and/or natural-gas production or distribution.

FCF yield stands for free-cash-flow yield. A company's free cash flow is its remaining cash flow after capital expenditures. It is money that can be used to pay dividends, buy back shares (hopefully to lower the share count and raise earnings per share), fund expansion or for other corporate purposes. An increasing FCF yield is typically a positive development.

A company's FCF yield can be compared with its dividend yield to see if there is "headroom" to deploy more cash.

And now the important question: Where are oil prices headed from here? Early on Tuesday, WTI was trading for $90. The MarketWatch quote page includes a lot of information, and can be configured to show a long range for daily prices for commodities and securities. The data can be downloaded.

Last year, WTI's daily settlement prices ranged between $55.27 a barrel on Dec. 16 to $78.82 and back on Jan. 13, 2025. The average daily settlement price for WTI in 2025 was $64.75. This year through Monday, despite the recent rise in oil prices, the average settlement price for WTI has been $64.68.

Can WTI stay above $80? That would be more than $15 above the average daily settlement price in 2025 and so far in 2026.

A screen of the 70 energy stocks in the S&P 1500 Composite Index XX:SP1500 shows the 15 companies with the highest trailing FCF yields, based on Monday's closing stock prices and the past 12 months' FCF per share. The S&P 1500 is made up of the S&P 500 SPX, the S&P Small Cap 600 SML Index and the S&P MidCap 400 Index MID. The data was provided by LSEG.

Here they are:

   Company                          Trailing FCF yield  Dividend yield  Trailing headroom 
   Talos Energy                                 19.60%           0.00%             19.60% 
   SM Energy                                    17.97%           3.38%             14.58% 
   World Kinect                                 17.23%           3.39%             13.84% 
   Viper Energy                                 16.74%           4.98%             11.76% 
   APA                                          15.21%           3.07%             12.14% 
   Nov                                          12.38%           1.90%             10.48% 
   Par Pacific Holdings                         12.24%           0.00%             12.24% 
   Permian Resources                            11.39%           3.18%              8.21% 
   Ovintiv                                      10.83%           2.23%              8.59% 
   Patterson-UTI Energy                         10.47%           4.31%              6.15% 
   Devon Energy                                  9.86%           2.14%              7.72% 
   California Resources                          9.70%           2.53%              7.17% 
   Dorian LPG                                    9.25%           0.00%              9.25% 
   Northern Oil & Gas                            9.01%           6.34%              2.67% 
   Helix Energy Solutions Group                  8.98%           0.00%              8.98% 
                                                                             Source: LSEG 

We used trailing FCF yields, rather than 2026 estimates, to take a conservative approach based on average WTI prices of roughly $65 since the end of 2024.

For those focused on dividend yields, keep in mind that some energy companies pay variable quarterly dividends, with these policies explained in quarterly earnings releases.

Click on the tickers for more about each company.

Read: Tomi Kilgore's guide to the wealth of information available free on the MarketWatch quote page

Don't miss: Three energy stocks look like bargains

-Philip van Doorn

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March 10, 2026 10:09 ET (14:09 GMT)

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