In this piece, we will take a look at the ten energy stocks to buy on the OPEC production cuts.
The decision by OPEC+ to cut oil output earlier this month has become a source of friction between the United States and Saudi Arabia, as efforts by the U.S. government to lobby the latter to change its mind prior to the cut went unheeded. The decision, which according to Saudi officials is purely economic in nature, is instead alleged to be based on support for Russia for its ongoing invasion of Ukraine and a risk to the global economy as populations all around face record high inflation, caused by high commodity prices.
These cuts will only reinforce the need to invest in alternative oil production sources, and given the rising global energy needs, oil will continue to play a crucial role. A report from the Energy Information Administration (EIA) estimates that global energy demand will grow by 47% by 2050, as more populations enter the middle class and improve their living conditions. Natural gas in particular will see rising demand, due to the fuel’s clean burning properties, and this demand will cause natural gas consumption to grow by 31% by the end of the forecast period.
The EIA focuses next on the U.S., to estimate that oil and gas will remain the dominant fuel sources in the country by 2050. The largest demand will come from the industrial sector, as hydrocarbon gas liquids remain crucial sources of feedstock. Over the coming winter, household energy expenditures will grow due to soaring costs and high expenditures, with the government agency estimating that homes using natural gas, heating oil, electricity, and propane will see their expenditures grow by 28%, 27%, 10%, and 5%, respectively. It also estimates that U.S. crude oil production will grow to 12.4 million barrels per day in 2023, to set a new record high.
Commenting on the OPEC+ oil cut, the vice chairman of S&P Global Mr. Dan Yergin explained that the decision is being viewed in Washington as being political in nature – particularly to harm President Joe Biden’s campaign for the midterm elections. Mr. Yergin explained to CNBC that:
I think Hadley what you described, a couple of things are really key, what it’s really about a million barrels a day and it doesn’t go into effect till November. That’s and I think, that basically, it’s the R word – recession – that they’ve been focusing on, if you’re listening to the U.S. central bank and others. However, as you point out the interpretation here in Washington is quite different, this is seen as a, first of all a blow against Biden who came to Saudi Arabia. Secondly, it’s seen as somehow political, interfering in the U.S. election although the cut doesn’t go into effect until November, and the third thing of course is the other R word, Russia, that this is seen as bolstering Russian revenues.
Today’s piece will take a look at some of the top energy stocks in the industry, with the notable picks being ConocoPhillips (NYSE:COP), Occidental Petroleum Corporation (NYSE:OXY), and Marathon Oil Corporation (NYSE:MRO).
Our Methodology
We took a broad look at the energy sector and its different constituents such as exploration, production, and transportation, to narrow down to the top 10 companies that are going to benefit from the current market environment. They were then analyzed through their financials and market performance, after which they were ranked through Insider Monkey’s Q2 2022 survey of 895 hedge funds.
10 Energy Stocks To Buy On OPEC Production Cuts
10. Comstock Resources, Inc. (NYSE:CRK)
Number of Hedge Fund Holders: 25
Comstock Resources, Inc. (NYSE:CRK) is an American oil company that was set up in 1919 and is responsible for exploring and producing oil and natural gas. The firm has millions of cubic feet of natural gas reserves and thousands of oil wells all over the United States.
Comstock Resources, Inc. (NYSE:CRK) is a huge beneficiary of the soaring natural gas prices, which despite a drop earlier this month, are still up as much as 74% year to date due to the gas shortage in Europe in the aftermath of the Russian invasion of Ukraine. The company’s cash flow jumped by 50% during its first quarter, which then allowed it to become debt-light as it saved $47 million in interest through early debt retirement. By the end of June 2022, Comstock Resources, Inc. (NYSE:CRK)’s free cash flow stood at $190 million for a whopping 578% annual increase.
Comstock Resources, Inc. (NYSE:CRK)’s shares have also rallied on the market, and year to date they are up by 94%. Insider Monkey’s Q2 2022 survey of 895 hedge funds outlined that 25 had invested in the company.
Out of these, D.E. Shaw’s D E Shaw is Comstock Resources, Inc. (NYSE:CRK)’s largest investor. It owns 41 million shares that are worth $49 million.
