In this article, we discuss 10 energy stocks to watch amid changing situation in oil markets.
The oil and gas industry has rebounded strongly throughout 2022, with oil prices reaching their highest levels in six years. While the industry’s recovery is better than expected, uncertainty remains over market dynamics in the coming year. According to a report presented by Deloitte, oil prices have recovered to around $80/bbl after turning negative in April 2020. While it has often been assumed that high oil prices could slow the energy transition, about 76% of Oil and Gas (O&G) executives surveyed by the consultancy firm state that oil prices above $60 per barrel will most likely boost or complement their energy transition in the near term.
Goldman Sachs analyst Damien Courvalin said on July 22 that the recent moderation in oil prices “sets the stage for higher prices in coming weeks” as the global supply is still insufficient to meet demand. Courvalin noted that the main factor that could prevent a renewed rise in oil prices would be an abrupt slowdown in the global economy, which he deems as unlikely, stressing that the commodities operate as “in-the-moment markets,” which means that the near-term response of oil prices will come from current demand levels, which according to him, remains high. For the longer term, Courvalin argued that underinvestment in oil production has led to an “energy shortage”, such that even if the global economy dips into a recession, it would only provide temporary relief regarding energy prices.
Here is what he said:
“As soon as you pull that restraint back, demand recovers and you’re at exactly that same constraint on energy.”
Therefore, it’s only understandable that hedge funds are keeping a close eye on energy stocks, including major names like Exxon Mobil Corporation (NYSE:XOM), Shell plc (NYSE:SHEL), Chevron Corporation (NYSE:CVX), and BP p.l.c. (NYSE:BP), along with others mentioned below.
Photo by Zbynek Burival on Unsplash
Our Methodology
Keeping the context of Goldman Sachs analyst Damien Courvalin’s latest oil price prediction in mind, let’s take a look at 10 energy stocks that are expected to gain in the near future on the back of rising oil demand in the world.
10. BP p.l.c. (NYSE:BP)
Number Of Hedge Funds Holders: 27
BP p.l.c. (NYSE:BP) is a London-based energy firm which offers biofuels, natural gas, and de-carbonization solutions and services, along with solar and wind power generation facilities. The company is known as one of the world’s seven oil and gas “supermajors”.
On July 19, Piper Sandler analyst Ryan Todd raised the price target on BP p.l.c (NYSE:BP) to $44 from $42 and maintained an Overweight rating on the shares. With fears of a recession already having taken a toll on both refining and integrated oil stocks, and both Q2 results and Q3 outlooks “likely to prove robust,” the setup for the stocks is “increasingly attractive into the quarter,” Todd tells investors in a research note. According to the analyst, despite the fears of upstream cost inflation raising some concerns, the full return of refining profitability and an assurance “not to repeat past mistakes” with excess cash flow is likely to make integrated oil stocks “look increasingly mispriced.”
As of the end of the first quarter, 27 out of 900+ elite hedge funds tracked by Insider Monkey held positions in BP p.l.c. (NYSE:BP) with a combined value of $1.86 billion. In comparison, 26 hedge funds held combined stakes worth $1.2 billion in the energy firm a quarter ago. Boston-based investment firm Arrowstreet Capital was the largest shareholder of BP p.l.c. (NYSE:BP) in Q1 2022 with 25.56 million shares valued at more than $751.63 million.
Similar to Exxon Mobil Corporation, Shell plc (NYSE:SHEL), Chevron Corporation, and ConocoPhilips (NYSE:COP), BP p.l.c (NYSE:BP) is an energy stock that could potentially benefit from rising oil prices.
9. Shell plc (NYSE:SHEL)
Number Of Hedge Funds Holders: 37
Shell plc (NYSE:SHEL) is a London-based oil and gas company with a global footprint. In a recent announcement, the firm stated that BG International Limited, an affiliate of Shell U.K. Limited, had taken the final investment decision to develop the Jackdaw gas field in the UK North Sea, following regulatory approval earlier this year. Jackdaw will comprise a wellhead platform that is not permanently attended, along with subsea infrastructure which will tie back to Shell’s existing Shearwater gas hub. The project is expected to come online in the mid-2020s, and at peak production rates, could represent over 6% of projected UK North Sea gas production in the middle of this decade, with operational emissions of less than 1% of the whole UK basin.
