In this article, we will discuss the 5 best crude oil stocks to buy today. If you want to read our detailed analysis of these stocks, you can go directly to the 10 Best Crude Oil Stocks to Buy Today.
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.
