In this article, we will take a look at the top 10 oil and gas stocks to buy.
Oil and gas markets are facing volatility yet again amid tensions in the Middle East. TD Asset Management recently said in a note that if the conflict between Israel and Hamas lingers on, oil price could remain elevated.
“The conflict between Israel and Hamas is adding more uncertainty to markets already grappling with higher geopolitical risk and rising volatility. I think oil in general will trade with a bit of a premium now because we have some degree of uncertainty now about what might transpire from here. It might be a localized war, or it might draw in other actors. And then, that way, you could actually see a real material move in oil much higher,” Michael Craig, Head of Asset Allocation at TD Asset Management said.
TD said that if the current conflict between Israel and Hamas remains localized, the current elevation in oil prices could ease up. However, the firm believes oil price could touch $120 to $130 and even $150 per barrel if other countries jump in the war theater and the conflict spills over.
Looking beyond short-term volatility, the oil and gas market is expected to remain highly relevant in the world given the huge importance of hydrocarbon resources for the world’s economic growth. McKinsey in its 2021 report on energy industry outlook for 2040 had said that oil demand is expected to continue gaining ground until the late 2020s at a rate of over 1% per year. However, the firm said the demand growth could peak in 2029. McKinsey said that several energy transition factors will play a key role in this trend. As governments around the world set new green energy goals and cut their reliance on traditional fossil fuels, more and more oil and gas companies are investing in renewable energy resources. However, traditional oil and gas companies are expected to rake in huge profits amid the increasing energy appetite of the world. The McKinsey report had estimated that by 2040, oil and gas production and exploration companies would need to “add 38 MMb/d of new crude production from unsanctioned projects to meet demand. Most new supply is expected to come from offshore and shale resources.”
During the start of 2023, oil and gas experts were concerned about a possible slowdown in the market amid recession fears and slowing economic activity in China. But as the year progressed, these fears receded and data from China is also positive. In a September report, research company Wood Mackenzie said that it expects 2023 will be another year of strong post-COVID recovery. The firm expects that global oil demand will increase this year by 2.0 million b/d, only marginally below 2022. The firm said that despite growth concerns, China will “contribute half of the growth as the economy bounces back from the severe pandemic lockdowns of last year. Global demand is currently hitting a new all-time high of more than 102 million b/d.”
Oil companies were indeed seeing positive signs amid rekindling of growth in China. ExxonMobil’s CEO Darren Woods, while answering a question during Q2 earnings call, said:
“I think as you look around the world, early on there was — with China being in a COVID lockdown and recognizing the role that it has in chemicals demand.
That was kind of the back half of last year. And the impact and as we’ve come into this year, I think a lot of expectations for China to pick up and with that growth in demand in chemicals we are seeing that starting to happen. In fact, if you look at the — ourselves in chemicals, the second quarter was stronger than the first quarter. So we are seeing that. The demand looks pretty reasonable, I would say. I mean, the big — that challenge and you’ve referenced it is the amount of supply that’s come on. And that’s where I think our feedstock advantages and our footprint in the integration that we have with a number of refineries around the world actually positions us better. But it’ll take some time is my expectation for demand to kind of take us out of the supply, the excess supply that we’ve got on the marketplace, but I would just add that, we’ve made a lot of investment in chemicals over the last five years, fairly significant investments[ read the full earnings call transcript here.]”
Amid rising demand and changing geopolitical situation, the US Energy Information Administration earlier this month upped its price forecast for oil. In the October Short-Term Energy Outlook (STEO), the EIA said that Brent spot price in 2024 is expected to be $95/bbl, which is $7/bbl higher than the previous month’s STEO.
Perhaps the biggest reason behind this estimate hike was OPEC’s production cuts, which the body expects to continue until at least the first quarter of 2024. EIA also expects Brent spot price to average around $91/bbl in fourth quarter 2023.
Amid rising oil prices and new activity in the market, it’d be interesting to take a look at which oil and gas stocks smart money investors have been amassing this year.
A pressure pumping machine at the centre of an oilfield, surrounded by a team of workers in the field. Editorial photo for a financial news article. 8k. –ar 16:9
Our Methodology
For this article scanned Insider Monkey’s database of 910 hedge funds and picked 10 oil and gas stocks with the highest number of hedge fund investors. Therefore, these are the top oil and gas stocks to buy now according to smart money investors. Some top names in the list include Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM) and ConocoPhillips (NYSE:COP).
Top 10 Oil and Gas Stocks To Buy
10. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 45
Devon Energy Corporation (NYSE:DVN) ranks 10th in our list of the top oil and gas stocks to buy now according to hedge funds. A total of 45 hedge funds out of the 910 hedge funds tracked by Insider Monkey had stakes in Devon Energy Corporation. The biggest stakeholder of Devon Energy Corporation was Donald Yacktman’s Yacktman Asset Management which owns a $146 million stake in the company.
