11 Most Undervalued Natural Gas Stocks To Buy According To Hedge Funds

Published on January 23, 2023 at 9:04 am by Hamna Asim in Hedge Funds, News

In this article, we discuss 11 most undervalued natural gas stocks to buy according to hedge funds. If you want to see more stocks in this selection, check out 5 Most Undervalued Natural Gas Stocks To Buy According To Hedge Funds.

In 2022, the oil and gas industry experienced exceptional financial success, resulting in a significant amount of financial resources available to support the plans for 2023. The onset of winter in many regions around the world, which has been milder than anticipated and may continue for an extended period, particularly in the US, is reducing concerns about a potential shortage of natural gas that was forecast to lead to disruptions in service and increased energy costs. Additionally, many countries are now sitting on ample natural gas reserves. Gas storage across Europe is 84% full, far ahead of the five-year seasonal average of 70%, as per Gas Infrastructure Europe.

The oil and gas industry entered 2023 with the strongest financial position it has ever had, with a commitment to maintaining financial discipline. This positive outlook is reflected in a survey conducted by Deloitte, in which 93% of oil and gas executives express a positive attitude towards the industry in the upcoming year. This positive momentum could assist companies in addressing the lack of investment in the industry in recent years and support a faster transition to cleaner energy sources.

Natural gas will continue to be one of the preferred choices for generating electricity and heat. To benefit from the boom in the natural gas industry, some of the most undervalued stocks preferred by smart investors include Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and ConocoPhillips (NYSE:COP).

Our Methodology

We scanned Insider Monkey’s database of holdings of 920 elite hedge funds tracked as of the end of the third quarter of 2022 and picked the 11 most undervalued natural gas stocks that have P/E ratios of less than or close to 10 as of January 20. The list is arranged in ascending order of the number of hedge fund holders in each firm.

Photo by Robin Sommer on Unsplash

Most Undervalued Natural Gas Stocks To Buy According To Hedge Funds

11. Pioneer Natural Resources Company (NYSE:PXD)

Number of Hedge Fund Holders: 49

P/E Ratio as of January 20: 8.44

Pioneer Natural Resources Company (NYSE:PXD) is a Texas-based company that operates as an independent oil and gas exploration and production company in the United States. The company explores for, develops, and produces oil, natural gas liquids, and gas.

Mizuho analyst Nitin Kumar on January 9 assumed coverage of Pioneer Natural Resources Company (NYSE:PXD) with a Buy rating and a $294 price target. He believes that the company will improve capital efficiencies and focus on higher return projects in 2023, which should refocus investors on the company’s resilient cash return program and large reserve base in U.S. shale.

According to Insider Monkey’s third quarter database, 49 hedge funds were long Pioneer Natural Resources Company (NYSE:PXD), compared to 56 funds in the prior quarter. Donald Yacktman’s Yacktman Asset Management is the biggest stakeholder of the company, with 686,869 shares worth $148.7 million.

Like Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and ConocoPhillips (NYSE:COP), Pioneer Natural Resources Company (NYSE:PXD) is one of the most undervalued natural gas stocks to invest in.

Here is what Carillon Scout Mid Cap Fund has to say about Pioneer Natural Resources Company (NYSE:PXD) in its Q1 2022 investor letter:

“Pioneer Natural Resources (NYSE:PXD) performed well in a strong energy sector. Pioneer stood out recently with a pledge to return a large majority of free cash flow to share owners through dividends and stock buybacks, and ended hedging to give share owners more earnings and dividend potential should oil and gas prices continue to rise.”

10. Marathon Petroleum Corporation (NYSE:MPC)

Number of Hedge Fund Holders: 50

P/E Ratio as of January 20: 5.61

Marathon Petroleum Corporation (NYSE:MPC) was founded in 1887 and is headquartered in Findlay, Ohio. It operates as an integrated downstream energy company primarily in the United States. Marathon Petroleum Corporation (NYSE:MPC) provides crude oil, refined products, natural gas, and natural gas liquids. It is one of the most undervalued natural gas stocks to buy according to elite investors.

On January 9, Barclays analyst Theresa Chen raised the price target on Marathon Petroleum Corporation (NYSE:MPC) to $130 from $126 and kept an Overweight rating on the shares. The analyst expects another quarter of high R&M earnings as a result of an above mid-cycle macro environment.

According to Insider Monkey’s data, 50 hedge funds were bullish on Marathon Petroleum Corporation (NYSE:MPC) at the end of Q3 2022, and Paul Singer’s Elliott Management is the largest stakeholder of the company, with more than 11 million shares worth $1.10 billion.

