In this article, we discuss the 10 energy stocks hedge funds are buying.
Amid the ongoing economic crunch, where inflation and geopolitical tensions have played their part in destabilizing the post-pandemic recovery, energy stocks have featured as a rare beacon of hope. Oil prices have increased consistently over the last few months, and experts feel these higher valuations are here to stay. Crude oil prices stood at around $75 a barrel at the end of 2021, and now hover around $115 for West Texas Intermediate crude oil and around $120 for Brent crude. This means good news for energy stocks, and in May the Energy Select Sector SPDR Fund (NYSE:XLE), a benchmark for the energy sector, returned 16.8% for the month. Four of the five best performers in the S&P500 during May were also energy stocks, with Devon Energy Corporation (NYSE:DVN) (mentioned in detail below) ranking among the top 2 performers with a 28.8% return posted for the month.
The global energy supplies have become unsettled since Russia invaded Ukraine in February, and the subsequent sanctions on Putin’s energy-exporting nation. Amid declining supplies, the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, finally agreed on Thursday to hike crude oil production numbers in an attempt to stabilize global supply and lower the impact of inflation. The OPEC ministers have agreed to supply 648,000 barrels of oil daily to markets in July and August, as compared to the figure of 432,000 barrels a day in recent months. Many onlookers view this development as a reset of bitter ties between the Saudi Arabia and the United States, with a possible Saudi visit by US President Joe Biden on the cards after this much-needed announcement. This also comes as Russia, one of the group’s most prominent members, has been unable to meet OPEC targets due to sanctions, supply chain issues and a reluctance to buy Russian oil.
Energy was the best performing sector of the S&P500 in 2021, and looks set to continue this streak of outperformance in the coming months. Therefore, it’s only understandable that hedge funds were seen snapping up on energy stocks, including big names such as Exxon Mobil Corporation (NYSE:XOM), Chesapeake Energy Corporation (NYSE:CHK) and Occidental Petroleum Corporation (NYSE:OXY), along with others mentioned below.
Our Methodology
Elite funds spend billions of dollars and use some of the best brains in the industry to pick stocks for their clients. Insider Monkey believes imitating their stock picks is a wise strategy. Therefore, we picked the top 10 stocks with the highest number of hedge fund positions, according to the Q1 database of Insider Monkey which tracks more than 900 hedge funds. Analyst ratings and latest quarterly results have also been provided.
Hedge Funds Are Buying These 10 Energy Stocks
10. Enphase Energy, Inc. (NASDAQ:ENPH)
Number of Hedge Fund Holders: 57
Enphase Energy, Inc. (NASDAQ:ENPH) provides solar home energy solutions across the United States. It offers solar panels, batteries, micro-inverters, as well as electric vehicle chargers. As of June 2, shares of the energy company have surged 48.31% in the last 12 months, and 13.98% in the last 1 month alone.
On April 27, Craig-Hallum analyst Eric Stine maintained a ‘Buy’ rating on Enphase Energy, Inc. stock, which he views as a must-own, best-in-class name. He lowered the price target to $213 from $241 to reflect broader multiple compression.
For the first quarter, Enphase Energy, Inc. beat EPS estimates by $0.10. The company generated revenue of $441.3 million, exceeding market estimates by $7.63 million and highlighting growth of 46.24% from the year-ago quarter.
Investors were eager on Enphase Energy, Inc. at the close of the first quarter of 2022, where 57 hedge funds owned positions in the company with a collective price tag of $749.5 million. This is up from 50 hedge funds a quarter earlier with $763.3 million worth of stakes in the energy company. Enphase Energy, Inc.’s (NASDAQ:ENPH) largest Q1 shareholder was Greenvale Capital, with a stake exceeding $100 million.
Here is what ClearBridge Investments had to say about Enphase Energy, Inc. 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.”
Just like Exxon Mobil Corporation, Chesapeake Energy Corporation and Occidental Petroleum Corporation, Enphase Energy, Inc. is an energy stock on the radar of investors on Wall Street.
