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Top 2 Energy Stocks in Invesco S&P 500 GARP ETF

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Top 2 Energy Stocks in Invesco S&P 500 GARP ETF

Exchange-traded funds (ETFs) are considered valuable investment options by many due to their ability to allow passive investment in specific market sectors or themes, enabling investors to automate their investment activities. Additionally, ETFs can serve as a useful resource for active investors seeking new stock ideas. For those interested in growth at a reasonable price (GARP), the Invesco S&P 500 GARP ETF (SPGP) is noteworthy. Currently, the fund has a significant focus on energy stocks, comprising over 20% of its holdings, with ConocoPhillips and Occidental Petroleum being prominent components.

### Invesco S&P 500 GARP ETF Overview

According to Reuben Gregg Brewer, the Invesco S&P 500 GARP ETF caters to investors pursuing stocks that exhibit reasonable growth and value characteristics. The ETF assesses growth metrics such as sales-per-share and earnings-per-share growth. On the valuation front, it evaluates the price-to-earnings ratio along with financial leverage and return-on-equity, emphasizing quality factors. The aim is not merely to identify inexpensive stocks, but to locate high-quality stocks trading at fair prices, integrating growth considerations to achieve the GARP strategy.

The method is somewhat selective, as it results in a trimmed list of around 75 holdings from the 500 stocks within the S&P 500. This curated selection can be leveraged by investors who wish to streamline their stock selection process by choosing from this refined collection.

### ConocoPhillips: A Strategic Growth Player

ConocoPhillips is currently one of the largest holdings in the Invesco S&P 500 GARP ETF, with a 1.8% weighting. The company is expanding its production rate significantly. Adjusted for acquisitions and asset sales, ConocoPhillips reported a 3% increase in production during the third quarter. Including mergers and acquisitions (M&A), the growth rate was more than double.

The company is set to close a substantial $22.5 billion acquisition of Marathon Oil in the fourth quarter, enhancing its earnings, cash flow, and shareholder returns per share. This deal is anticipated to bring over $500 million in annual cost savings and synergies. Additionally, ConocoPhillips has agreed to increase its stake in two Alaskan oil fields for $300 million.

These strategic acquisitions are expected to elevate ConocoPhillips’ free cash flow, supporting its ambitious shareholder return plans. The company has expanded its share repurchase authorization by up to $20 billion, facilitating the buyback of more of its stock at reasonable prices. Over the past three years, it has retired more than 11% of its outstanding shares and increased its dividend by 34%, aiming for dividend growth in the top 25% of S&P 500 companies. This growth in cash flow and returns positions ConocoPhillips for strong total returns in the coming years.

### Occidental Petroleum: A Potential Value Proposition

Neha Chamaria highlights Occidental Petroleum as a significant energy stock within the Invesco S&P 500 GARP ETF portfolio. Despite having lost value recently, Occidental, a major U.S. oil and gas producer, presents a potential buying opportunity, amplified by its recent strategic acquisitions and balance sheet improvements.

In August, Occidental acquired CrownRock for around $12 billion, including debt, to enhance its Permian and Midland basin operations. This acquisition increased its Permian unconventional oil inventory. Occidental anticipates this to contribute an additional $1 billion in free cash flow within the first year at a crude oil price of approximately $70 per barrel. The third-quarter earnings report, scheduled for November 12, is expected to reflect the impact of this acquisition. Concurrently, Occidental is divesting assets to reduce its debt by at least $4.5 billion over the coming year.

With rising cash flows and decreasing debt, Occidental Petroleum presents itself as an attractive value play from the Invesco S&P 500 GARP ETF, with potential to surprise investors moving forward.

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