ESG funds are quietly buying oil stocks to chase gains after their poor performance in the first half — here's the 1 big energy play they really like

“We believe [some] ESG funds are revisiting the cost of exclusion [of energy companies] given their underperformance in the first half of 2022 or waiting for regulations to be finalised amid greenwashing fears,” says Bank of America’s ESG strategist Menka Bajaj.

With strong oil prices, traditional energy stocks are firing on all cylinders. The Energy Select Sector SPDR Fund (XLE) is up 24% year to date. That’s in stark contrast with the S&P 500’s 17% decline over the same period.

In fact, Wall Street sees further upside in the sector. Here’s a look at three companies that analysts find particularly attractive.

Shell (SHEL)

Let’s start with Shell — the company so attractive that even ESG funds couldn’t say no to.

Headquartered in London, Shell is a multinational energy giant with operations in more than 70 countries. It produces around 3.2 barrels of oil equivalent per day, has an interest in 10 refineries, and sold 64.2 million tons of liquefied natural gas last year.

It’s a staple for global investors, too. Shell is listed on the London Stock Exchange, Euronext Amsterdam, and the New York Stock Exchange.

Energy stocks have pulled back over the past month and Shell was caught in the sell-off as well. However, its NYSE-listed shares are still up 9.4% year to date.

Piper Sandler analyst Ryan Todd sees opportunity in the company. On Tuesday, the analyst reiterated an ‘overweight’ rating on Shell while raising his price target from $69 to $75.

Considering that Shell trades at around $49 per share today, Todd’s new price target implies a potential upside of 53%.

Chevron (CVX)

Chevron is another oil and gas supermajor that’s benefiting from the commodity boom.

For Q1, the company reported earnings of $6.3 billion, which more than quadrupled the $1.4 billion in the same period last year. Revenue totaled $54.4 billion for the quarter, up 70% year over year.

In January, Chevron’s board approved a 6% increase to the quarterly dividend rate to $1.42 per share. That gives the company an annual dividend yield of 3.9%.

The stock has enjoyed a nice rally too, climbing 22% in 2022.