9. Schlumberger Limited (NYSE:SLB)
Number of Hedge Fund Holders: 58
Schlumberger Limited (NYSE:SLB) provides equipment, software and other infrastructure services to the energy exploration industry. The firm’s machinery and equipment is used at various oil, natural gas, and mineral exploration sites around the world.
On April 22, Schlumberger Limited declared a $0.175 per share quarterly dividend, a 40% increase from its earlier dividend of $0.125. This brings the company’s yield to 1.51% as of June 2.
Hedge funds recorded an uptick in their enthusiasm for Schlumberger Limited at the close of the first quarter, where 58 hedge funds reported bullish bets on the company 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.
On April 27, HSBC analyst Abhishek Kumar upgraded Schlumberger Limited to ‘Buy’ from ‘Hold’, with an increased price target of $44.20 from $40.60. Bump in oil prices have accelerated investments in the short-cycle US land markets, which is good news for the company, according to the analyst, who sees Schlumberger well-positioned to improve margins through price increases. As of June 2, shares of Schlumberger Limited have registered gains of 45.96% in the year to date, and 58.34% in the last 6 months.
ClearBridge Investments, an asset management firm, discussed the prospects of Schlumberger Limited in its Q2 2021 investor letter. It 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.”
8. Chesapeake Energy Corporation (NYSE:CHK)
Number of Hedge Fund Holders: 59
Chesapeake Energy Corporation is based in Oklahoma, and deals in the production of oil, natural gas, and natural gas liquids from underground reservoirs across the United States. Amid rising energy prices, the company shares have enjoyed a surge of 83.32% in the last 12 months as of June 2. The firm also offers shareholders a 2.04% dividend yield.
Wolfe Research analyst Josh Silverstein in early April raised the firm’s price target on Chesapeake Energy Corporation to $111 from $104 and reiterated an ‘Outperform’ rating on the company shares. He reaffirmed his ‘Top Pick’ view on the stock, and noted that its “top-tier return of capital profile proves sustainable.” The analyst also sees the stock trading at a discounted valuation to peers, noting that this discount wouldn’t last long.
Hedge funds love Chesapeake Energy Corporation shares. At the close of the first quarter, 59 hedge funds owned stakes worth $3.51 billion in the energy company. 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.
For the quarter ending March, Chesapeake Energy Corporation registered year-on-year growth of 101.26% to post revenue at $1.91 billion, outperforming estimates by $575.5 million. EPS was recorded at $3.09, and also beat estimates by $0.66.
Investment advisory firm ClearBridge Investments talked about Chesapeake Energy Corporation in its Q1 2022 investor letter. Here’s what they said:
“In the early days of the invasion, we made two measured changes to the portfolio based on longer-term fallout we anticipate from Russia’s invasion of Ukraine. First, we initiated small positions in U.S. natural gas producers Chesapeake.
Given its superior environmental profile compared to other fossil fuels, we have long favored natural gas in our energy holdings. Combustion of natural gas releases 50% less CO2 than coal, 25% less CO2 than gasoline and dramatically less particulate and pollution, per the U.S. Energy Information Administration. With the advances in shale production this century, the U.S. has become a natural gas powerhouse with some of the lowest-cost and largest reserves in the world. But because natural gas is difficult to ship across the ocean (it must be liquefied, which requires expensive infrastructure on both ends of the voyage), America’s gas bounty has ironically proved a burden for U.S. producers.
The surplus of natural gas in North America has resulted in low prices and weak earnings for gas-focused producers. Exports, while growing, are restrained by the high cost of building export infrastructure. Europe, in a Faustian bargain, has relied on abundant, inexpensive Russian gas transported by pipeline.
Despite the abundance of low-cost resources and a superior environmental profile, the investment case for U.S. natural gas producers was previously unfavorable due to oversupply in the domestic market.
In the days preceding the invasion, we were quick to realize the war would change global energy flows. Europe is shifting away from Russia and toward new sources of imported liquified natural gas. We purchased our stakes in Chesapeake to capitalize on these trends. The recently announced energy pact between the U.S. and Europe represents an early positive datapoint in support of this investment thesis.”