ING Bank analyst Quirijn Mulder upgraded Shell plc (NYSE:SJEL) to Buy from Hold with a price target of EUR 27.50, up from EUR 20.50 on July 12. The analyst believes a prolonged period of high commodity prices will allow Shell to generate “immense” cash flow and states that the company is well positioned to benefit from its high exposure to gas and strong balance sheet.
At the end of the first quarter of 2022, 37 hedge funds in the database of Insider Monkey held stakes worth $5.6 billion in Shell plc (NYSE:SHEL), compared to 41 in the previous quarter worth $2.6 billion. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Shell plc (NYSE:SHEL), with 19.5 million shares worth more than $1 billion.
Here is what Harding Loevner International Equity Fund has to say about Shell plc (NYSE:SHEL) in its Q1 2022 investor letter:
“While risks of unforeseen consequences arising from the Ukraine conflict are high, on this front we are cautiously optimistic that China will work hard to maintain its neutrality in a credible way, as it is a huge beneficiary of trade with the rest of the world, especially the rich developed nations. We think it likely that China, along with India, will continue to buy oil and gas from Russia (just as Europe, at least for now, plans to keep its gas pipelines open), and do not expect that fact to alter China’s trade relations with the West much. Nevertheless, we must contemplate that our optimism is misplaced on the importance of membership in the global network of exchange. If our central and optimistic case—admittedly an educated guess—is wrong, then we’d need to greatly modify our views of which companies in our opportunity set will face new barriers to profitable growth, and which might stand to benefit, relatively, from a further receding of globalization. (Global trade, after all, has never matched the peak share of GDP it reached in 2008, before the Global Financial Crisis.) We’d expect such a world to be less efficient, as the cold logic of comparative advantage is demoted as a determinant of which goods or services are produced and where. That would lead to a less prosperous world, since exploiting comparative advantage is a cornerstone of wealth creation. If regional blocs began to raise limits on the movement of capital as well as goods, we’d need to parse which of our multi-national companies were at risk of declining sales from increasingly hostile, siloed countries. Royal Dutch Shell (NYSE:SHEL) has found its Siberian oil and gas joint venture assets stranded by the combination of sanctions and the public opprobrium of Russia’s actions.”
8. Chevron Corporation (NYSE:CVX)
Number Of Hedge Funds Holders: 53
Chevron Corporation is an American multinational energy corporation. One of the successor companies of Standard Oil, it is headquartered in San Ramon, California, and active in more than 180 countries. Earlier this May, Chevron USA, a wholly-owned subsidiary of Chevron Corporation, entered into long-term liquefied natural gas sale and purchase agreements with Cheniere Energy, Inc. (NYSE:LNG). According to the agreement, Chevron will purchase a combined 2 million tons per annum of LNG from Cheniere’s subsidiaries.
HSBC analyst Gordon Gray upgraded Chevron Corporation to Buy from Hold on July 20, with a price target of $167, down from $183. According to the analyst, the stock was one of the worst performers in the group in the past month, which has bought valuation back to levels which he thinks justify an upgrade given that the revised price target now implies an upside of 21%. He adds that Chevron Corporation has “a clear line of sight on buybacks” and believes there’s “plenty of room” for buyback guidance to be raised again.
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 at the end of the first quarter of 2022.
Here is what ClearBridge Investments Large Cap Value Strategy has to say about Chevron Corporation 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 benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
7. Enphase Energy, Inc. (NASDAQ:ENPH)
Number Of Hedge Funds Holders: 57
Enphase Energy, Inc. (NASDAQ:ENPH) is an American company that develops, manufactures and sells solar micro-inverters, energy generation monitoring software and battery energy storage products, primarily for residential customers. Shares of the company jumped more than 9% after it beat revenue estimates for the second quarter. Additionally, the firm’s revenue from Europe jumped 69% quarter-over-quarter, led by Germany and the Netherlands.
