The energy sector had a blockbuster year in 2022, and actually turned out to be the best-performing sector overall. Thus far, 2023 has not played out well for investors in this sector, with energy stocks falling 4.23%, based on the S&P Global 1200 Energy index. Those negative returns contrast poorly with the broader S&P 500, which has risen 7.5% year-to-date, at the time of writing.
Nevertheless, there have been outliers among energy stocks that have bucked the trend, producing solid returns. BP (NYSE:BP) and Marathon Petroleum (NYSE:MPC) among their ranks.
However, this list focuses on the underperformers, particularly specific energy stocks investors should be looking to sell. Now is the time to rotate out of these companies, and into better-performing energy stocks or other sectors, including tech.
| CHK | Chesapeake Energy | $75.28 |
| DVN | Devon Energy | $52.91 |
| COP | ConocoPhillips | $106.26 |
Chesapeake Energy (CHK)
Chesapeake Energy (NASDAQ:CHK) was a solid stock to have held in 2022. Like many energy stocks, it had a strong year due to booming energy prices. The company deals primarily in natural gas, which soared last year. This led to a more than doubling of revenues in 2022, reaching $11.74 billion.
That strong performance resulted in CHK stock increasing from $66 to $94 in 2022. Of course, 2023 has begun as an entirely different story. CHK stock has since declined to around $75 per share, at the time of writing.
The company’s forecasted production volume, as well as expected energy prices, are not in Chesapeake’s favor right now. In short, 2023 will not be a repeat of 2022, which suggests investors should avoid CHK stock, or sell now.
The company provided guidance that 2023 production volume will likely be lower than 2022, when it released earnings in February. And the U.S. Energy Information Administration has forecast lower prices throughout 2023.
Those aren’t the only two factors that determine Chesapeake’s share prices, to be sure. However, they are critical factors nonetheless. The company won’t produce 2022-level revenues in 2023, which is a simple reason to avoid CHK stock now.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) had a great 2022, just as Chesapeake Energy and many other energy companies did. High-level metrics suggest DVN stock is investment grade, something the company has called itself in the past.
Devon’s free cash flows more than doubled in 2022, reaching $6 billion. Additionally, the company’s Q4 oil production volumes reached an all-time high of 316,000 barrels per day. And for shareholders, its already-high dividend was raised by 11% in 2023.
These strong results make it difficult to understand why Devon Energy has seen declining share prices in 2023. But it’s a case of past performance not guaranteeing future returns. Devon Energy’s issue is weak 2023 production expectations paired with higher-than-expected capital expenditures. If a given company’s income is expected to fall while its expenses rise, it will be more vulnerable. That’s where Devon Energy is currently due to those combined factors.
Devon’s 10% dividend is very enticing, but investors should remain cautious. Such high yields tend to indicate significantly higher risk, which the market is clearly pricing into this stock now.
ConocoPhillips (COP)
The fortunes of ConocoPhillips (NYSE:COP), and those of its shareholders, have not been strong this year. In 2023, COP stock has been among the many energy stocks that have witnessed a drop. Much of that decline can be attributed to news surrounding the company’s Willow Project on Alaska’s North Slope.
That project has faced significant scrutiny, culminating in an environmental review by the Biden Administration. The Interior Department was tasked with deciding whether to allow drilling, issuing its Record of Decision on 13 March.
That decision rejected two of ConocoPhillips’ five proposed drill sites, reducing and its overall footprint by 40%. COP stock fell immediately following the announcement of the decision. Even before the decision was announced, there was speculation about a scaled-down decision. Those rumors also suggested that the project’s economic feasibility was in doubt under such a scenario.
Time will tell what the financial results of the project are. However, a less-than-ideal outcome has materialized for ConocoPhillips. That’s a solid sign to avoid COP stock for now.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.