In this article, we discuss 10 best energy stocks for inflation.
Energy stocks prove to be a haven for investors who scramble to safeguard their money during times of inflation and crisis. A report from Hartford Funds shows that the energy sector, which includes oil and gas companies, is one of the areas that has performed well during inflation in the past. The report says that energy stocks beat inflation 71% of the time and delivered an annual real return of 9.0% per year on average, during March 1973 until December 2021.
The world is undergoing a significant energy transition. The Russian war on Ukraine battered the stock market and broke global supply chains, which in turn increased energy prices and raised concerns for energy security. In addition to the higher prices, many countries are working to shift to renewable energy sources and achieve net zero carbon. According to McKinsey, 64 countries have legislated attaining net zero carbon in the decades to come. To put the growth of electrification and renewables in perspective, power, synfuels, and hydrogen will account for 32% of the global energy mix by 2035 and 50% by 2050.
As per Reuters, oil prices rose by $2 on July 25 on the back of supply headwinds and the relative weakness of the US dollar, but the prices wavered given the risk of higher rates by the Federal Reserve impacting fuel demand. In light of the volatility in oil futures due to potentially curbed demand but ongoing supply fears, Dennis Kissler, senior vice president of trading at BOK Financial, said that the US and European economies are experiencing a slowdown, and with the Fed set to hike rates by about 75 basis points in their July 26-27 meeting, investors are very concerned about pouring into energy stocks and are monitoring the market closely.
Oil prices will be supported as Russian supply is limited due to Western sanctions and the country’s refusal to provide oil and gas to the nations who have capped Russian oil prices. Nord Stream 1, Russia’s largest gas link to Germany, will also operate at just 20% of its capacity, which would further boost energy stocks, be it oil, electricity, or alternative energy. Amid the consistently rising inflation, some of the best energy stocks to consider include Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), and ConocoPhillips (NYSE:COP).
Photo by David Thielen on Unsplash
Our Methodology
We selected these energy stocks based on their growth fundamentals, future business prospects, positive analyst ratings, and strong hedge fund sentiment. Many of these companies pay out a consistent dividend to hedge against inflation as well.
The list is ranked according to the hedge fund sentiment around the stocks, which was gauged from Insider Monkey’s Q1 2022 database of 900+ elite funds.
Best Energy Stocks for Inflation
10. The Southern Company (NYSE:SO)
Number of Hedge Fund Holders: 28
The Southern Company (NYSE:SO) was incorporated in 1945 and is headquartered in Atlanta, Georgia. The company generates, transmits, and distributes electricity, operating through Gas Distribution Operations, Gas Pipeline Investments, Wholesale Gas Services, and Gas Marketing Services segments. On July 18, The Southern Company (NYSE:SO) declared a quarterly dividend of $0.68 per share, in line with previous. The dividend is distributable on September 6, to shareholders of record on August 15. The Southern Company (NYSE:SO)’s dividend yield on July 25 came in at 3.77%.
On July 21, Guggenheim analyst Shahriar Pourreza raised the price target on The Southern Company (NYSE:SO) to $80 from $76 and maintained a Buy rating on the shares. The analyst said that “investors as a whole are finally starting to think beyond Vogtle” and reaffirmed a view that The Southern Company (NYSE:SO) has “one of the strongest regulatory backdrops in the country”. The debate around The Southern Company (NYSE:SO) is “fast becoming its future rather than its present,” observed the analyst.
According to Insider Monkey’s data, The Southern Company (NYSE:SO) was part of 28 hedge fund portfolios at the end of Q1 2022, up from 26 funds in the earlier quarter. Jim Simons’ Renaissance Technologies is the leading shareholder of the company, with 1.65 million shares worth $119.7 million.
In addition to Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), and ConocoPhillips (NYSE:COP), elite hedge funds are monitoring The Southern Company (NYSE:SO) amid rising inflation.
9. Phillips 66 (NYSE:PSX)
Number of Hedge Fund Holders: 41
Phillips 66 (NYSE:PSX) is an energy manufacturing and logistics company. It operates through four segments – Midstream, Chemicals, Refining, and Marketing and Specialties. Phillips 66 (NYSE:PSX) has 2 million bpd of crude throughput capacity, in addition to notable chemicals and midstream assets which drive high margins for the company.
On July 13, Phillips 66 (NYSE:PSX) declared a $0.97 per share quarterly dividend. The dividend is payable on September 1, to shareholders of record on August 18. The stock delivers a dividend yield of 4.45% as of July 25.
Barclays analyst Theresa Chen on July 6 raised the firm’s price target on the stock to $113 from $95 and maintained an Overweight rating on the shares. The analyst lifted her Q2 earnings per share estimate to $6.11, ahead of the $4.81 consensus, mainly generated by a “significantly higher” refining contribution. The analyst’s Q2 refining outlook factors in an “extremely strong” crack spread backdrop, 91% utilization, and recovering margin capture.