On June 20, JPMorgan analyst Mark Strouse raised the price target on Enphase Energy, Inc. to $247 from $240 and maintained an Overweight rating on the shares. The analyst is “generally positive” on the alternative energy sector heading into the second half of 2022, stating that secular trends should continue regardless of the economic cycle. In a research note to investors, the analyst says that rising fossil fuel prices and focus on energy security are creating record levels of demand for renewables, despite lingering supply chain headwinds and rising input costs.
According to Insider Monkey’s data, Enphase Energy, Inc. 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. in its Q1 2022 investor letter:
“Enphase Energy 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.”
6. Schlumberger Limited (NYSE:SLB)
Number Of Hedge Funds Holders: 58
Schlumberger Limited (NYSE:SLB), one of the largest oilfield services companies in the world, provides technology for reservoir characterization, production, drilling and processing to the oil and gas industry. The company also supplies products and services to the industry, from exploration through production and integrated pipeline solutions for hydrocarbon recovery.
On July 25, Barclays analyst J. David Anderson raised his price target on Schlumberger Limited to $61 from $59 and kept an Overweight rating on the shares. The analyst says Schlumberger’s “impressive quarter and confident outlook” represent an inflection in the cycle with growth and margin expansion in every region and across every segment.
At the close of the first quarter, 58 hedge funds reported bullish bets on the Schlumberger Limited shares, up from 47 hedge funds a quarter ago. Popular funds owned major positions in the company during the first quarter, and its largest shareholder was GQG Partners, with a stake consisting of 27.91 million shares valued at $1.15 billion.
Much like Exxon Mobil Corporation, Shell plc (NYSE:SHEL), Chevron Corporation, and BP p.l.c. (NYSE:BP), Schlumberger Limited is on Wall Street’s radar.
Schlumberger Limited was discussed in the Q2 2021 investor letter of ClearBridge Investments. Here is what the firm said:
“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.”
5. Chesapeake Energy Corporation (NASDAQ:CHK)
Number Of Hedge Fund Holders: 59
Chesapeake Energy Corporation (NASDAQ:CHK) is an Oklahoma-based company that engages in the acquisition, exploration and development of properties for the production of oil, natural gas and natural gas liquids from underground reservoirs.
On July 18, Goldman Sachs analyst Umang Choudhary initiated coverage of Chesapeake Energy Corporation with a Buy rating and $106 price target, which implies 53% total return. According to the analyst, the acquisition of Vine Energy in the Haynesville and Chief Oil and Gas in Appalachia increased the company’s scale in Appalachia/Haynesville with 15 years of attractive inventory. The analyst believes this can support free cash flow yields of 26%/24%/15% in 2022 through 2024, and believes that Chesapeake Energy Corporation is exposed to a long-term favorable gas macro outlook. The analyst thinks the stock will deliver attractive near-term capital returns.
Overall, 59 hedge funds reported owning a stake in Chesapeake Energy Corporation at the end of Q1 2022. This was in contrast to 50 hedge funds with $2.33 billion worth of positions in Chesapeake Energy Corporation at the end of Q4 2021. Howard Marks’ Oaktree Capital Management held roughly 11 million shares of the company valued at $957.1 million, making it the firm’s most prominent Q1 shareholder.
4. Devon Energy Corporation (NYSE:DVN)
Number Of Hedge Fund Holders: 66
Devon Energy Corporation (NYSE:DVN) is an energy company based in Oklahoma. The core business of the company is the exploration, development, and production of oil and hydrocarbon in the United States. As of 2022, the company has $1.6 billion barrels of oil equivalent reserves, 44% of which is petroleum and 29% is natural gas.
On July 19, Truist analyst Neal Dingmann raised the price target on Devon Energy Corporation to $115 from $103 and maintained a Buy rating on the shares as part of a broader research note previewing Q2 results in the E&P space. The recent downturn in commodities has taken some of the wind out of the group’s sails, but the tailwind “breeze remains brisk” as oil prices are currently at levels not seen since 2014 and up nearly 40% year-to-date, even though many oil names are nearly flat or down, the analyst tells investors in a research note.