Comstock Resources, Inc. (NYSE:CRK) joins our list of best energy stocks, with other strong companies such as Occidental Petroleum Corporation (NYSE:OXY), ConocoPhillips (NYSE:COP), and Marathon Oil Corporation (NYSE:MRO).
9. Kosmos Energy Ltd. (NYSE:KOS)
Number of Hedge Fund Holders: 25
Kosmos Energy Ltd. (NYSE:KOS) is a deep water oil and gas exploration company. The firm is headquartered in Dallas Texas, the United States and it explores oil in the Gulf of Mexico and Ghana, among other regions.
Kosmos Energy Ltd. (NYSE:KOS)’s oil production stood at 62,000 barrels of oil equivalent per day (boepd) by the end of June 2022, and based on the current high demand for oil, the firm aimed to increase this to as much as 63,000 boepd by the end of September 2022 and to 67,000 boepd by the end of this year. Berenberg increased the company’s share price target to $8.5 from $8.3 in August 2022, citing the firm’s strong capabilities to leverage high gas prices.
By the end of this year’s second quarter, 25 out of the 895 hedge funds polled by Insider Monkey had invested in Kosmos Energy Ltd. (NYSE:KOS).
Kosmos Energy Ltd. (NYSE:KOS)’s largest investor is D.E. Shaw’s D E Shaw which owns 10 million shares that are worth $65 million.
8. Golar LNG Limited (NASDAQ:GLNG)
Number of Hedge Fund Holders: 27
Golar LNG Limited (NASDAQ:GLNG), as the name suggests, is a liquefied natural gas company. The firm builds and operates plants for the gasification and regasification of LNG. It owns and operates LNG carriers, floating LNG vessels, and floating regasification units.
The aftermath of the Russian invasion of Ukraine has made LNG king, and one of the beneficiaries will be Golar LNG Limited (NASDAQ:GLNG). This is evident from the fact that natural gas charter rates jumped to a record high in October 2022, as the cost to charter a ship in the Atlantic rose to a whopping $397,500 per day. For comparison, the LNG charter rate in the Atlantic was a ‘mere’ $91,000 last year.
Golar LNG Limited (NASDAQ:GLNG) also benefits from rising oil prices, as its gas liquefaction ship is under a contract that lets it earn $3.1 million each for a $1 price increase in Brent crude oil. Therefore, as the Saudi output cuts push prices higher, Golar LNG Limited (NASDAQ:GLNG) is in for a windfall.
Insider Monkey’s June 2022 quarter survey of 895 hedge funds saw 27 investors in the company.
Golar LNG Limited (NASDAQ:GLNG)’s largest investor is William B. Gray’s Orbis Investment Management which owns 10 million shares that are worth $249 million.
Horos Asset Management mentioned the company in its Q2 2022 investor letter. Here is what the fund said:
“This quarter we sold our entire stake in Golar LNG Limited (NASDAQ:GLNG). As we highlighted in our previous letter, the company engaged in the conversion of natural gas into liquefied natural gas (FLNG infrastructures), the storage of LNG and regasification through FSRU and the transportation of LNG (with its stake in Cool Company), has benefited greatly from the current tightness in the natural gas market, derived from the energy transition and, indeed, aggravated by the Russian invasion of Ukraine and the various sanctions and measures taken by the Western nations against the country led by Vladimir Putin. On the one hand, its market value relative to our intrinsic value estimate has considerably narrowed following its outstanding performance. On the other hand, our search for a more favorable risk-return setup in the natural gas market led us to sell Golar LNG and to invest, as we will discuss below, in its spin-off Cool Company.”
7. Sempra (NYSE:SRE)
Number of Hedge Fund Holders: 29
Sempra (NYSE:SRE) is an energy services holding company that is headquartered in San Diego, California, the United States. The firm provides electricity and gas to tens of millions of Americans and it owns transmission facilities that provide more than 40,000 Megawatts of electricity.
Sempra (NYSE:SRE) has signed three contracts this year through which it will meet Europe’s intensive demand for LNG. These contracts will supply LNG to Poland, Germany, and the United Kingdom, with the total shipped volume agreed to be 6.6 million metric tons. The company’s revenue jumped by 30% during its second quarter, as it brought in $3.5 billion and its EPS guidance was also raised to $8.7 from an earlier $8.1.