Among the hedge funds tracked by Insider Monkey, 41 funds were bullish on Phillips 66 (NYSE:PSX) at the conclusion of Q1 2022, with collective stakes worth $1.4 billion. Israel Englander’s Millennium Management is the biggest stakeholder of the company, with approximately 3 million shares worth $256.5 million.
Black Bear Value Partners released its Q3 2020 investor letter and mentioned Phillips 66 (NYSE:PSX). Here is what it said:
“PSX has been a top 5 position in years past. Its long-term value is similar to when we last owned it but is down 50+% in price in sympathy with broader energy concerns.
PSX is an integrated energy company with 4 central divisions: refining, chemicals, midstream (pipelines etc.) and marketing (gas stations). Due to downstream demand destruction, the refining business is taking it on the chin. This could persist for the remainder of 2020 and into 2021. As in years past, a lot of focus is given to the refining business as it has historically been the lion’s share of the value for PSX. Management has invested in the non-refining businesses who now make up most of the value of the company.
Management is extremely thoughtful with capital allocation and has focused on a healthy balance sheet with opportunistic share repurchases. They do not spend capex on projects unless they meet a healthy margin of safety for returns.
PSX should be able to generate substantial amounts of cash in the coming years and generate a 15+% free cash flow yield on quarter-end pricing. If the stock remains low, management will be buying a lot of stock.”
8. Halliburton Company (NYSE:HAL)
Number of Hedge Fund Holders: 47
Halliburton Company (NYSE:HAL) is an energy firm based in Houston, Texas, operating through Completion and Production, and Drilling and Evaluation segments. Halliburton Company (NYSE:HAL) exceeded Street consensus for Q2 earnings per share and revenue, reporting the largest quarterly profit in about four years as it sold almost the entire equipment inventory in the North American market.
Susquehanna analyst Charles Minervino told investors on July 20 that he lifted his 2022/2023 EPS estimates for Halliburton Company (NYSE:HAL) after the Q2 2022 EPS beat and the extremely optimistic outlook for the global oilfield services spending pattern. The analyst thinks the company is very well positioned to benefit from the growing US market of rig count and completions activity and an international market that is poised for a multi-year growth cycle.
According to the Q1 database of Insider Monkey, 47 hedge funds were bullish on Halliburton Company (NYSE:HAL), up from 43 funds in the earlier quarter. Richard S. Pzena’s Pzena Investment Management featured as the leading stakeholder of the company, with 22.7 million shares worth $862.2 million.
7. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 49
EOG Resources, Inc. (NYSE:EOG) is a Texas-based company that develops, produces, and markets crude oil, natural gas, and natural gas liquids. EOG Resources, Inc. (NYSE:EOG)’s dividend yield came in at 2.85% on July 25 and the company is allocating $4.5 billion for capital growth. The company also has a robust balance sheet, and it is dedicated to generating strong free cash flow to drive consistent shareholder returns.
On July 22, Piper Sandler analyst Mark Lear maintained an Overweight rating on EOG Resources, Inc. (NYSE:EOG) and lowered the price target on the shares to $160 from $164. As per the analyst, the energy sector has faced volatility with recession fears on the rise and cost inflation pressuring the group, but with the sector “de-rating faster than the pullback in crude,” the setup is “broadly favorable” for exploration and production heading into the Q2 earnings season. Similarly, MKM Partners analyst Leo Mariani initiated coverage of EOG Resources, Inc. (NYSE:EOG) on July 20 with a Buy rating and a $123 price target as part of a broader research note on Exploration & Production names.
Among the hedge funds tracked by Insider Monkey, 49 hedge funds were bullish on EOG Resources, Inc. (NYSE:EOG) at the end of Q1 2022, compared to 51 funds in the last quarter. Harris Associates is the leading shareholder of the company, with 8.6 million shares worth over $1 billion.
Like Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), and ConocoPhillips (NYSE:COP), the smart money is pouring into EOG Resources, Inc. (NYSE:EOG).
Here is what Oakmark Select Fund has to say about EOG Resources, Inc. (NYSE:EOG) in its Q1 2022 investor letter:
“EOG Resources (NYSE:EOG) (+36%), was among our top contributors in the quarter as oil prices rallied due to tight supplies, which were then exacerbated by the Russian invasion of Ukraine. Although their share prices have increased considerably, both companies still look quite undervalued even using longer term oil prices in the $65-70 dollar range. Meanwhile, if times are good over the next couple of years, we expect these companies to return significant percentages of their market caps to shareholders.”
6. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 53
Chevron Corporation (NYSE:CVX) is a California-based multinational integrated energy and chemicals company. On July 19, Chevron Corporation (NYSE:CVX) reported that it was part of a $250 million funding round for Google-backed TAE Technologies, a nuclear fusion startup with a “non-radioactive approach” that has raised a total of $1.2 billion. Chevron Corporation (NYSE:CVX)’s annual dividend of $5.68 per share and its multi-year, multi-billion dollar share repurchase program is an attractive incentive for investors.
HSBC analyst Gordon Gray upgraded Chevron Corporation (NYSE:CVX) on July 20 to Buy from Hold with a price target of $167, down from $183. Since the company has been one of the worst performers in the energy group in the last month, the valuation has contracted back to levels which justify an upgrade since the new price target reflects a 21% upside, the analyst told investors. Chevron Corporation (NYSE:CVX) has “a clear line of sight on buybacks” and he thinks there is “plenty of room” for buyback guidance to be elevated again, the analyst added.
Among the hedge funds tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway is the leading position holder in the company, with more than 159 million shares worth about $26 billion. Overall, 53 hedge funds were bullish on Chevron Corporation (NYSE:CVX) at the end of the first quarter of 2022.
Here is what ClearBridge Investments Large Cap Value Strategy has to say about Chevron Corporation (NYSE:CVX) in its Q1 2022 investor letter:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holding Chevron (NYSE:CVX) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
5. Enphase Energy, Inc. (NASDAQ:ENPH)
Number of Hedge Fund Holders: 57
Enphase Energy, Inc. (NASDAQ:ENPH) was incorporated in 2006 and is headquartered in Fremont, California. The company specializes in home energy solutions for the solar photovoltaic industry in the United States and internationally. On July 14, after the Biden administration announced it would allocate $56 million to programs for elevating U.S. manufacturing of solar energy products, Enphase Energy, Inc. (NASDAQ:ENPH) stock gained 2.2%.
On July 20, JPMorgan analyst Mark Strouse raised the price target on Enphase Energy, Inc. (NASDAQ:ENPH) to $247 from $240 and reiterated an Overweight rating on the shares. The analyst is “generally positive” on the alternative energy sector in the second half of 2022, noting secular trends will thrive regardless of the economic cycle. Soaring fossil fuel prices and increasing efforts for energy security are building higher demand for renewables, despite supply chain constraints and elevated input costs, the analyst told investors in a research note.
According to Insider Monkey’s data, Enphase Energy, Inc. (NASDAQ:ENPH) was part of 57 hedge fund portfolios at the end of Q1 2022, up from 50 funds in the prior quarter. Bruce Emery’s Greenvale Capital is a prominent shareholder of the company, with 500,000 shares worth about $101 million.
Here is what ClearBridge Investments Sustainability Leaders Strategy has to say about Enphase Energy, Inc. (NASDAQ:ENPH) in its Q1 2022 investor letter:
“Enphase Energy (NASDAQ:ENPH) is a key solar holding that should be able to take advantage of greater incentives for solar installations in many geographies. The company was also a strong contributor for the quarter, overcoming pressures of a higher discount rate on their strong projected future earnings, raw material inflation and supply chain challenges as their long-term value was reaffirmed.”
4. Schlumberger Limited (NYSE:SLB)
Number of Hedge Fund Holders: 58
Schlumberger Limited (NYSE:SLB) is a Texas-based company that provides technology for the energy industry worldwide. The company operates through four segments – Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. On July 22, Schlumberger Limited (NYSE:SLB) raised its full-year revenue guidance after a solid Q2 in which “growth was very broad across all dimensions”. The company expects $27 billion in revenue this year after soaring 20% in Q2 on the back of higher drilling and completion activity in its North America and International segments. The company also declared a $0.175 per share quarterly dividend, which is distributable on October 13 to shareholders of record on September 7.
On July 25, Cowen analyst Marc Bianchi raised the price target on Schlumberger Limited (NYSE:SLB) to $49 from $47 and kept an Outperform rating on the shares. The analyst observed that guidance may be conservative but he still sees a multi-year up-cycle and his updated price target delivers 40% upside.
According to Insider Monkey’s data, 58 hedge funds were long Schlumberger Limited (NYSE:SLB) at the end of March, up from 47 funds in the earlier quarter. Rajiv Jain’s GQG Partners featured as the leading shareholder of the company, with roughly 28 million shares worth $1.15 billion.
