In this article, we will discuss the 10 best crude oil stocks to buy today. If you want to skip our detailed analysis of these stocks, you can go directly to the 5 Best Crude Oil Stocks to Buy Today.
COVID-19 forced governments to shut down businesses and ask millions of people to remain at home in the spring of 2020, causing oil consumption and prices to plummet. Crude oil prices, however, have recovered following the gradual reopening of businesses as new vaccines continue to pave the way for economic recovery. According to Mckinsey, Brent crude oil prices were mostly on the rise in September 2021, with a monthly average of $74.5/bbl. Part of the reason for the optimistic market is a dramatic spike in natural gas costs, which has made oil a comparatively cheap substitute for power generation, resulting in increased demand in Europe and Asia. Moreover, global liquids demand increased by 0.81 million barrels per day (MMb/d) to 99.29 MMb/d in September, the highest level since December 2019. Overall, demand for liquids has risen by 4.5 MMb/d YoY, following relaxation in Covid-19 restrictions.
Crude oil prices are at their seven-year high and various companies in crude oil exploration, production and transportation are reaping their full benefit. However, investors need to ensure that they are going long on those companies that are strategically in a position to benefit from the given circumstances. The members of the Organization of the Petroleum Exporting Countries (OPEC) and other big producers of crude oil like Russia have come together to control supply following the unstable demand due to the COVID-19 pandemic. OPEC+ reaffirmed its intention to increase output by 400,000 barrels per day until April 2022, in order to help stabilize the economy and phase out 5.8 million barrels per day of existing cutbacks.
On October 5, a senior analyst at PVM Oil Associates Tamas Varga expressed confidence in the industry regarding the future of crude oil. While warning that some of the optimism was unfounded, he insisted that due to winters, there was still a possibility for crude oil prices to rise in the coming months. Furthermore, Goldman Sachs predicted that a robust resurgence in global oil demand could drive Brent crude prices above its year-end estimate of $90 per barrel.
Companies like Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and Royal Dutch Shell plc (NYSE:RDS-A) are at the forefront of the evolving dynamics of the industry. With the possibility of substantially higher oil prices, these oil companies might reap even greater financial rewards in the near future.
Photo by Zbynek Burival on Unsplash
Our Methodology
With this context in mind, let’s have a look at the 10 best crude oil stocks to buy today. We have chosen stocks that are most likely to benefit from the current market situation. Each stock’s analyst rating and business fundamentals were considered. Hedge fund sentiment for the stocks was analyzed using the data of 873 hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund sentiment while choosing stocks? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
10 Best Crude Oil Stocks to Buy Today
10. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 35
Price as of November 4, 2021: $90.9
EOG Resources, Inc. (NYSE:EOG) is amongst the biggest crude oil and natural gas exploration and production (E&P) companies with holdings in the US, Trinidad, and China. The company aims to be an E&P player with the highest return while being the lowest emission producer.
Like its industry peers, the Houston, Texas-based company was able to beat revenue and earnings estimates for Q3 2021 after the closing bell on November 4 and authorized a share repurchase program of $5 billion, which is nearly 9% of the company’s current market value. To top that, the company revealed a one-time special dividend of $2 per share and a regular quarterly dividend of 75 cents.
Following this development, Doug Leggate at Bank of America upgraded EOG Resources, Inc. (NYSE:EOG) to a Buy rating with a $110 target price on November 5. The analyst believes that the company’s strategy has been “perpetually under debate” but now he thinks that the company has hit the reset button and wants to focus upon cash returns for investors. This is echoed by the special dividend and the share repurchase update in the Q3 results.
Investment management firm, Madison Funds shared its stance on EOG Resources, Inc. (NYSE:EOG) in its Q3 2021 investor letter. Here’s what the fund said:
“EOG is a leading oil and gas exploration and production company with attractive exposure to U.S. shale resources. Its energy mix is ~72% oil and liquid natural gas and 28% natural gas. The company has premium acreage that includes over 10,000 potential drilling locations, which provides a long runway for growth. EOG has a disciplined management team that limits operating expenses and capital spending, which results in high free cash flow, a rarity in the Energy sector….”
9. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 50
Price as of November 4, 2021: $73.31
ConocoPhillips (NYSE:COP) claims to be the world’s biggest independent E&P company in terms of production and reserves. The Houston, Texas-based corporation has a presence in 14 countries and employs 9,900 people globally. Like other oil and gas E&P companies, ConocoPhillips made a move in the Permian basin by acquiring Royal Dutch Shell plc’s (NYSE:RDS-A) complete interest in the region for $9.5 billion in cash back in September 2021. The European oil major’s interest in the region comprised 225,000 acres of land along with 600 miles of pipelines. The production capacity of the asset stood at 175,000 barrels of oil equivalent per day (boe/d) and is expected to grow to 200,000 boe/d by 2022 after more exploratory activities.
Due to rising commodity prices, the company was able to report strong numbers in Q3 2021 results. ConocoPhillips (NYSE:COP) reported an EPS of $1.78, which outperformed analysts’ estimate by 27 cents. The company has distributed $4 billion to shareholders during the three quarters with a target of $6 billion by year-end. ConocoPhillips (NYSE:COP) has done so by repurchasing stock worth $2.2 billion and paying out $1.8 billion in dividends to shareholders.
ClearBridge Investments mentioned ConocoPhillips (NYSE:COP) in its Q1 2021 investor letter and shared its stance on the company. Here’s what the investment management firm said:
“While reducing in health care and consumer staples, we increased our exposure to high-quality names in economically sensitive areas of the market. We added to low-cost, high-quality energy names (including) ConocoPhillips. We are positive on the company’s strong balance sheets, competitive positions and exposure to an economic recovery.”
In October, Neal Dingmann at Truist gave ConocoPhillips (NYSE:COP) a Buy rating with a target price of $100. He added that the focus should be on free cash flows (FCF) for E&P companies as ConocoPhillips generated FCF of $2.8 billion during the three months. His target price represents a 35% potential upside from the current stock price.
Apart from ConocoPhillips (NYSE:COP), companies like Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and Royal Dutch Shell plc (NYSE:RDS-A) are amongst the best crude oil stocks to buy today.
8. Hess Corporation (NYSE:HES)
Number of Hedge Fund Holders: 31
Price as of November 4, 2021: $82.13
Hess Corporation (NYSE:HES) has industry-leading crude oil E&P sites in the Bakken shale in North Dakota. The company also has a significant presence in the deepwater Gulf of Mexico and Guyana
Hess Corporation (NYSE:HES) recorded an EPS of $0.28 for the third quarter of 2021, beating the analysts’ estimate by $0.2. Similarly, the company beat the revenue estimate by $281.10 million for Q3.
Out of the 873 hedge funds being tracked by Insider Monkey, 31 funds held a stake worth $615.7 million in Hess Corporation (NYSE:HES) at the end of the second quarter of 2021, in comparison to 26 funds having a stake worth $556.3 million in the first quarter. Amongst the leading investors in the company are Fisher Asset Management, Adage Capital, and Citadel Investment Group.
On October 26, Vincent Lovaglio at Mizuho raised the target price on Hess Corporation (NYSE:HES) from $116 to $130 and maintained a Buy rating, noting the stronger market fundamentals in the US unconventional oil markets in the second half of 2022.
7. APA Corporation (NASDAQ:APA)
Number of Hedge Fund Holders: 37
Price as of November 4, 2021: $29.08
APA Corporation (NASDAQ:APA) is the parent company with oil and gas interests in the US, UK, Egypt, Dominican Republic, and Suriname. The interests in the US, UK, and Egypt are represented by Apache Corporation. Meanwhile, the interest in Suriname and Dominican Republic are represented by two separate holding companies. This form of corporate structure provides an opportunity to spin-off or dispose of a business division without any significant hassle.
The Houston, Texas-based company reached a new 52-week high after beating revenue and earnings estimates for the third quarter of 2021. The company has also committed to giving back 60% of free cash flow to shareholders. As a result, APA Corporation (NYSE:APA) doubled its quarterly dividends to 50 cents per share and repurchased 14.7 million shares from its shareholders during October. The E&P company also doubled its share buyback authorization to 80 million shares.