7. Cheniere Energy, Inc. (NYSE:LNG)
Number of Hedge Fund Holders: 62
Cheniere Energy, Inc. (NYSE:LNG) engages in the liquefied natural gas (LNG) business across the United States. It owns and operates LNG terminals, liquefaction projects, and two major natural gas pipelines namely the Corpus Christi and Creole Trail pipelines in Texas and Louisiana respectively. The company also exports natural gas to various buyers around the globe.
On May 23, RBC Capital analyst Elvira Scotto reiterated an ‘Outperform’ rating on Cheniere Energy, Inc. shares, and bumped the price target to $178 from $151. The analyst noted that the firm is well-positioned to benefit from growing LNG demand around the world, and should benefit from strong margins in the near-term given its open capacity. In the last 12 months, Cheniere Energy, Inc. has gained 64.38%, and 39.89% in the year to date as of June 2.
For the first quarter, Cheniere Energy, Inc. posted a revenue of $7.48 billion, growing an impressive 142.2% from the year-ago quarter and beating market estimates by $1.92 billion. Earnings per share came in at $7.53, outperforming Street estimates by $3.87.
Investors were seen loading up on Cheniere Energy, Inc. shares at the end of March, where 62 hedge funds reported ownership of stakes in the company, as compared to 52 hedge funds at the end of December. With a $1.34 billion stake, Icahn Capital LP was the biggest Q1 shareholder of Cheniere Energy, Inc..
Here is what investment firm ClearBridge Investments had to say about the market position of Cheniere Energy, Inc. in its Q3 2021 investor letter:
“Cheniere Energy is an energy infrastructure company that owns and operates U.S. liquefied natural gas (LNG) export facilities. Strong quarterly results and the disclosure of capital allocation policies were positively received by the markets. In addition, continued supply and demand tightness in the LNG market created a favorable commodity price environment.”
6. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 64
NextEra Energy, Inc. (NYSE:NEE) makes and sells electricity to millions of retail and wholesale customers in the United States. It generates electricity through its wind, solar, nuclear, coal, and natural gas facilities. 64 hedge funds were long NextEra Energy, Inc. at the close of the first quarter, with combined stakes worth $2.84 billion. This shows an encouraging trend from the previous quarter where 55 hedge funds held $2.61 billion worth of positions in the electric utility company.
Credit Suisse analyst Nicholas Campanella assumed coverage of NextEra Energy, Inc. on April 25, setting an ‘Outperform’ rating and a $87 price target. He sees the company shares as fundamentally attractive, and notes that despite near-term concerns regarding supply, NextEra Energy, Inc. is well-positioned in the current inflationary environment relative to peers because of its size and scale.
On May 19, NextEra Energy, Inc. declared a $0.425 per share quarterly dividend, which was in-line with previous. The company offers shareholders a solid 2.17% yield as of June 2. It posted earnings per share of $0.74 for the first quarter, beating consensus estimates by $0.02.
Out of the hedge funds tracked by Insider Monkey, billionaire Ken Fisher’s Fisher Asset Management was the biggest shareholder of NextEra Energy, Inc. at the end of the March, with 15.66 million shares priced at $1.32 billion.
5. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 66
Devon Energy Corporation is an energy company which owns and operates a range of oil and natural gas properties across the United States. The firm ranked among the top two stock performers in the S&P500 during the month of May 2022, with the company stock rising approximately 28.8% during the month. As of June 2, it has surged 67.46% in the year to date.
For Q1 2022, Devon Energy Corporation posted EPS of $1.88, beating estimates by $0.12. Revenue for the quarter was recorded at $3.81 billion, above analysts’ predictions by $215.9 million and signaling a 116.4% growth in comparison to the same period over last year.
On May 9, Raymond James analyst John Freeman raised the firm’s price target on Devon Energy Corporation to $90 from $85 and maintained a ‘Strong Buy’ rating on the shares. It features as one of Freeman’s top picks in the energy and production sector, who sees a strong balance sheet, shareholder-friendly return structure, and a deep drilling inventory making Devon Energy Corporation well-positioned going forward. The company also offers investors an impressive 6.66% yield as of June 2, and has recorded dividend increases for 4 years in a row.
