Crude oil has had a rough start to 2025, with a nearly 15% decline year to date. Prices dropped to $61.99 per barrel on Friday — the lowest level since 2021 — pressured by mounting recession concerns and an unexpected move by OPEC+ to speed up the rollback of production cuts. Still, much of this decline appears to be led by short-term sentiment rather than underlying fundamentals.

For investors with a long-term horizon, this pullback may present a compelling chance to buy into the energy sector at a discount. We see this as an opportune time to accumulate high-quality names such as Prairie Operating Co. PROP, HighPeak Energy HPK, and Flotek Industries FTK, all of which stand to benefit from a potential recovery in oil prices.

Crude Slumps to 4-Year Low

The sweeping U.S. tariffs announced by the Trump administration are casting a long shadow over energy markets. With tariff rates on key trade partners ranging from 10% to 34%, global economic growth projections are being revised down. This widespread disruption to trade could severely weaken industrial activity and fuel demand. As countries, including China, retaliate, by targeting U.S. energy exports, oil prices face downside risk from a potential global demand slowdown triggered by these aggressive trade policies.

The surprise move by OPEC+ to raise crude output by 411,000 barrels per day in May — triple the expected pace — has also put significant pressure on crude. This accelerated supply increase, especially from eight key producers, including Saudi Arabia and Russia, comes at a time when macroeconomic uncertainty is already weighing on sentiment. With spare capacity ready to be tapped and a surplus potentially building later in the year, oversupply concerns are growing, making it harder for prices to maintain recent gains.

Energy Stocks on Sale

For patient investors, the current pullback in the energy sector could be a strategic moment to buy in. Rather than reflecting deep structural issues, the recent decline appears to be driven by short-term volatility and headline risk. Historically, commodity slumps have often set the stage for strong recoveries — and this time may be no different. 

One catalyst adding complexity to the outlook is the potential for new U.S. tariffs on nations importing Venezuelan crude. While Venezuela’s oil exports are relatively modest, the ripple effects of such restrictions could disrupt global supply chains, trigger rerouting, and inflate regional pricing. This friction in the market could tighten availability and create upward pressure on oil prices. In that light, today’s discounted valuations in the energy sector may offer an attractive entry point for those willing to look beyond near-term uncertainty.

How to Select the Right Companies

One of the ways to get it right is to select beaten-down stocks. Stressed valuations do not always indicate that the stock has lost all potential. In fact, some could actually make a great buy. However, prospective investors need to do adequate research before betting one’s hard-earned money on such stocks. 

We have identified three stocks that have declined between 26% and 40% over the past three months. Each of these carries a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy), which justifies a company’s strong fundamentals and potential to overcome the current headwinds. 

You can see the complete list of today’s Zacks #1 Rank stocks here.

PROP, HPK, FTK 3 Month Stock Performance

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3 Stocks to Buy Now

Prairie Operating Co.: Houston-based Prairie Operating is an independent oil and gas company dedicated to acquiring and developing assets in the DJ Basin, with a focus on the Niobrara and Codell formations. The Zacks Rank #1 firm’s operations benefit from a prime location near major industry players. Situated in a rural, low-density area with minimal development, Prairie Operating faces fewer regulatory challenges. This strategic positioning enables a more efficient permitting and drilling process, allowing for faster production growth.

The Zacks Consensus Estimate for the company’s 2025 earnings suggests a jaw-dropping 334.3% increase. Even more impressively, over the past 60 days, analysts have nearly doubled Prairie Operating’s 2025 earnings forecast from $2.44 per share to $4.92.

HighPeak Energy: HighPeak Energy is a fast-growing independent oil and gas producer with a premier position in the heart of the Midland Basin, primarily in Howard County, Texas. With over 100,000 net contiguous acres and greater than 90% operated, the Zacks #1 Ranked company benefits from exceptional scale, high oil cut, and industry-leading margins. Its strong infrastructure and efficient capital deployment support consistent operational performance and a deep inventory of drilling opportunities.

The Zacks Consensus Estimate for the company’s 2025 earnings suggests an impressive 156.7% increase. Notably, over the past 60 days, the Zacks Consensus Estimate for HighPeak Energy’s 2025 earnings has jumped 93%.

Flotek Industries: Headquartered in Houston, TX, Flotek Industries specializes in advanced chemical technologies and data analytics tailored to Oil/Energy. The company, carrying a Zacks Rank of 2, offers two core segments: chemistry technologies, featuring solutions like Complex nano-Fluid for enhanced oil recovery, and data analytics, with its JP3 gas measurement systems driving operational efficiency and compliance. This diversified portfolio underscores Flotek’s commitment to innovation and sustainability in the energy industry.

The Zacks Consensus Estimate for the company’s 2025 earnings suggests an impressive 38.2% increase. Notably, over the past 60 days, the Zacks Consensus Estimate for Flotek Industries’ 2025 earnings has gone up 9.3%.

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This article originally published on Zacks Investment Research (zacks.com).

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