Here is what Clark Street Value has to say about Marathon Petroleum Corporation (NYSE:MPC) in its Q4 2021 investor letter:

“During the worst of covid, I bought some LEAPs on Marathon Petroleum (MPC) as a proxy for Par Pacific (PARR) since long dated options weren’t available on the later. Those MPC calls expire next month and I’ll take profits, with PARR I’ve reduced my position throughout the year and might sell the rest early next year, I’ve owned it for 6-7 years and it has gone nowhere, they haven’t touched the NOLs, just a difficult business that I probably don’t understand as well as I should.”

9. Marathon Oil Corporation (NYSE:MRO)

Number of Hedge Fund Holders: 50

P/E Ratio as of January 20: 5.31

Marathon Oil Corporation (NYSE:MRO) is a Texas-based independent exploration and production company that engages in the exploration, production, and marketing of crude oil, condensate, natural gas liquids, and natural gas. Marathon Oil Corporation (NYSE:MRO) is one of the most undervalued natural gas stocks as per elite investors. On January 13, Piper Sandler analyst Mark Lear maintained an Overweight rating on Marathon Oil Corporation (NYSE:MRO) but lowered the firm’s price target on the shares to $40 from $42.

According to Insider Monkey’s data, Marathon Oil Corporation (NYSE:MRO) was part of 50 hedge fund portfolios at the end of Q3 2022, compared to 41 in the prior quarter. Ken Fisher’s Fisher Asset Management is the largest position holder in the company, with 8.3 million shares worth $188 million.

Here is what Carillon Tower Advisers had to say about Marathon Oil Corporation (NYSE:MRO) in its “Carillon Clarivest Capital Appreciation Fund” first-quarter 2022 investor letter:

“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Marathon Oil (NYSE:MRO) increased its quarterly dividend and executed an impressive share buyback that blew by the target it originally announced.”

8. Devon Energy Corporation (NYSE:DVN)

Number of Hedge Fund Holders: 51

P/E Ratio as of January 20: 6.75

Devon Energy Corporation (NYSE:DVN) is an Oklahoma-based independent energy company that primarily engages in the exploration, development, and production of oil, natural gas, and natural gas liquids in the United States. Devon Energy Corporation (NYSE:DVN) said it expects Q4 production to be reduced by 2%, or 15,000 boe/day, due to the impact of harsh weather across its operations in December, especially in the Williston Basin. Devon Energy Corporation (NYSE:DVN) estimates that Q4 production will be limited to an average of 636,000 boe/day, including 316,000 bbl/day of oil. It is one of the most undervalued natural gas stocks to invest in.

On January 9, Mizuho analyst Nitin Kumar assumed coverage of Devon Energy Corporation (NYSE:DVN) with a Buy rating and trimmed the price target to $82 from $86. The stock is trading at a slight premium to its large-cap peers, the company’s “fixed plus variable” dividend is both “sustainable and differentiated, which merits the premium valuation,” the analyst wrote in a research note.

According to Insider Monkey’s data, 51 hedge funds were bullish on Devon Energy Corporation (NYSE:DVN) at the end of the third quarter of 2022, compared to 57 funds in the prior quarter. Rajiv Jain’s GQG Partners is the largest stakeholder of the company, with 10.7 million shares worth $642 million.

In its Q2 2022 investor letter, GoodHeaven Capital Management, an asset management firm, highlighted a few stocks and Devon Energy Corporation (NYSE:DVN) was one of them. Here is what the fund said:

“Our biggest dollar gainer within this period was Devon Energy Corporation (NYSE:DVN), a position which emanated from a takeover in early 2021 of our long-time holding WPX Energy. We are sitting on a material (unrealized) gain from our cost and are now receiving material dividends thanks to Devon’s thoughtful fixed/variable dividend policy. Energy is now a hot sector for investors but we have had material exposure for a long time. We remember a bit too well $40 oil, NEGATIVELY PRICED front-month oil contract, and what it’s like to own a company with leverage and negative free cash flow during such periods. Our desire to have our biggest portfolio exposures be high-return, growing, reasonably predictable and moderately levered companies led us to reduce our Devon exposure in the past. When the recent facts and circumstances for the industry changed and appeared supportive of healthy oil prices, we decided to maintain a sizable holding and more recently added to the position. At Devon’s Q1 dividend rate, which is most variable in nature, the shares now yield approximately 10% and our yield on our average cost is materially higher. In addition, we maintain additional energy exposure through our long-term (and successful) holding in Hess Midstream and less directly through TerraVest and Berkshire Hathaway’s energy investments.”