As of the end of the first quarter, 66 hedge funds owned positions in Devon Energy Corporation with an aggregate value of $1.92 billion. This shows a positive trend from the previous quarter where 51 hedge funds held $1.74 billion worth of positions in the energy company. Its biggest shareholder in the first quarter was GQG Partners, with 15.03 million shares priced at $888.6 million.
4. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 67
ConocoPhillips (NYSE:COP) is a Houston-based energy company which deals in the exploration and production of crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids around the globe. The company shares have registered impressive gains in the last 12 months on the back of soaring energy prices, rising 93.31% as of June 2.
EPS for the first quarter was recorded at $3.27, beating analysts’ forecasts by $0.05. ConocoPhillips’ (NYSE:COP) revenue for the quarter stood at $19.29 billion, up 82.7% year-on-year and outperforming Street estimates by $929.7 million.
67 hedge funds held total stakes worth $2.58 billion in ConocoPhillips at the end of the first quarter, showing improving investor confidence in the energy firm over the previous quarter where 56 hedge funds owned $1.55 billion worth of stakes in the company. Ric Dillon’s Diamond Hill Capital was the most prominent shareholder of ConocoPhillips at the close of the first quarter, boasting a stake worth more than $702 million.
On April 25, Raymond James analyst John Freeman kept a ‘Strong Buy’ rating on ConocoPhillips shares, and bumped the price target to $160 from $120. He notes that a diverse asset base and A-rated debt places the firm in “a league of its own,” and full exposure to strip pricing should continue to generate free cash flow.
Investment firm ClearBridge Investments was all praises for ConocoPhillips in its Q1 2022 investor letter. The fund said:
“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.”
3. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 67
Occidental Petroleum Corporation deals in the acquisition and development of oil and natural gas properties across the United States, the Middle East, Africa, and Latin America. Warren Buffett recently bought billions of dollars worth of the company shares, with his Berkshire Hathaway standing as the firm’s largest Q1 shareholder with 136,37 million shares valued at $7.73 billion. In total, 67 hedge funds were long Occidental Petroleum Corporation at the end of the first quarter, up from 58 hedge funds a quarter earlier.
On May 31, Mizuho analyst Vincent Lovaglio reiterated a ‘Buy’ rating on Occidental Petroleum Corporation shares, and increased the price target to $89 from $85. Energy prices around the world have soared on account of a global undersupply, but macro uncertainty, supply chain and logistics constraints, and a shift in corporate behavior act as headwinds for this growth trajectory, according to Lovaglio. He views this as favoring the US exploration and production companies, and raised his price targets by 3% on average, maintaining his preference of gas over oil-weighted firms.
For the quarter ending March, Occidental Petroleum Corporation reported earnings per share of $2.12, which exceeded estimates by $0.09. Quarterly revenue was recorded at $8.53 billion, up 55.7% in comparison to the same period over last year, and outperforming Street estimates by $473.1 million.
Smead Capital Management, in its Q3 2021 investor letter, talked about Occidental Petroleum Corporation. Here’s what they said:
“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.”
2. Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 68
BMO Capital analyst David Gagliano on April 22 gave Freeport-McMoRan Inc. (NYSE:FCX) an ‘Outperform’ rating, and a price target of $56, down from $62. Although he lowered his 2022 EPS estimates to reflect higher unit cost expectation, the analyst sees the firm well-positioned to benefit from a rise in underlying copper prices.
Out of the 900+ elite hedge funds tracked by Insider Monkey, 68 owned $4.1 billion worth of positions in Freeport-McMoRan Inc. at the end of March. This showed a positive trend over the previous quarter, where a total of 66 hedge funds held $3.77 billion worth of stakes in the company. The hedge fund with the largest stake in Freeport-McMoRan Inc. at the end of Q1 2022 was Fisher Asset Management, with 50.75 million shares worth $2.52 billion.
Horizon Kinetics LLC, an investment management firm, talked about Freeport-McMoRan Inc. in its Q4 2021 investor letter. The firm said:
“Those were some ideas about copper demand. Here are some specifics about supply. Global copper mine production in the 10 years from 2005 to 2015 rose 2.45% annually. In the next 5 years, to 2020, it increased by only 0.9% annually. Even ignoring the 2020 pandemic year, for the 4 years from to 2019, the expansion rate was 1.66%. We already have the historical context for this: the commodity price collapse prior to 2015, from a position of excess capacity.