APA Corporation (NASDAQ:APA) was mentioned in the Q2 2021 investor letter of Ariel Investments. Here’s what the investment management firm said about the company:
“APA Corp. (APA), (formerly Apache Corp.) increased +21.01%, benefitting from strong oil and natural gas markets. Crude oil is up +47% this year. We have lamented about surprisingly low natural gas prices in past letters and are pleased to see them moving higher this year.
Natural gas produces significantly fewer carbon emissions than either coal or crude oil. Equity investors have been badly burned by underperforming energy companies over the past decade. As a result, we believe they are still underestimating APA’s earning power. We have recently added to our holding.”
On November 3, Neal Dingmann at Truist upgraded the stock from a Hold to a Buy rating and raised the target price from $29 to $45. This reflects a potential upside of 50% from the current stock price. The analyst sees numerous short-term upside opportunities from its projects in Alpine High, Austin Chalk, Egypt, and Suriname along with the steady cash flow generating North Sea assets. Furthermore, the analyst praised the 60% FCF distribution to investors as positive and this shows the confidence of APA Corporation (NASDAQ:APA) in sustaining its cash flows.
6. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 34
Price as of November 4, 2021: $16.58
Marathon Oil Corporation (NYSE:MRO) is another independent E&P company with a focus on the four most productive resource plays in the US. The company has multiple basins in Bakken in North Dakota, Eagle Ford in Texas, Permian in New Mexico, and STACK and SCOOP in Oklahoma.
Like its industry peers, Marathon Oil Corporation (NYSE:MRO) reported strong Q3 2021 results. The revenue for the quarter was reported as $1.45 billion and outperformed the analysts’ estimate of $1.31 billion. Meanwhile, EPS was 39 cents as opposed to the estimate of 31 cents. The company increased its dividend by 20% to 6 cents per share and approved a share buyback plan of $2.5 billion. Not only this, but the company also provided capital expenditure guidance of $1 billion to increase its quarterly production to enhance its top line and bottom line.
Vincent Lovaglio at Mizuho raised the price target on Marathon Oil Corporation (NYSE:MRO) from $17 to $23 and maintained a Buy rating. The analyst stated that he considers the company to be in a strong position to take benefit of the “US unconventional oil growth.”
Apart from Marathon Oil Corporation (NYSE:MRO), companies like Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX) and Royal Dutch Shell plc (NYSE:RDS-A) appear to be gaining hedge fund investments as of the second quarter of 2021.
5. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 50
Price as of November 4, 2021: $42.36
Devon Energy Corporation (NYSE:DVN) is an oil and gas exploration and production company with a high focus on US onshore drilling.
The Oklahoma-based company reported stellar Q3 2021 results by outperforming revenue and EPS estimates. On November 4, the company’s management also announced that it would buy back $1 billion worth of stock, increase dividends by 71% to 84 cents and reduce its debt by $1 billion, which is equivalent to 4% of Devon’s market value.
On November 3, William Janella at Credit Suisse increased the price target on Devon Energy Corporation (NYSE:DVN) from $43 to $50 while maintaining an Outperform rating. The analyst sees the corporation “continuing to over-deliver on its cash-return framework.”
According to Insider Monkey’s database, Fisher Asset Management is the leading investor in Devon Energy Corporation (NYSE:DVN) with a stake worth over $127 million. Overall, 50 hedge funds have a stake in Devon Energy Corporation (NYSE:DVN), with a cumulative market value of just over $1 billion as of the second quarter of 2021.
4. Royal Dutch Shell plc (NYSE:RDS-A)
Number of Hedge Fund Holders: 38
Price as of November 4, 2021: $44.88
Royal Dutch Shell plc (NYSE:RDS-A) is a multinational European energy company. The company has always been in the limelight due to climate activists and now recently due to activist investors. Daniel Loeb of Third Point LLC initiated a position in the company during the second and third quarter of this year as he believes that the stock of Shell is at a 35% discount against its competitors in the form of Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX).
The hedge fund believes that Shell should create separate companies by breaking up. One company can be involved in the upstream and refining segment, which are the legacy segments. The second business can cater to renewable energy, liquefied natural gas (LNG), and the marketing of energy products. According to Biraj Borkhataria at RBC, the total value of all Shell businesses considered separately is around $250 billion. However, the current market capitalization of the company stands at nearly $180 billion.