Sempra (NYSE:SRE) also pays a $1.15 dividend for a 3.22% yield and its shares have rallied by 7% year to date. Out of the 895 hedge funds part of Insider Monkey’s June quarter of 2022 survey, 29 had invested in the company.
Israel Englander’s Millennium Management is Sempra (NYSE:SRE)’s largest investor. It owns 819,727 shares that are worth $123 million. The fund increased its stake by a large 125% during Q2 2022.
6. NexTier Oilfield Solutions Inc. (NYSE:NEX)
Number of Hedge Fund Holders: 30
NexTier Oilfield Solutions Inc. (NYSE:NEX) is an oil exploration infrastructure firm. Its products allow exploration companies to drill their wells, and operate them through pressure management. The company is headquartered in Houston, Texas.
NexTier Oilfield Solutions Inc. (NYSE:NEX) operates in the U.S. oil and gas fracturing segment, which is seeing renewed investor interest as the need for domestic oil production grows. In its latest investor call, management outlined that the growing demand for fracking has placed an excessive strain on its equipment, and this demand itself is a long term positive catalyst as fractioning firms will require a couple of years to fully absorb it.
NexTier Oilfield Solutions Inc. (NYSE:NEX) brought in $99 million in net income during its second quarter, which was a record high for the company, with its revenue growing by 33% to $843 million during the same time period. The company also plans to bring in more than $225 million in free cash flow by the end of this year. Insider Monkey’s Q2 2022 study of 895 hedge funds revealed that 30 had owned a stake in the company.
Out of these, Stephen Feinberg’s Cerberus Capital is NexTier Oilfield Solutions Inc. (NYSE:NEX)’s largest investor. It owns 27 million shares that are worth $247 million.
Along with ConocoPhillips (NYSE:COP), Occidental Petroleum Corporation (NYSE:OXY), and Marathon Oil Corporation (NYSE:MRO) , NexTier Oilfield Solutions Inc. (NYSE:NEX) is a hot oil stock especially as the Saudi oil cut boosts the U.S. oil industry’s fortunes.
5. South Jersey Industries, Inc. (NYSE:SJI)
Number of Hedge Fund Holders: 33
South Jersey Industries, Inc. (NYSE:SJI) is an energy company that buys and sells natural gas and provides electricity and natural gas storage and transmission facilities. The firm is headquartered in Folsom, New Jersey, the United States.
South Jersey Industries, Inc. (NYSE:SJI)’s operating revenue grew by 64% during its second fiscal quarter, as its nonutility revenue jumped by more than 100% during the quarter. The main attraction for the firm right now is the fact that it is set to be taken private for a $36 share price by the end of this year. This provides for a nice premium over the current share price of $34.39, and the firm still stands to gain at least $2 per share of termination fees should unforeseen regulatory headwinds cull progress out of the blue.
South Jersey Industries, Inc. (NYSE:SJI) also pays a 31 cent dividend for a 3.6% yield. Insider Monkey’s Q2 2022 survey of 895 hedge funds revealed that 33 had invested in the firm.
South Jersey Industries, Inc. (NYSE:SJI)’s largest investor in our database is Ric Dillon’s Diamond Hill Capital which owns 2.3 million shares that are worth $80 million.
4. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 41
Marathon Oil Corporation (NYSE:MRO) is an American exploration and production company that drills and sells crude oil, natural gas, and natural gas liquids. The firm is headquartered in Houston, Texas, and it is one of the oldest companies of its kind after being set up in 1887.
Marathon Oil Corporation (NYSE:MRO) is one of the eleven firms that is extracting oil from the Permian Basin in the Southwest United States. Production from this basin is on track to touch a record 5.45 million barrels by the end of November according to the Energy Information Administration, providing the firm with a larger revenue base. Additionally, and for a crucial point when it comes to investors, Marathon Oil Corporation (NYSE:MRO) is one of the few companies that has tied its capital return program to its operating cash flows instead of its free cash flows. This places investors higher on the priority list when it comes to returning capital, and Marathon Oil Corporation (NYSE:MRO) plans to return $1 billion to investors as long as WTI oil prices stay above $60 a barrel.