Bloomberg recently reported Devon Energy Corporation was mulling a “major” acquisition to increase its hold in the U.S. shale market. Bloomberg said Devon Energy Corporation has held preliminary talks with Marathon Oil in this regard.
Like Like Chevron Corporation, Exxon Mobil Corporation and ConocoPhillips, DVN is a stock hedge funds like in the oil and gas industry.
9. Valero Energy Corporation (NYSE:VLO)
Number of Hedge Fund Holders: 49
Valero Energy Corporation (NYSE:VLO) is one of the top energy stocks. Valero Energy Corporation’s dividend yield stands at 3.11% as of October 23. Its PE ratio is 4.52. In September Valero Energy Corporation said its board approved a share repurchase program of $2.5 billion, with no expiration date.
A total of 49 hedge funds out of the 910 hedge funds tracked by Insider Monkey had stakes in Valero Energy Corporation. The biggest stakeholder of Valero Energy Corporation was Israel Englander’s Millennium Management which had a $325 million stake in the company.
8. EQT Corporation (NYSE:EQT)
Number of Hedge Fund Holders: 51
Earlier in October, EQT Corporation (NYSE:EQT) upped its dividend by 5%.
Insider Monkey’s database of 910 hedge funds shows that 51 hedge funds had stakes in EQT Corporation. The biggest stakeholder of EQT Corporation was Eric W. Mandelblatt’s Soroban Capital Partners which owns a $234 million stake in the company.
During Q2 earnings call EQT Corporation talked about hedging and future outlook:
“We want to remain patient there and hedging more near-term allows us to do that. So look, it doesn’t mean we’re not going to hedge 2025 at some point, but we think where the market sits today, it’s far off from where really it should be. And as you think about how the market might trade as you get into 2024, I think most market participants and analysts see that how 2025, 2026 market is getting especially tight as you see that demand ramp for at least – ramp in nameplate capacity of LNG, but the market obviously trades the season ahead. And so I think as you get towards next summer, and the market starts looking at winter 2024, 2025 and a lot of that demand ramp, unless you have a step change really increase in production at the same time.
I think the market will look increasingly tight, and that will probably start getting reflected next summer and probably a much more asymmetric way. And so I think we’re trying to be patient at this point in time and not be in a position where we need to really defensively hedge and take away that upside, which is what I think a lot of our investors are looking for in the market today.”
Read the full earnings call transcript here.
ClearBridge Mid Cap Growth Strategy made the following comment about EQT Corporation in its Q2 2023 investor letter:
“The energy sector was another positive contributor, primarily driven by our investment in EQT Corporation. As North America’s leading natural gas provider, EQT had seen its share price slide as the lackluster reopening of China and a milder-than-expected winter in the northern hemisphere weighed on natural gas prices. However, as recessionary fears have given way to optimism and the prospect for greater energy demand, EQT’s share price has rebounded. While we continue to expect volatility in commodities prices, we believe that global energy demand, especially in Europe, along with the company’s leadership position in the natural gas market, make it a strong long-term compounder for the portfolio.”
7. Hess Corporation (NYSE:HES)
Number of Hedge Fund Holders: 52
New York-based energy company Hess Corporation (NYSE:HES) shares have gained about 20% over the past one year. Morgan Stanley in September published a list of its high dividend-paying stocks in 2023. Hess Corporation made it to the list.
A total of 52 hedge funds out of the 910 hedge funds tracked by Insider Monkey had stakes in Hess Corporation. The biggest stakeholder of Hess Corporation was Ken Griffin’s Citadel Investment Group which owns a $201 million stake in the company.
6. Schlumberger Limited (NYSE:SLB)
Number of Hedge Fund Holders: 60
Schlumberger Limited (NYSE:SLB) shares have gained about 11% in 2023 through October 23. Earlier this month Schlumberger Limited posted Q3 results. Adjusted EPS in the quarter came in at $0.78 beating estimates by $0.01. Revenue in the quarter jumped 11% year over year to $8.31 billion, missing estimates by $10 million.
A total of 60 hedge funds out of the 910 funds tracked by Insider Monkey were long Schlumberger Limited. The most significant stakeholder of Schlumberger Limited was Rajiv Jain’s GQG Partners which had a $1.7 billion stake in the company.
VGI Partners made the following comment about Schlumberger Limited in its 2022 annual investor letter:
“In addition to defence, we have focused our efforts on other new sectors where we see structural growth, including energy and medical technology. The long-term outlook for energy looks highly attractive given many years of under-investment and more recently amplified by ESG constraints and corporate discipline. Although we reviewed commodity owners (where we leveraged the expertise of the Regal resources team), we focused our efforts on the second derivative – the oil service companies. These are the picks-and-shovels of the industry and arguably the highest-quality way to gain exposure. As a result, we invested in Schlumberger Limited earlier this year and grew this to a circa 8% weight during the year (now circa 3%)”
Like Chevron Corporation, Exxon Mobil Corporation and ConocoPhillips, SLB is a hedge fund favorite stock in the oil and gas industry.
