Goldman Sachs has identified several undervalued dividend-paying energy stocks, despite the sector’s significant outperformance this year. Analyst Neil Mehta points to companies like Devon Energy, Expand Energy, HF Sinclair, and ConocoPhillips as ‘Buy’-rated opportunities that offer attractive returns and trade at discounted multiples. These recommendations come amidst surging oil prices driven by Middle East conflict, propelling the energy sector to robust gains.
Despite the energy sector's remarkable rally this year, creating a significant divergence from the broader market, Goldman Sachs continues to see attractive investment opportunities. The firm highlights several cheap, dividend-paying energy stocks poised for further growth, according to analyst Neil Mehta.
The State Street Energy Select Sector SPDR ETF (XLE) has surged an impressive 45% year-to-date, hitting a 52-week high, dramatically outperforming the S&P 500's 13% gain over the same period. This sector-wide momentum is largely fueled by escalating oil prices, with Brent crude futures climbing above $95 per barrel amidst ongoing geopolitical tensions in the Middle East.
Mehta emphasizes that this environment prompts investors to apply a valuation overlay to identify new opportunities. Goldman Sachs specifically screened for 'Buy'-rated stocks offering above-average total returns and trading at below-average 2028 multiples, positioning investors favorably as the year concludes. Here are the firms that made their coveted list:
Devon Energy
Devon Energy, a prominent oil exploration and production company, has seen its shares rise approximately 33% this year, lagging its large-cap peers' 40% advance. Mehta deems this a "compelling valuation opportunity," citing Devon's attractive 14% free cash flow (FCF) yield based on average 2027/2028 estimates. The company's strategic focus on the Delaware Basin asset is central to its long-term portfolio, and its commitment to returning up to 70% of FCF to shareholders underscores its investor-friendly approach. After exceeding Q2 earnings and revenue forecasts and announcing a dividend hike in May, Goldman's $55 price target implies a 12% upside from recent closing prices. The stock currently offers a 2.3% dividend yield.
Expand Energy
Gas exploration and production firm, Expand Energy, also presents a compelling valuation when compared to its Appalachian counterparts. Mehta projects a 10% free cash flow yield for Expand Energy on 2027/2028 estimates, surpassing its peer average of 8%. The company is recognized for its reliable FCF generation and consistent capital return program, with Mehta expressing confidence in its potential for "sustainable cash flow improvement through incremental marketing and commercial initiative." Despite mixed Q2 results where adjusted EPS beat expectations but revenue fell short, shares are down roughly 10% so far in 2026. Expand Energy yields 2.3%.
HF Sinclair
U.S. refiner HF Sinclair has enjoyed a phenomenal year, soaring 131% year-to-date and also reaching a 52-week high. Despite this strong performance, Mehta believes the stock is trading at a discount due to uncertainties surrounding its interim CEO and CFO transitions. Goldman Sachs sees significant value in HF Sinclair’s non-refining segments, including Lubricants, Renewable Diesel, and Midstream, alongside its strategic leverage in niche refining markets such as the West Coast/Rockies and Mid-Continent. The company reported robust Q2 results, beating both top and bottom-line estimates, and subsequently raised its quarterly dividend. With a current dividend yield of approximately 2%, Mehta's $114 price target indicates a 7.5% upside.
ConocoPhillips
Leading oil major ConocoPhillips carries a $146 price target from Goldman Sachs, suggesting over 6% potential upside. The 'Buy' rating is predicated on an anticipated $7 billion free cash flow inflection by 2029, driven by the rollout of four major growth projects and a planned $1 billion in cost reductions. The stock's current discounted multiple reflects market apprehension over a capital-intensive phase, with investors seemingly hesitant to price in a 'back-half-weighted' FCF uplift primarily materializing in 2029. ConocoPhillips has climbed 45% year-to-date, achieving a 52-week high, and offers a 2.5% dividend yield.
