Two standout energy companies excel within the Invesco S&P 500 Growth at a Reasonable Price (GARP) ETF.
Exchange-traded funds (ETFs) can be fantastic investment choices. They allow you to invest passively in a specific market sector or theme, making it simple to automate your investments.
ETFs can also be beneficial for active investors seeking new stock ideas. For instance, if you're on the hunt for 'growth at a reasonable price' (GARP), you should investigate the Invesco S&P 500 GARP ETF (SPGP -0.85%). One thing you may notice is that this fund currently has a high focus on the energy sector, with more than 20% of its investments in this sector. Let's delve deeper into this fund and its top holdings, such as ConocoPhillips (COP 0.17%) and Occidental Petroleum (OXY -0.21%), which have attracted attention from some contributors on Fool.com as solid investment options.
The Invesco S&P 500 GARP ETF: A select list
Some investors hunt for rapidly growing stocks. Others seek stocks that appear undervalued. A third category of investors searches for growing companies that are reasonably priced, effectively blending the growth and value methodologies. Inesco S&P 500 GARP ETF employs this approach.
On the growth side of the equation, this ETF examines both the revenue and earnings of the income statement (using sales per share growth and earnings per share growth factors). On the valuation front, it considers the price-to-earnings ratio, but also the financial leverage ratio and return on equity ratio, which are quality factors. The goal isn't just to discover cheap stocks but to find high-quality stocks trading at reasonable prices. When you merge these factors, you obtain 'growth at a reasonable price,' or GARP.
The advantage of this strategy is that GARP can be quite limiting. Starting with the 500 stocks in the S&P 500 (^GSPC -1.07%), the Invesco S&P 500 GARP ETF ultimately has around 75 holdings. However, you can leverage this ETF's elite list of holdings to your benefit. Instead of conducting all the screening work yourself, start by selecting from the holdings in Invesco S&P 500 GARP ETF.
A well-oiled machine
ConocoPhillips currently maintains a significant position in the Invesco S&P 500 GARP ETF, with a weighting of approximately 1.8%. It is growing its production at a decent pace for a company of its size. After adjusting for the effects of acquisitions and asset sales, the oil giant reported 3% production growth during the third quarter. Its production growth rate was more than double that pace when considering the boost it received from M&A.
The solid third-quarter performance of ConocoPhillips did not include the impact of its pending acquisition of Marathon Oil, which is expected to close during the fourth quarter. This massive $22.5 billion acquisition will immediately enhance its earnings, cash flows, and return of capital per share. ConocoPhillips anticipates capturing more than $500 million in annual cost savings and other synergies after completing this game-changing deal. Moreover, the company recently agreed to increase its stake in two oil fields in Alaska for $300 million.
These acquisitions will contribute to ConocoPhillips' free cash flow, supporting its plans to return more cash to shareholders in the future. It increased its share repurchase authorization by up to $20 billion, allowing it to buy back even more of its reasonably priced stock. The company has retired more than 11% of its outstanding shares over the past three years. It also boosted its dividend by 34% and aims to deliver dividend growth within the top 25% of companies in the S&P 500 in the future.
ConocoPhillips' rising cash flow and cash returns should provide the oil company with the fuel to generate strong total returns in the coming years.
An intriguing value in the oil patch
Occidental Petroleum holds a position in the energy sector of the Invesco S&P 500 GARP ETF portfolio. Given Occidental's recent acquisition and efforts to strengthen its balance sheet, I believe it's an interesting time to consider buying this stock.
Occidental, already one of the largest oil and gas producers in the U.S., acquired CrownRock in August for approximately $12 billion, including debt, to expand its presence in the Permian and Midland basins. This acquisition increased Occidental's Permian unconventional oil inventory at a breakeven of below $40 per barrel by nearly 33%.
Occidental anticipates the merger to contribute approximately $1 billion in free funds flowing within the initial year, assuming West Texas Intermediate crude oil costs around $70 per barrel. Occidental's forthcoming third-quarter financial results on November 12 will be captivating, as it will likely serve as the initial indication of boosted cash inflows derived from the CrownRock acquisition. Simultaneously, Occidental has commenced offloading assets post-acquisition, aiming to decrease its debt by over $4.5 billion within the subsequent year or so.
Given the projected growth in cash reserves and the impending reduction in debt, Occidental Petroleum's shares seem compellingly engaging at the moment and stand out as one of the promising energy stocks within the Invesco S&P 500 GARP ETF that could delight investors in the near term.
Investing in the Invesco S&P 500 GARP ETF allows you to tap into a list of growing companies that are reasonably priced, blending the growth and value methodologies. To fund this strategy, the ETF considers factors like revenue and earnings growth, as well as price-to-earnings and financial leverage ratios.
Investors seeking to explore the energy sector in the Invesco S&P 500 GARP ETF may find Occidental Petroleum an intriguing value. Recovering from its recent acquisition and debt reduction efforts, Occidental Petroleum's shares appear appealing and could be one of the promising energy stocks in the ETF that could deliver returns for investors in the near future.
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