1 Stock I'd Buy Before BP In 2026

BP (NYSE: BP) is one of the world's largest integrated energy companies. It has a global upstream oil and gas portfolio, a strong downstream refining business, and is investing in the lower-carbon energy the world will need in the future. The company's strategy has it on track to deliver meaningful free cash flow growth, which should enable it to return more cash to investors while strengthening its balance sheet in the coming years.

While BP is a solid oil stock, I'd buy shares of ExxonMobil (NYSE: XOM) before I'd add BP to my portfolio. Here's why.

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BP's new direction

BP has undertaken two dramatic strategic shifts over the past five years. In 2020, the company unveiled its plan to transition from an international oil company to an integrated energy company. It aimed to increase its low-carbon energy investments 10-fold by 2030 to build out a portfolio of businesses, including renewable energy, bioenergy, hydrogen, and carbon capture and storage. The company also planned to reduce its investment spending on fossil fuels, resulting in a 40% decline in production by 2030. Additionally, BP reset its dividend to retain more cash to strengthen its balance sheet and reinvest in lower-carbon energy.

However, the company abandoned its transition plan earlier this year. It reset its strategy by reducing and reallocating capital spending away from lower-carbon energy and back toward oil and gas. As a result, it now expects its production to grow into 2030. The company also plans to sell assets to reduce debt. This strategy should help the company grow its adjusted free cash flow at a 20% compound annual rate through 2027.

While BP's reset strategy could grow shareholder value, I don't have much confidence in its ability to deliver for shareholders, given its past failures.

Anchoring on what works

While BP has done a couple of 180s on its strategy over the past five years, ExxonMobil has never deviated from its approach. The oil giant started a transformational journey several years ago. However, instead of going all in on lower-carbon energy, Exxon has doubled down on what it does best. It has focused on investing where it has competitive advantages to increase its profitability and lower costs.

The company's strategy has been wildly successful. It has delivered an industry-leading $14.3 billion in structural cost savings since 2019. Additionally, the company has invested heavily in its advantaged assets (lowest cost and highest margin). As a result, unit earnings have double since 2019.

Exxon expects to continue leaning into its successful strategy over the next several years. By 2030, it aims to deliver $25 billion of additional earnings and $35 billion of incremental cash flow at constant margins and prices compared to last year's level. This implies the oil giant will grow its earnings per share at a 13% average annual growth rate during this period while delivering double-digit cash flow growth. Exxon also expects to produce a prodigious amount of surplus cash, giving it the funds to continue increasing its dividend and repurchasing shares since it already has the best balance sheet in the sector.

A better oil stock

BP believes its reset plan will finally put it on the path to create shareholder value. However, it lags well behind Exxon, which has never deviated from its successful strategy. I have greater confidence in Exxon, which is why I'd buy its stock over BP.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends BP. The Motley Fool has a disclosure policy.