• Energy stocks are a great investment to protect your portfolio against rising inflation and equity market dips.
• Enbridge (ENB): The solid fundamentals and the strong cash flow stream provide support for this leading North American energy stock.
• Dominion Energy (D): This utility stock has high profit margins and robust growth.
• Duke Energy (DUK): After improving renewable energy generation last year, Duke Energy is set for additional gains.

Energy stocks rallied in 2022, driven by a flight to quality assets. The shift to value stocks unfolds when investors are concerned about protecting the value of their assets rather than making money. Historically, energy stocks have been a great hedge against market downturns and ramping inflation due to the crucial need for energy to power an expanding global economy and to the inherent capital-intensive condition of the energy sector.

Over the year, energy stocks outpaced U.S. equity markets and there seems to be additional upside ahead, with geopolitical tensions linked to the war in Ukraine unlikely to ease in the short-term. The Energy Select Sector SPDR Fund (NYSEARCA:XLE), one of the largest funds tracking the performance of energy stocks, surged 39.4% year-to-date to $77.41 per share, whereas the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is down 10.6% to $424.56 per share.

With that in mind, let’s dig into three energy stocks to add to your May 2022 buy list that will protect your portfolio against rising inflation and equity market dips.

Best Energy Stocks: Enbridge (ENB)

Enbridge (NYSE:ENB) is engaged in oil and gas transmission, distribution, and storage in North America. It is also actively developing a growing number of renewable projects in both Europe and North America. Since the beginning of the year, ENB stock gained 13.45% to $44.33 per share, outperforming energy stocks and the SPY benchmark.

Enbridge is investing to expand its renewable energy portfolio and plans to become one of the leading energy delivery companies in North America. ENB stock has solid fundamentals and a strong cash flow stream. Last year, net sales jumped 20.4% to 47 million CAD. Meanwhile, net profit surged 62.5% over the period to 5.8 billion CAD, offering a profit margin of 12.4%. In 2022, revenue is expected to advance slower, up 6.4% to 50 billion CAD, whereas net income is forecasted to increase 2.3% to 5.9 billion CAD, delivering a healthy net margin of 11.9%.

On the negative side, ENB stock is overleveraged. Net debt reached 75.3 billion CAD at the end of 2021, representing a leverage ratio of 5.38x. Yet, Enbridge is expected to increase free cash flow generation this year massively, up 487% to 8.45 billion CAD, contributing to sustaining ENB’s bullish stock pattern.

Tight supply in the oil and natural gas markets will continue to support ENB stock. Investors looking to mitigate inflation risks should consider this energy stock that is trading at relatively cheap valuation metrics compared to its profitability. Indeed, ENB exchanges at 12.5x forward enterprise-value-to-EBITDA (EV/EBITDA), 19.1x 2022e price-to-earnings (P/E) and offers a high estimated dividend yield of 6.09% per year, an attractive figure for passive income investors.

Dominion Energy (D)

Dominion Energy (NYSE:D) engages in the provision of electricity and natural gas to homes, businesses, and wholesale customers. The utility stock gained 5.3% year-to-date to $82.72 per share, slightly outperforming its sector measured by the Utilities Select Sector SPDR Fund (NYSEARCA:XLU), advancing around 1% in the period.

After a flattish year in 2021, D stock is poised for sturdy growth in 2022. Net sales are expected to advance 15.6% year-on-year to $16.13 billion, whereas net income should advance slower, up 1.1% to $3.3 billion. While profit margins are expected to decline 290 basis points, the utility is forecasted to deliver a strong profitability level of 20.6% this year.

The company had a net debt of $38.9 billion at the end of 2021, representing an elevated leverage ratio of 5.64x. Yet, the company is expected to significantly lift capital expenditures this year, up 44.4% year-on-year to $8.6 billion.

Dominion Energy is set for additional upside, according to analysts. The average target price stands at $91.50 per share, representing an upside of 10.56% from today’s prices. Besides, the valuation of the company is relatively low given its high-profit margins, exchanging at 13.4x 2022e EV/EBITDA and 20.4x forward P/E. The utility also offers an attractive expected yield of 3.18% per year.

Best Energy Stocks: Duke Energy (DUK)

Duke Energy (NYSE:DUK) is one of the largest American energetic holding groups, with over 8.2 million customers in the U.S. DUK stock advanced 6.58% since the beginning of the year to $111.82 per share. The company recently announced a 20% jump in wind and solar power generation in 2021 to 1,800 MW, one of the best years ever for adding renewable energy.

DUK’s top line is projected to advance at a moderate pace this year, up 5.3% to $26.3 billion. Yet, after the rapid clean energy transition in 2021, which boosted net sales 199.4% to $3.8 billion in 2021, net income is expected to advance another 10.5% to $4.2 billion this year, delivering a comfortable profit margin of 15.9%.

Duke Energy is slightly more indebted than its energy peers. With net debt of $66.7 billion at the end of 2021, DUK offers a leverage ratio of 6.26x.

Despite that, DUK is estimated to provide a yield of 3.53% in 2022 and the company has a low valuation metrics, trading at 13.1x forward EV/EBITDA and 20.9x P/E. Besides, the company is set to outperform the broader equity market, as the utility sector has a low beta, which is constructive in these challenging equity markets.

On the date of publication, Cristian Docan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.