We recently compiled a list of the 7 Best Cheap Energy Stocks to Invest in Now. In this article, we are going to take a look at where Diamondback Energy, Inc. (NASDAQ:FANG) stands against the other cheap energy stocks.
The global energy landscape is going through a major transformation due to rapid technological advances, shifting market dynamics, and geopolitical factors. The energy sector used to make up about 15% of the broader U.S. stock market in the 1970s, but today it accounts for only 3.2%. Despite its diminished index weighting, energy consumption is still rising, and the sector remains a crucial part of the global economy.
An important factor driving this change is the rapid switch to renewable energy. According to IEA, the world’s renewable energy capacity increased by 50% in 2023 compared to 2022, the largest increase in three decades. While Europe continues to grow its sustainable energy projects, major players like China, the United States, and Brazil have made historic investments. This momentum is in line with international agreements to triple the renewable energy capacity by 2030, a target that was highlighted at the COP28 summit. However, there is still a significant obstacle to overcome: obtaining sufficient funding for emerging markets. This will be essential in deciding whether the world can accomplish its clean energy goals.
Although the shift to renewable energy is taking center stage, conventional energy sources still contribute significantly to the world’s energy balance. McKinsey & Company projects that the rapid industrialization of emerging economies will be a major factor in the 11%–18% increase in global energy demand by 2050. It is anticipated that up to 95% of this increase will come from ASEAN, India, and the Middle East, driven by the growing middle class and expanding manufacturing sectors. Their geopolitical significance is expected to grow as these areas redefine international influence and trade. Oil and gas are anticipated to continue to play a significant role in the energy mix despite international attempts to move away from fossil fuels, particularly in industries where the adoption of alternative energy is slow.
Additionally, supply issues and geopolitical conflicts have contributed to the ongoing volatility of the oil market. According to the UK Parliament, wholesale energy prices hit all-time highs in 2022, and though they slightly decreased in 2024, the cost of gas and electricity is still far higher than it was before the crisis.
Accordingly, in late 2024, energy stocks had substantial fluctuations, rising 6% in November and then falling 10% in December. The energy sector reported a modest 5.72% return at the end of the year, falling short of broader market gains. Several factors contributed to this instability, such as fluctuating investor sentiment, reduced demand from big economies like China and Europe, and uncertainty around OPEC+ supply plans. To maintain investor confidence in these uncertain times, many oil supermajors have responded by refocusing on providing strong returns to shareholders. Some even relied on debt to fund buybacks.
Investors are increasingly searching for energy companies that provide a balance between stability, growth potential, and strong shareholder returns during these changes. Traditional energy companies continue to be appealing because of their consistent cash flows, low valuations, and high dividend yields, even as the renewable energy sector continues to grow at an unprecedented rate. Additionally, the combination of new technologies like battery storage, hydrogen, and hybrid power solutions is opening new investment opportunities in both the clean energy and fossil fuel sectors. You can read more about the utilization of hydrogen as an energy source here. The future of energy in this dynamic setting depends on embracing the innovations that will influence tomorrow’s energy systems and striking a balance between conventional and renewable energy sources.
Methodology
To compile our list of the 7 Best Cheap Energy Stocks to Invest in Now, we used Finviz stock screener to identify the 16 largest energy companies trading below a forward P/E ratio of 15, as of writing the article. We refined our selection by ensuring that these companies had significant market capitalizations and strong fundamentals.
Next, we analyzed the number of hedge funds holding positions in these companies using Insider Monkey’s Q4 hedge fund database. We picked the seven stocks with the highest number of hedge fund holders, as we believe that stocks with strong hedge fund interest tend to perform well. The companies were then ranked in ascending order based on hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A pipeline worker overseeing the flow of crude oil into storage tanks from an integrated water system.
Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Fund Holders: 53
P/E Ratio: 10.06
Diamondback Energy, Inc. (NASDAQ:FANG) has been strengthening its presence in the Permian Basin through smart buyouts and capital management. The company has grown its top-tier drilling sites while maintaining a solid free cash flow and returns to shareholders.
For the quarter ending December 31, 2024, Diamondback Energy, Inc. (NASDAQ:FANG) reported $1.1 billion in net income, or $3.67 per share after dilution. Adjusted net income hit $3.64 per share, beating forecasts. The company had $2.3 billion in operating cash flow and $1.4 billion in adjusted free cash flow, reflecting its strong financial health.
Diamondback Energy, Inc. (NASDAQ:FANG)’s production rose to 475,900 barrels of oil per day, a 91% increase from the same period last year. This boost came from integrating Endeavor Energy, which the company acquired in 2024 for $26 billion. Looking forward, it expects full-year 2025 production will range from 883,000 to 909,000 BOE/d, with oil output projected at 485,000 to 498,000 barrels per day.
Diamondback Energy, Inc. (NASDAQ:FANG) is committed to selling at least $1.5 billion in non-core assets, aiming for long-term net debt cuts to $6-8 billion. At year-end 2024, net debt was $13.2 billion, with over $2.6 billion in cash on hand. The company also increased its yearly base dividend by 11% to $4.00 per share and bought back $402 million in shares during Q4.
With careful capital management and a growing presence in the Permian Basin, Diamondback Energy, Inc. (NASDAQ:FANG) is well-positioned for long-term value growth, making it a top pick among the best cheap energy stocks to buy now.
Overall FANG ranks 2nd on our list of the best cheap energy stocks to invest in now. While we acknowledge the potential of FANG as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than FANG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.