Investment management firm Third Point Management discussed its stance on Royal Dutch Shell plc (NYSE:RDS-A) in its Q3 2021 investor letter. Here’s what the fund said:
“Third Point initiated a position in Royal Dutch Shell (“Shell”) during the second and third quarters. The past two years have been especially challenging for Shell shareholders due to a major dividend cut and well-publicized court case that ordered changes to Shell’s business model. Stepping back further, it has been a difficult two decades for shareholders, with annualized stock returns of just 3% and decreasing returns on invested capital. However, despite the current sour sentiment, we see opportunity for improvement across the board at Shell.
Shell is one of the cheapest large cap stocks in the world, trading at under 4x next year’s EBITDA and ~8x earnings at “strip” prices. It also trades at a ~35% discount on most metrics to peers ExxonMobil and Chevron despite Shell’s higher quality and more sustainable business mix. Compared to its peers, Shell generates a much larger percentage of its cash flow and earnings from stable businesses that have a major role to play in the energy transition. For example, Shell is the largest global player in liquified natural gas (“LNG”), which is a critical transition fuel to move off carbon intensive coal-fired power generation. In 2022, we expect the company’s energy transition businesses (LNG, Renewables and Marketing) to generate EBITDA of over $25 billion with sustaining capex of only $5 billion. These businesses account for just over 40% of Shell’s EBITDA but would likely support Shell’s entire enterprise value if they were a standalone company. At the current share price, we believe investors are getting the remaining ~60% of EBITDA (upstream, refining and chemicals) for free.
Management has been gradually divesting assets that are not aligned with a low-carbon future such as upstream and refining. This is perhaps most evident in Shell’s refining business where the company went from owning 54 refineries in 2004 to only five (by yearend.) This is a remarkable accomplishment. Shell’s massive dividend cut and other asset sales (e.g. Permian) have left it with an under-levered balance sheet with year-end 2021 net debt to EBITDA of well below 1x. This positions Shell to return capital earlier and more aggressively than peers…” (Click here to see the full text)
On November 3, Bill Selesky at Argus increased the price target for Royal Dutch Shell plc (NYSE:RDS-A) from $46 to $54 and kept a Buy rating on the stock. The increase in price target is driven by an upward revision in FY22 EPS from $5.60 to $6.07 on the back of strong fundamentals of the energy sector.
3. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 57
Price as of November 4, 2021: $33.75
Occidental Petroleum Corporation (NYSE:OXY) is one of the largest oil producers in the US. The company was successful in its acquisition of Anadarko Petroleum in August 2019 for $55 billion. Under the bold leadership of its CEO, Vicki Hollub, Occidental was able to outbid Chevron Corporation (NYSE:CVX), a company five times bigger than Occidental, in the acquisition of Anadarko.
However, the CEO received a major assist from Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK-A). The Oracle of Omaha bankrolled the deal by buying $10 billion worth of preferred stock in Occidental Petroleum Corporation (NYSE:OXY) under the condition that the takeover will be completed. This has brought Occidental to the forefront in the E&P industry.
The company reported its Q3 earnings after the closing bell on November 4. Occidental Petroleum Corporation (NYSE:OXY) reported adjusted EPS of 87 cents per share, beating the analysts’ estimate by 20 cents. The company also generated record cash flows and was able to pay back $4.3 billion worth of debt during the three months.
Since the start of the year, the stock price of Occidental Petroleum Corporation (NYSE:OXY) has nearly doubled. However, analysts still see more upside potential in the organization. On October 26, Vincent Lovaglio at Mizuho raised Occidental’s price target from $39 to $48 while maintaining a Buy rating. Lovaglio expects the company to be benefitted from unconventional oil production growth during the second half of 2022.
2. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 68
Price as of November 4, 2021: $64.41
Exxon Mobil Corporation (NYSE:XOM) is the largest publicly traded energy company in the world. The Irving, Texas-based company is considered as the biggest direct offspring of John D. Rockefeller’s Standard Oil and came into formation following the merger of Exxon and Mobil in November 1999. Being one of the largest energy companies in the world gives Exxon Mobil an edge to reap the full benefit of rising crude oil prices.