According to Insider Monkey’s Q1 data, 66 hedge funds were long Devon Energy Corporation in the first quarter of 2022, up from 51 funds in the preceding quarter. The total stakes held in Q1 amounted to $1.92 billion, compared to $1.74 billion in the last quarter. Rajiv Jain’s GQG Partners is the company’s biggest shareholder, with a position worth roughly $888 million.
3. ConocoPhillips (NYSE:COP)
Number Of Hedge Fund Holders: 67
ConocoPhillips is an American multinational corporation engaged in hydrocarbon exploration and production. The company produces, transports, and distributes crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. On July 14, the company entered into a heads of agreement (HOA) with Sempra to develop Sempra Infrastructure’s Port Arthur LNG project and jointly participate in other related energy infrastructure in Southeast Texas and the Pacific Coast of Mexico.
MKM Partners analyst Leo Mariani assumed coverage of ConocoPhillips on July 20 with a Buy rating and $110 price target as part of a broader research note on Exploration & Production names. While the oil market has been quite tenuous of late, the analyst believes that WTI oil prices should stay above $100 as long as the war in Ukraine is ongoing. The analyst is also positive on the company’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 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 Diamond Hill Large Cap Fund has to say about ConocoPhillips in its Q1 2022 investor letter:
“We redeployed capital into ConocoPhillips (NYSE:COP), which was trading at a discount to our estimate of intrinsic value and is well positioned over the long run due to its low-risk asset base.”
2. Occidental Petroleum Corporation (NYSE:OXY)
Number Of Hedge Fund Holders: 67
Occidental Petroleum Corporation (NYSE:OXY) is an American company engaged in hydrocarbon exploration in the United States, and the Middle East as well as petrochemical manufacturing in the United States, Canada, and Chile.
Earlier this June, Truist analyst Neal Dingmann raised his price target on Occidental Petroleum Corporation to a “Street high” $93 from $88 and kept a Buy rating on the shares, telling investors that he believes there is a “good chance” that shareholder Warren Buffett buys the remaining two-thirds of the company that he and Berkshire Hathaway do not already own once the company achieves an investment grade rating. Berkshire and Buffett’s purchase of additional Occidental shares in recent days leaves it owning about one-third of the company when its preferred ownership is factored.
In a regulatory filing, Occidental Petroleum Corporation disclosed that its major shareholder Berkshire Hathaway bought another 1.9 million shares of common stock in a total transaction size of $112.1 million on July 14th. Overall, 67 hedge funds are bullish on the shares of Occidental Petroleum Corporation as of Q1 2022.
Here is what Smead Capital Management had to say about Occidental Petroleum Corporation 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. Exxon Mobil Corporation (NYSE:XOM)
Number Of Hedge Fund Holders: 83
Exxon Mobil Corporation is an American multinational oil and gas corporation headquartered in Irving, Texas. It is the largest direct descendant of John D. Rockefeller’s Standard Oil, and was formed on November 30, 1999, by the merger of Exxon and Mobil. One of the most reliable dividend payers in the world, Exxon Mobil Corporation has recorded 39 years of consistent dividend increases. The stock has gained 41.06% since the beginning of 2022.
On July 19, Piper Sandler analyst Ryan Todd upgraded Exxon Mobil Corporation to Overweight from Neutral with a price target of $109, up from $102. According to the analyst, the setup for energy stocks heading into Q2 earnings reports looks increasingly attractive, and he remains constructive on Exxon Mobil Corporation based on its good downstream performance and believes its chemicals arm will show resilience.
As per Insider Monkey’s database for Q1, Exxon Mobil Corporation experienced growth in hedge fund positions, as 83 elite funds owned stakes in the company, up from 71 in the previous quarter. The consolidated value of these stakes is over $8.5 billion. Rajiv Jain’s GQG Partners is the company’s biggest shareholder, with a stake worth over $4.2 billion.
Saturna Capital mentioned Exxon Mobil Corporation in its Q4 2021 investor letter. Here is what the firm has to say:
“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon, which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”
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