Here is what ClearBridge Investments has to say about Schlumberger Limited (NYSE:SLB) in its Q2 2021 investor letter:
“Schlumberger is a leading oilfield services company that should enjoy both cyclical and secular opportunities over the next market cycle and beyond. On the cyclical front, after years of declining energy service activity and negative pricing, service activity is increasing modestly and pricing is inflecting higher, which is always the key cyclical driver for energy services stocks. In addition, we expect the Middle East to gain share of oil production as ESG considerations limit upstream investment in other regions. As the dominant service provider in the Middle East, Schlumberger is very well-positioned for this shift. On the secular front, Schlumberger has a rapidly growing digital services capability that helps producers operate much more efficiently and with much less waste, which will be a core ESG focus. Finally, Schlumberger is investing directly, and with partners, in energy transition capabilities such as carbon capture, hydrogen and geothermal that should allow Schlumberger to grow and remain viable well beyond the current energy cycle.”
3. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 66
Devon Energy Corporation (NYSE:DVN) is an Oklahoma-based energy firm that engages in the exploration and production of oil, natural gas, and natural gas liquids in the United States. On July 22, Piper Sandler analyst Mark Lear maintained an Overweight rating on Devon Energy Corporation (NYSE:DVN) and lowered the price target on the shares to $94 from $97. The analyst said that while the last six weeks have been volatile in energy with recession threats and cost inflation challenging the group, the setup is “broadly favorable” for the energy group heading into Q2 earnings. Similarly, Truist analyst Neal Dingmann on July 19 raised the price target on the stock to $115 from $103 and kept a Buy rating on the shares as part of a broader note previewing Q2 results in the exploration and production space.
According to Insider Monkey’s Q1 data, 66 hedge funds were bullish on Devon Energy Corporation (NYSE:DVN), up from 51 funds in the earlier quarter. Ken Fisher’s Fisher Asset Management is a prominent stakeholder of the company, with 4.2 million shares worth $249.3 million.
2. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 67
Occidental Petroleum Corporation (NYSE:OXY) is an American company that explores and develops oil and gas properties in the United States, the Middle East, Africa, and Latin America. The stock has gained over 107% year to date as of July 25. On July 18, Warren Buffett’s Berkshire Hathaway added almost 2 million Occidental Petroleum Corporation (NYSE:OXY) shares to its portfolio, which lifted its existing position closer to a 20% stake in the company. The billionaire investor is attracted to the company’s renewable energy ambitions, strong free cash flow, and notable capital decisions by the CEO, Vicki Hollub.
Truist analyst Neal Dingmann on July 19 raised the price target on Occidental Petroleum Corporation (NYSE:OXY) to $105 from $93 and kept a Buy rating on the shares as part of a broader research note previewing Q2 results in the E&P space. According to Insider Monkey’s data, 67 hedge funds were bullish on Occidental Petroleum Corporation (NYSE:OXY) at the end of Q1 2022, up from 58 funds in the earlier quarter.
Here is what Smead Capital Management has to say about Occidental Petroleum Corporation (NYSE:OXY) in its Q3 2021 investor letter:
“Oil stocks dominated our winners for the quarter. We showed that we have unlimited ability to tempt fate by buying into Occidental Petroleum (OXY) this year after it was our biggest loser of 2020. It gained 16.64% during the third quarter.”
1. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 67
ConocoPhillips (NYSE:COP) was founded in 1917 and is headquartered in Houston, Texas. The company produces, transports, and distributes crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. ConocoPhillips (NYSE:COP) is focused on raising its exposure to the global LNG market. The company is also generating exponential FCF and has a dividend yield exceeding 3%, with a price to earnings ratio of just 9.47.
MKM Partners analyst Leo Mariani initiated coverage of ConocoPhillips (NYSE:COP) on July 20 with a Buy rating and a $110 price target as part of a broader research note on Exploration & Production names. Despite the recent volatility in the oil market, WTI oil prices should remain over $100 as long as the Ukraine war continues, the analyst told investors. The analyst is also optimistic about ConocoPhillips (NYSE:COP)’s “high returns of capital to shareholders, lower base production declines compared to peers, valuable international asset diversification and strong balance sheet”.
According to Insider Monkey’s data, 67 hedge funds were bullish on ConocoPhillips (NYSE:COP) at the end of Q1 2022, up from 56 funds in the earlier quarter. Ric Dillon’s Diamond Hill Capital is the leading shareholder of the company, with more than 7 million shares worth $702.5 million.
Here is what ClearBridge Investments Large Cap Value Strategy has to say about ConocoPhillips (NYSE:COP) in its Q1 2022 investor letter:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holdings ConocoPhillips (NYSE:COP) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
You can also take a look at This Analyst Is Bearish on These 15 Retail Stocks Amid “Soft Landing” Expectations and 10 Best Stocks For Inflation According to Redditors.
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Disclosure: None. 10 Best Energy Stocks for Inflation is originally published on Insider Monkey.