Marathon Oil Corporation (NYSE:MRO)’s full year cash flows are slated to touch $4.8 billion, and even if it returns 50%, the annualized return sits at a decent 10.6%. As this year’s June quarter ended, 41 out of the 895 hedge funds polled by Insider Monkey had held a stake in the company.
Out of these, Ken Fisher’s Fisher Asset Management is Marathon Oil Corporation (NYSE:MRO)’s largest investor. It owns 8.6 million shares that are worth $194 million.
3. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 57
Devon Energy Corporation (NYSE:DVN) explores, develops, and sells oil, natural gas, and natural gas liquids. The firm is headquartered in Oklahoma City, Oklahoma, the United States.
Devon Energy Corporation (NYSE:DVN) is one of the largest oil companies in America, when measuring market capitalization. The firm was worth $49 billion in October 2022. It is also one of the largest in terms of output, as it churned out 616,000 boepd in its second quarter, with roughly half coming through oil. Additionally, the firm massively benefits from even moderately high WTI prices, as its latest breakeven price stands at $60 per barrel. Currently, WTI is priced at $85 per barrel.
The low breakeven price also makes Devon Energy Corporation (NYSE:DVN) a great stock for a recession. The firm’s shares have rallied by 63% year to date and it pays a $1.16 dividend for a 6.27% yield. Insider Monkey’s Q2 2022 study that covered 895 hedge funds outlined that 57 had owned a stake in Devon Energy Corporation (NYSE:DVN).
Rajiv Jain’s GQG Partners is Devon Energy Corporation (NYSE:DVN)’s largest investor. It owns 14.9 million shares that are worth $822 million.
2. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 66
Occidental Petroleum Corporation (NYSE:OXY) is a diversified exploration company that engages in the production and transport of crude oil, natural gas, natural gas liquids, and oil condensate. The firm is headquartered in Houston, Texas, the United States.
Occidental Petroleum Corporation (NYSE:OXY) is expected to report $9 billion in revenue and $2.69 billion in net income in its upcoming third quarter earnings results, marking massive 33% and 320% annual growths. This will place the firm’s free cash flows at $3.7 billion, marking another 65% increase and an FCF margin of 41%.
As if this weren’t enough, Occidental Petroleum Corporation (NYSE:OXY)’s full year revenue estimates peg growth at 40%, and those for net income promise 339% growth. Therefore, it’s no wonder that the firm’s shares have rallied by 129% year to date. As part of their second quarter of 2022 investments, 66 out of the 895 hedge funds polled by Insider Monkey had held a stake in the firm.
Occidental Petroleum Corporation (NYSE:OXY)’s largest investor is Warren Buffett’s Berkshire Hathaway which owns 158 million shares that are worth $9.3 billion.
1. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 71
ConocoPhillips (NYSE:COP) produces and transports a host of energy products such as crude oil, natural gas, natural gas liquids, liquefied natural gas (LNG), and bitumen. The firm is headquartered in Houston, Texas, the United States.
ConocoPhillips (NYSE:COP) is making big moves in the LNG industry, with the firm having invested $900 million in Qatar’s $30 billion LNG expansion, and having taken a 30% stake in a new Port Arthur LNG facility, which is slated to produce 5 million tons per year. The firm has also used strong free cash flows of $5.9 billion in the second quarter to pay back $2.9 billion of debt, enabling it to capitalize on the strong market to improve its balance sheet. Its profit more than tripled annually in the second quarter.
ConocoPhillips (NYSE:COP)’s shares have appreciated by 69% year to date and the firm pays a $1.1 dividend for a 3.57% yield. 75 out of the 895 funds surveyed by Insider Monkey during Q2 2022 had bought the company’s shares.
Out of these, Ken Fisher’s Fisher Asset Management is ConocoPhillips (NYSE:COP)’s largest investor. It owns 6.7 million shares that are worth $607 million.
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Disclosure: None. 10 Energy Stocks To Buy On the OPEC Production Cuts is originally published on Insider Monkey.