7. Diamondback Energy, Inc. (NASDAQ:FANG)

Number of Hedge Fund Holders: 55

P/E Ratio as of January 20: 5.98

Diamondback Energy, Inc. (NASDAQ:FANG) is a Texas-based independent oil and natural gas company, focused on the acquisition, development, and exploration of onshore oil and natural gas reserves in the Permian Basin in West Texas. On November 29, Diamondback Energy, Inc. (NASDAQ:FANG) priced an offering of $650 million 6.250% senior notes due March 15, 2053. The price to the public for the notes is 99.985% of the principal amount. The offering concluded on December 13, 2022. It is one of the most undervalued natural gas stocks to buy according to hedge funds.

On January 9, Mizuho analyst Nitin Kumar initiated coverage of Diamondback Energy, Inc. (NASDAQ:FANG) with a Buy rating and a price target of $195, down from $211. The company has focused on low-cost operations since its inception, which has enabled it to be a consolidator in the basin, the analyst wrote in a research note. He believes Diamondback Energy, Inc. (NASDAQ:FANG)’s “low-cost advantage should continue to shine through.”

According to Insider Monkey’s Q3 data, 55 hedge funds were long Diamondback Energy, Inc. (NASDAQ:FANG), compared to 54 funds in the prior quarter. Donald Yacktman’s Yacktman Asset Management is the largest stakeholder of the company, with 1.26 million shares worth $152 million.

In its Q1 2021 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and Diamondback Energy, Inc. (NASDAQ:FANG) was one of them. Here is what the fund said:

“Diamondback Energy (FANG) returned 14.4% in the quarter as the oil price rose and fell during the quarter ending the period largely in the same place that it started. The company reported strong 3Q results beating on the top and bottom lines. The company reported revenue of $1.9B beating the consensus of $1.5B with EPS of $2.94 beating expectations for $2.79. The beat was driven by a combination of higher volumes, higher realizations, and efficiency gains. The company increased its total production guidance for the year to 370-372 mboe/d1 (up from 363-370 mboe/d) while lowering Capital Expenditure (CAPEX) guidance for the second time this year to $1.49-1.53B. The company raised the dividend for the third time this year to $2/share annually while authorizing a new $2B share repurchase program. Starting in 4Q21, the company plans to return 50% of Free Cash Flow to shareholders through the base dividend and a combination of buybacks and special dividends. Finally, the CEO Travis Stice announced plans to reduce methane emissions by 70% as part of the firm’s ESG initiative.”

6. EQT Corporation (NYSE:EQT)

Number of Hedge Fund Holders: 57

P/E Ratio as of January 20: 5.73

EQT Corporation (NYSE:EQT) was founded in 1878 and is headquartered in Pittsburgh, Pennsylvania. It operates as a natural gas production company in the United States. Debt and cost reduction have resulted in the outperformance of EQT Corporation (NYSE:EQT) stock since the current management took over. It is one of the most undervalued natural gas stocks to buy according to hedge funds.

On January 9, Mizuho analyst Nitin Kumar assumed coverage of EQT Corporation (NYSE:EQT) with a Buy rating and a price target of $64, up from $61. Despite a “muted” outlook for U.S. natural gas prices between 2023 and 2024, EQT Corporation (NYSE:EQT) should be able to offer above-peer free cash flow in 2023 as “onerous” hedges roll-off, the analyst told investors in a research note.

According to Insider Monkey’s data, EQT Corporation (NYSE:EQT) was part of 57 hedge fund portfolios at the end of September 2022, compared to 52 in the prior quarter. Eric W. Mandelblatt’s Soroban Capital Partners is the largest stakeholder of the company, with 6.5 million shares worth $263.6 million.

In addition to Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and ConocoPhillips (NYSE:COP), EQT Corporation (NYSE:EQT) is one of the most popular natural gas stocks among elite hedge funds.

Here is what ClearBridge Investments Mid Cap Strategy has to say about EQT Corporation (NYSE:EQT) in its Q3 2022 investor letter:

“We also added natural gas company EQT (NYSE:EQT) in the energy sector. As one of the lowest-cost domestic producers, EQT stands to benefit from its position as a leading supplier of natural gas to a world suffering from critically low energy reserves. The Russian invasion of Ukraine and threats to hold natural gas exports hostage have spurred a surge in European energy prices, generating long-term agreements by European countries to purchase U.S. natural gas.

This strong demand and elevated prices have helped EQT strengthen its balance sheet and position it to take advantage as opportunities emerge for natural gas to plug the gaps in the global energy transition from fossil fuels to renewables.”

Click to continue reading and see 5 Most Undervalued Natural Gas Stocks To Buy According To Hedge Funds.

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Published on April 11, 2024 at by Inan Dogan, PhD

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