What producers must do in that situation, because they have high fixed costs and debt expense, is curtail their exploration and development expenditures and reduce operating costs. They rely on existing mines, instead, and on their highest-grade ores and lowest-cost production. They might not actually reduce current production, but they aren’t replacing the reserves that are being slowly drawn down. You can see this at work at the individual company level.
Freeport-McMoRan will illustrate. It is the world’s third-largest copper producer, closely following Chile’s Codelco and Australia’s BHP Group. In 2014, even though Freeport sold more copper than the prior year, its revenues dropped by over 25%, and it went from $4.8 billion of operating earnings (a 22% margin) to a $(0.2) billion loss. The company’s capital expenditures peaked in 2014 at $3.86 billion and will be about $1.72 billion in 2021, meaning the company is spending 55% less now than it was seven years ago. In inflation-adjusted terms, it’s spending 61% less today than seven years ago…” (Click here to see the full text)
1. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 83
Exxon Mobil Corporation was hedge funds’ favorite energy stock at the end of the first quarter of 2022, where 83 reported bullish bets on the company shares, in contrast to 71 hedge funds a quarter earlier. The combined value of Q1 hedge fund holdings stood at $8.55 billion.
Based in Texas, Exxon Mobil Corporation deals in the production, transportation and sale of crude oil, natural gas, petroleum products and other petrochemicals around the globe. With a market cap of $411.4 billion, Exxon Mobil Corporation is one of the world’s largest firms by revenue. It is also a notable dividend payer, with 39 consecutive years of payout increases and a yield of 3.60% as of June 2.
For the first quarter of 2022, Exxon Mobil Corporation reported an EPS of $2.07, falling short of analysts’ estimates by $0.16. Quarterly revenue increased 53% year-over-year to reach $90.50 billion, outperforming consensus estimates by $5.62 billion. As of June 2, the company shares have experienced a surge of 59.64% in the last 12 months, and 10.75% in the last month.
Barclays analyst Jeanine Wai on May 31 kept an ‘Overweight’ rating on Exxon Mobil Corporation shares, and raised the firm’s price target to $111 from $98. The analyst sees slightly more upside to the company shares in comparison to rival Chevron (NYSE:CVX).
Investment firm Goehring & Rozencwajg Associates talked about many stocks in its Q3 2021 investor letter, and Exxon Mobil Corporation was one of them. Here’s what the fund said:
“After successfully replacing 25% of Exxon’s board of directors despite owning just 0.02% of the outstanding equity, Engine No. 1, the climate-focused activist hedge fund, met with Chevron’s management late last summer. In discussions that were later described as “cordial,” Chevron executives shared their plan to reduce carbon emissions. Subsequently, Chevron announced new plans to further reduce carbon output, along with their intention to appoint a new director with “environmental expertise.” Although it remains unclear exactly what Engine No. 1 is planning, rumors suggest the fund has contacted other investors, strongly suggesting they intend to launch a second campaign in the not-too-distant future.
What should Chevron expect?
It was recently reported by The Wall Street Journal that Exxon was considering abandoning two massive natural gas projects: the 75 trillion cubic foot (tcf ) Rovuma LNG project (capital cost $30 bn) and the 5 tcf Ca Voi Xanh offshore-Vietnam gas project (capital cost $10 bn). Exxon board members (most likely including the three supported by Engine No. 1) have publicly expressed concerns about both projects.
According to internal reports, these projects are among the highest CO2 producers in Exxon’s pipeline; it is no surprise these projects have been called into question. However, we find the plight of both fields to be perplexing since production would almost certainly be used to displace coal in electricity generation, cutting CO2 emissions by nearly 50%. This fact seems to be lost on the new Exxon board members.”
You can also take a look at 11 Best Value Stocks To Buy According To Warren Buffett and 10 Best Stocks to Buy According to Peter Lewis’ LFL Advisers.
