Despite the stated goal of energy dominance, the US has already achieved significant milestones in energy production. For six consecutive years, the US has led the world in oil production and was one of the largest exporters of natural gas in 2023. The Trump administration aims to further strengthen the position of the US in global oil and gas markets, challenging OPEC and other major producers.
To achieve this growth, the American Petroleum Institute (API), the association of oil and natural gas industry trade, has urged Trump to implement a five-point plan that includes authorizing additional liquefied natural gas (LNG) exports, expanding drilling on federal lands, easing pipeline permitting, repealing stringent vehicle emissions and fuel economy standards, and preserving current corporate tax rates. According to CNBC, Trump has indicated plans to sign executive orders related to energy policy upon taking office on January 20. He is also establishing a National Energy Council, which aims to reduce regulatory barriers and advance US energy dominance.
Read Also: 12 Stocks Most Held by Hedge Funds and 11 Best Freight Stocks To Buy Now.
US Oil Producers and the Challenge of Lower Oil Prices
In an interview with CNBC on December 5, Helima Croft, Managing Director and Global Head of Commodity Strategy at RBC Capital Markets, discussed that while President Trump and his administration have been vocal about their desire for lower oil prices, this poses significant challenges for the US oil producers because they are already operating in a highly competitive environment. The equilibrium price that balances the interests of businesses and consumers is a critical question, as producers do not want to drill themselves out of business. Croft explained that there is a collective production cut agreement between OPEC countries running through the end of 2025. In addition to the collective production cut, there is a voluntary cut by eight producers that has been phased slowly. The current expectation was that these producers would maintain this stance due to sanctions and a less optimistic demand outlook.
Croft acknowledged that geopolitical tensions particularly in the Middle East play a role in influencing market sentiment. However, she emphasized that the biggest issue right now is from the demand side, due to the impact of possible tariffs on China. Weak Chinese demand has been a problem for the oil market this year, and the potential implications of tariffs will be closely watched as they could further affect demand.
The US has achieved significant milestones in energy production in recent years and the Trump administration plans to further strengthen it in the global oil and gas markets. With that in context, let’s take a look at the 10 best undervalued energy stocks to buy according to hedge funds.
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Our Methodology
To compile our list of the 10 best undervalued energy stocks to buy according to hedge funds, we used Finviz and Yahoo stock screeners to find the 25 largest energy companies trading below a forward P/E ratio of 15, as of December 16. We then used Insider Monkey’s Hedge Fund database to rank 10 stocks according to the largest number of hedge fund holders, as of Q3 2024. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Undervalued Energy Stocks To Buy According to Hedge Funds
10. Shell plc (NYSE:SHEL)
Number of Hedge Fund Investors: 48
Forward P/E Ratio as of December 16: 8.05
Shell plc (NYSE:SHEL) is one of the world’s largest integrated energy companies, with operations in 70 countries. The company is engaged in oil and gas exploration, production, refining, and marketing, as well as renewable energy initiatives. Shell plc (NYSE:SHEL) serves industrial, commercial, and retail customers globally by offering fuels, lubricants, and energy solutions.
Shell plc (NYSE:SHEL) is leveraging its strengths in liquefied natural gas (LNG) and deep water assets to drive future growth. The company believes that gas, particularly LNG, will remain a foundational part of the global energy system for decades to come. This belief is underpinned by significant investments in LNG projects, including the recent acquisition of Pavilion Energy, which adds 6.5 million tons of LNG capacity. Shell plc (NYSE:SHEL) is also advancing major projects such as LNG Canada and the Qatar LNG expansion which aims to export natural gas to Asian markets. The two projects are expected to significantly enhance the company’s position as a leading LNG player.
Shell plc (NYSE:SHEL) is also committed to optimizing its cost structure and capital allocation to ensure resilience and sustainability. The company is focusing on reducing capital expenditures, by implementing disciplined project management, cost-saving initiatives, and a focus on high-return investments.
9. Canadian Natural Resources Limited (NYSE:CNQ)
Number of Hedge Fund Investors: 48
Forward P/E Ratio as of December 16: 11.75
Canadian Natural Resources Limited (NYSE:CNQ) is a leading Canadian oil and gas producer with a diversified portfolio of assets, including oil sands, conventional oil, and natural gas. The company’s operations are centered in Canada, the North Sea, and offshore Africa. The company sells its hydrocarbon production to refineries and utility companies.
Canadian Natural Resources (NYSE:CNQ) has to acquire a 20% interest in the Athabasca Oil Sands Project (AOSP) from Chevron Canada Limited. This acquisition will increase the company’s total interest in AOSP to 90%. The deal includes a 20% stake in the Muskeg River and Jackpine mines, the Scotford Upgrader, and the Quest Carbon Capture and Storage facility. The acquisition is expected to add approximately 62,500 barrels per day of synthetic crude oil production to the company’s portfolio.
In a separate agreement, Canadian Natural Resources (NYSE:CNQ) has also agreed to acquire Chevron’s 70% operated working interest in light crude oil and liquids-rich assets in the Duvernay play in Alberta. This acquisition is expected to add approximately 60,000 barrels of oil equivalent per day to the company’s production in 2025. The Duvernay assets are expected to provide near-term growth and contribute to the company’s free cash flow.
Together, the acquisitions are expected to add approximately 122,500 barrels of oil equivalent per day to the company’s production in 2025 and increase the company’s total proved and probable reserves by approximately 1,448 million barrels of oil equivalent.
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