We recently published a list of the 10 Most Undervalued Energy Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Shell plc (NYSE:SHEL) stands against other undervalued energy stocks.
As of the close of May 2, 2025, the overall energy sector is undervalued by 13.1%, as compared to the general market’s undervaluation of 5.3%. The current downturn in the energy sector is primarily attributed to the current trade war sparked by President Trump’s tariffs and its resultant forecasted global economic slowdown. Moreover, global crude oil prices have plunged heavily since last month, with the West Texas Intermediate (WTI) crude price currently hovering around the $56 mark – a level it last hit during the Covid-19 pandemic in 2021.
READ ALSO: Top 15 Energy Companies With the Highest Upside Potential
Crude oil took a fresh hit this weekend after OPEC+ stunned the market by announcing a larger-than-expected output increase for June. This follows a similar surge announced for May and signals a sharp reversal from the group’s efforts to defend crude prices. It seems like Saudi Arabia has adopted a low-price strategy, aiming to discipline overproducing members like Kazakhstan and Iraq. This could also be a part of Riyadh’s efforts to build good relations with Donald Trump, who has recently been calling on the Kingdom to increase production in order to bring prices down. Given the high volatility in the market, it comes as no surprise that short-sellers marginally increased their bets against oil and gas stocks in March, with short interest in the energy sector reaching 2.58% compared to 2.52% in February.
That said, while oil may be presenting a bleak outlook, there are other sectors within the energy business that look very promising right now. A significant growth driver for the global energy industry is the ongoing AI boom and its accompanying power-hungry data centers. According to the International Energy Agency, the global electricity demand from data centers is set to more than double by 2030 to around 945 terawatt-hours (TWh), slightly more than the entire electricity consumption of Japan today. The rise of AI is also reshaping US power markets, as according to BNEF, the country’s data center demand is projected to rise from 3.5% of total electricity demand today to 8.6% by 2035.
Big Tech seems to have jumped headfirst into the AI boom, with commitments to invest hundreds of billions of dollars to build data centers and ensure their energy supply. In fact, this strategic move has injected new life into sectors such as nuclear, which has regained the spotlight after several tech giants met on the sidelines of the CERAWeek conference in March and signed a pledge to support the goal of at least tripling the world’s nuclear energy capacity by 2050.
That said, there have been concerns lately that the power demand required by the ballooning data center industry may have been overestimated, which led to several energy stocks posting significant declines not so long ago. However, the recently reported better-than-expected results from the cloud and AI businesses of some American tech giants suggest that these fears may have been overblown. Commercial real estate executives have stated that while there has been a ‘pause’ in some data center capex, it is likely to be temporary, with hundreds of billions of dollars still to be spent.
A gas refinery lit up against the night sky, showing the scale of the company’s petrochemical operations.
Methodology:
To collect data for this article, we looked for companies operating in the energy sector with forward P/E ratios of below 15 as of the close of May 2, 2025. Then, we identified companies that have delivered substantial returns over the last five years, in order to steer clear of potential value traps. In the end, we selected companies with the highest number of hedge fund holders in the Insider Monkey database, as of Q4 2024. The following are the Most Undervalued Energy Stocks According to Hedge Funds.
At Insider Monkey, we are obsessed with 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Shell plc (NYSE:SHEL)
No. of Hedge Fund Holders: 54
Forward P/E Ratio as of May 2: 8.35
Shell plc (NYSE:SHEL) is a global group of energy and petrochemical companies, employing 103,000 people and having operations in more than 70 countries. The company is also the number one global lubricant supplier, as well as the top player in the rapidly expanding LNG sector.
Shell plc (NYSE:SHEL) showed a mixed performance in Q1 2025, reporting a revenue of $69.23 billion and missed expectations by almost $9.9 billion. However, the company’s adjusted EPS of $1.84 managed to top estimates by $0.23. That said, the falling oil prices and declining refining margins have taken their toll, reducing Shell’s Q1 net profit by 28% YoY to $5.58 billion. The oil and gas giant maintains a robust balance sheet and generated $11.9 billion of cash flow from operations during the quarter, while reporting a free cash flow of $5.32 billion.
Shell plc (NYSE:SHEL) announced in March that it would lower its spending to $20-$22 billion per year through 2028, while increasing shareholder distributions to 40%-50% of cash flow from operations, up from a 30%-40% range previously. The company reaffirmed this commitment last week with the announcement of another $3.5 billion share buyback program, which it expects to complete over the next three months. This marks Shell’s 14th consecutive quarter of a buyback program of at least $3 billion, highlighting its dedication to its shareholders.
Overall, SHEL ranks 9th on our list of the most undervalued energy stocks to buy according to hedge funds. While we acknowledge the potential of SHEL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than SHEL but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