The corporation reported the highest quarterly profits in years during the third quarter. This was due to rising demand, improving crude oil and natural gas prices, and reduction in costs. Exxon Mobil Corporation (NYSE:XOM) reported an adjusted EPS of $1.58 during the three-month period, which outperformed the analysts’ estimate by 2 cents. However, the company’s revenue of $73.79 billion was not able to outperform the consensus estimate of $76.34 billion. The cash flow from operations (CFO) was reported to be $12.1 billion.
The outlook seems bright as the company anticipates the profitability to improve. This is evident by the fact that Exxon Mobil Corporation (NYSE:XOM) announced the start of a share repurchase program of $10 billion from 2022. The buyback will be done for one to two years from commencement. Meanwhile, Devin McDermott at Morgan Stanley anticipates the company to ‘catch up trade’ as it has lagged in terms of stock price appreciation with other US E&P companies. On October 10, the analyst noted that Exxon Mobil Corporation (NYSE:XOM) stock should trade at a premium and issued an Overweight rating with a target price of $84.
Investment management firm First Eagle Investment Management shared its stance on Exxon Mobil Corporation (NYSE:XOM) in its Q2 2021 investor letter:
“Leading contributors in the First Eagle Global Fund this quarter included Exxon Mobil Corporation. The continued recovery in oil prices as economies reopen helped fuel another strong performance across the energy complex, including shares of Exxon Mobil. Exxon Mobil recently lost a proxy fight with an activist investor that took three of the company’s 12 board seats. While the press was focused on the investor’s concerns over Exxon Mobil’s long term energy transformation strategy, other factors fundamental to shareholder returns—like capital discipline and balance sheet management—were also at play.”
1. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 50
Price as of November 4, 2021: $113.51
Chevron Corporation (NYSE:CVX) is an oil and gas exploration, production, transportation, refining, and marketing company. The company is riding the momentum of increasing crude oil and natural gas prices and has managed to bring down its operational cost.
On October 29, the company reported strong Q3 2021 results. The revenue of the oil and gas giant was reported to be $44.71 billion, rising by 80% YoY and outperforming the consensus estimate by over $4 billion or 10%. Meanwhile, the EPS for the quarter was $2.96, which beat the analysts’ estimate of $2.21 by 33%. Chevron Corporation (NYSE:CVX) also reported its highest quarterly free cash flow (FCF) on record, which helped the company reduce its debt by $5.6 billion to bring the net-debt to capital ratio below the 20% to 25% level. The company has also paid out dividends of $2.6 billion and repurchased stock worth $625 million.
On November 2, Bill Selesky at Argus maintained a Buy rating and $127 price target on Chevron Corporation (NYSE:CVX). Post the company’s Q3 results, the analyst expects the company’s EPS to be $8.85 as opposed to the previous estimate of $7.78 for the next quarter, anticipating the adverse impact of the COVID-19 pandemic to erode and commodity prices to stay higher in the coming year.
Diamond Hill Capital mentioned Chevron Corporation (NYSE:CVX) in its Q1 2021 investor letter. Here’s what the fund said:
“Integrated oil and gas company Chevron Corp. shares meaningfully declined during the quarter as OPEC+ failed to reach a deal, allowing us to establish a position in this lower risk, more diversified company at a sufficient discount to our estimate of intrinsic value.”
Out of the 873 hedge funds being tracked by Insider Monkey, 50 hedge funds held a stake in Chevron at the end of Q2 2021 as opposed to 41 hedge funds in the preceding quarter. This also reflects the rising interest of hedge funds in the corporation.
You can also take a peek at the 10 Most Shorted Stocks Hedge Funds Are Buying and 10 Stocks to Buy According to Bluegrass Capital Partners.
Follow Insider Monkey on Twitter
Suggested Articles:
- Top 10 Stock Picks of Anand Desai’s Darsana Capital Partners
- Top 10 Stock Picks of Brandon Osten’s Venator Capital Management
- 9 Stocks To Buy According To Carson Yost’s Yost Capital Management
Disclose. None. 10 Best Crude Oil Stocks to Buy Today is originally published on Insider Monkey.