5. Cheniere Energy, Inc. (NYSE:LNG)
Number of Hedge Fund Holders: 60
Out of the 910 hedge funds in Insider Monkey’s database, 60 hedge funds had stakes in Cheniere Energy, Inc. (NYSE:LNG). The biggest hedge fund stakeholder of Cheniere Energy, Inc. was D E Shaw which owns a $217 million stake in the company. In August Cheniere Energy, Inc. posted second quarter results. GAAP EPS in the quarter came in at $5.61, beating estimates by $2.88. Revenue fell 48.8% YoY to $4.1 billion, missing estimates by $290 million. Cheniere Energy, Inc. raised its 2023 Consolidated Adjusted EBITDA2 guidance to $8.3 billion – $8.8 billion.
TimesSquare U.S. Mid Cap Growth Strategy made the following comment about Cheniere Energy, Inc. in its Q4 2022 investor letter:
“Within Energy, Cheniere Energy, Inc. is an energy infrastructure company that operates liquefied natural gas (LNG) terminals in Louisiana and Texas. Despite reporting inline for the latest quarter, its stock traded down -9%. Contributing factors were Europe had filled its storage ahead of the winter and a recent dip in natural gas pricing. The market for LNG is likely to remain tight for the next several years. Notably, Cheniere paid down $1.3 billion of long-term debt and repurchased $75 million of common stock during the quarter. Cheniere is well positioned to benefit from ongoing tightness in global gas markets.”
4. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 62
ConocoPhillips shares have gained about 9% year to date through October 23.
A total of 62 hedge funds tracked by Insider Monkey had stakes in ConocoPhillips as of the end of the second quarter of 2023. The biggest stakeholder of ConocoPhillips was Natixis Global Asset Management’s Harris Associates which owns a $1.5 billion stake in the company.
Oakmark Select Fund made the following comment about ConocoPhillips in its second quarter 2023 investor letter:
“ConocoPhillips is one of the largest and most efficient exploration and production companies in the country. The company has an extensive resource base of high-quality drilling inventory in the U.S. and various international locations as well as a growing liquified natural gas business. In our view, the depth and quality of ConocoPhillips’s inventory is a competitive differentiator that is not fully captured in today’s share price. Over the next 10 years, we believe ConocoPhillips will be able to return more than 100% of its current market cap to shareholders via dividends and share repurchases while growing its production at a mid-single-digit annual pace. We believe ConocoPhillips is also among the best managed companies in the oil and gas industry and we are impressed by its history of accretive capital allocation under CEO Ryan Lance. The stock has meaningfully underperformed the broader market year-to-date and is an attractive addition to our portfolio.”
3. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 71
Truist recently upgraded Exxon Mobil Corporation to Buy from Hold with a $131 price target, up from $110. Exxon Mobil Corporation has been in the news recently because of its $60 billion acquisition of Pioneer Natural Resources.
Truist said that Exxon Mobil Corporation would see significant longer-term benefits of the deal in 2025 and beyond.
As of the end of the second quarter of 2023, 71 hedge funds in Insider Monkey’s database of 910 hedge funds reported owning stakes in Exxon Mobil Corporation. The biggest stakeholder of Exxon Mobil Corporation was Jean-Marie Eveillard’s First Eagle Investment Management which owns a $1.43 billion stake in the company.
Here is what First Eagle Investments Global Fund has to say about Exxon Mobil Corporation in its Q2 2022 investor letter:
“Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the US, the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the US, which industrywide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.”
2. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 73
With over 35 years of consistent dividend hikes oil giant Chevron Corporation is one of the top oil and gas stocks to buy according to smart money investors. Insider Monkey’s database of 910 hedge funds shows that 73 hedge funds reported owning stakes in Chevron Corporation. The biggest stakeholder of Chevron Corporation was Warren Buffett’s Berkshire Hathaway which owns a $19.4 billion stake in the company.
Carillon Eagle Growth & Income Fund made the following comment about Chevron Corporation in its Q2 2023 investor letter:
“Chevron Corporation stock also traded lower as global oil prices declined in response to fears of an economic slowdown. Energy stocks were the second-worst-performing sector in the quarter.”
1. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 73
Occidental Petroleum Corp is up about 6.5% year to date through October 23.
A total of 73 hedge funds out of the 910 hedge funds tracked by Insider Monkey had stakes in Occidental Petroleum. The biggest stakeholder of the company was Warren Buffett’s Berkshire Hathaway which had a $13.2 billion stake in the company.
Here is what Smead Value Fund has to say about Occidental Petroleum Corporation in its Q3 2022 investor letter:
“Our top-performing stocks in the quarter includes Occidental Petroleum (NYSE:OXY). Oil and gas have been the best game in the stock market town this year and it was a pleasant surprise to see home builders pick up even with dour news on interest rates and the economy. For the first three quarters of the year, we should change the name of our fund to the Jed Clampett Fund. Occidental Petroleum, was one of the standouts. Up through the bear market came a “bubblin’ crude!”
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This article is originally published at Insider Monkey.
