In this article, we take a look at the top 10 oil and gas stocks to invest in.
The stock market has been going through a rough patch for quite some time due to the effects of the pandemic and Fed’s rate hike in response to inflation. The interest rates have been raised by 75 basis points as of June. A further 50 or 75 basis-points hike is expected in the month of July.
The macroeconomic uncertainty has once again focused investors towards pure-value stocks which brings the energy sector to mind. The sector was a poor performer in 2020 with 38% negative returns due to lockdowns that brought energy consumption around the world down.
However, vaccine rollouts and subsequent lifting of lockdowns proved to be a boon for the oil and gas industry and it delivered the best returns of any sector, at 54%, outperforming the S&P 500 benchmark by 24% in 2021.
Added to that is the energy supply-chains disruption due to the ongoing Russian conflict which has led to oil and gas surging in prices. According to the World Bank, energy prices are expected to rise by 50% in 2022. While the war is unfortunate, investors stand to gain from oil and gas companies’ increasing earnings.
Another plus is that most companies in the energy industry have high-dividend-paying tradition and a well-established history of growing payouts which keeps stock volatility low. The dividends make for a good regular income for retirees looking to hedge their savings against inflation or a potential recession while getting decent returns on their investment.
Some of the prominent companies in the sector include Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP) and Occidental Petroleum Corporation (NYSE:OXY).
Our Methodology
For our list of top oil and gas stocks to invest in, we’ve gathered stocks with strong fundamentals, huge market share and profitability. We’ve used the number of hedge funds holding these stocks as our ranking metric.
We’ve considered various other elements like solvency and liquidity as well as earnings, analyst ratings and dividends for our stock selection. All the data including the number of hedge fund holders, comes from the first quarter of 2022.
Check out the top oil and gas stocks to invest in below:
10. Marathon Petroleum Corporation (NYSE:MPC)
Number of Hedge Fund Holders: 43
Marathon Petroleum Corporation (NYSE:MPC) is the number 10 on our list of top oil and gas stocks to invest in. It is an American petroleum refining and transportation company based in Ohio. Marathon Petroleum Corporation was a subsidiary of Marathon Oil Corporation (NYSE:MRO) until a 2011 corporate spin-off.
Marathon Petroleum Corporation has an attractive P/E ratio of 5.22, far below the sector median of 14. There are 43 hedge funds that own shares worth $2.5 billion in the energy corporation as of the first quarter of 2022. The company has Debt to Equity and Quick Ratios of 0.85 and 1.07, respectively, indicating that the company has its long and short-term obligations covered.
Like many other energy companies, Marathon Petroleum Corporation pays quarterly dividends to its shareholders. It has an annual dividend yield of 2.62% as of June 28. The shareholders of record on May 18 were paid a cash amount of $0.58 per share on June 10. The company maintains its payout ratio at a sustainable 14% as of Q1 2022.
On June 14, Wells Fargo analyst Roger Read raised his price target on Marathon Petroleum Corporation to $129 from $117 and kept an Overweight rating on the shares. Roger Read estimated that if Marathon’s Q2 capture approximates its 102% long-term average, the quarter’s EPS would be $8.63 or 30% above his updated Q2 2022 EPS estimate of $6.66. The company beat Q1 earnings consensus by $0.17, at an EPS of $1.45.
Marathon Petroleum is a notable company in the sector in addition to Exxon Mobil Corporation, ConocoPhillips and Occidental Petroleum Corporation.
Clark Street Value mentioned Marathon Petroleum Corporation in their Q4 2021 investor letter. Here’s what they said:
“During the worst of covid, I bought some LEAPs on Marathon Petroleum (MPC) as a proxy for Par Pacific (PARR) since long dated options weren’t available on the later. Those MPC calls expire next month and I’ll take profits, with PARR I’ve reduced my position throughout the year and might sell the rest early next year, I’ve owned it for 6-7 years and it has gone nowhere, they haven’t touched the NOLs, just a difficult business that I probably don’t understand as well as I should.”
9. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 49
EOG Resources, Inc. (NYSE:EOG) is a US company engaged in hydrocarbon exploration. As of 2021, the company has an estimated 3 billion barrels of oil equivalent of proven reserves, of which 98% are in the US. Out of this percentage, petroleum and natural gas make up 53% and 26% respectively.
On June 14, Barclays analyst Jeanine Wai raised the price target on EOG Resources, Inc. to $168 from $149 while keeping an Overweight rating on the stock. Wai is optimistic about exploration and production stocks following Barclays’ oil price forecast, which is $11 and $23 higher in 2022 and 2023 respectively.
EOG Resources, Inc. had an EPS of $4 as of Q1 2022, 8% above consensus estimates. The company’s leverage is only 18% of its shareholder equity and has the potential to raise additional capital without significant risk. Its Q1 2022 net margins are also a healthy 23%.
The company is set to pay its shareholders of record on June 15, a quarterly dividend of $1.80 per share on June 30. As of June 28, EOG resources has an annual dividend yield of 2.54%. The company has been growing its dividend payouts for the past four years consecutively.
Hedge funds own a total of $1 billion worth of equity in EOG Resources, Inc. as of Q1 2022, with the leading holder being Harris Associates.
Oakmark Funds highlighted EOG Resources, Inc. in their Q1 2022 letter. Here’s what they had to say:
“EOG Resources, Inc. (+36%), was among our top contributors in the quarter as oil prices rallied due to tight supplies, which were then exacerbated by the Russian invasion of Ukraine. Although their share prices have increased considerably, both companies still look quite undervalued even using longer term oil prices in the $65-70 dollar range. Meanwhile, if times are good over the next couple of years, we expect these companies to return significant percentages of their market caps to shareholders.”
8. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 53
Chevron Corporation (NYSE:CVX) is a multinational American company that explores, refines, transports and markets hydrocarbons. The company has a presence in over 180 countries as of 2022. As of the first quarter, Chevron Corporation has 53 hedge funds that collectively hold an equity of $28 billion.
On June 6, Cowen analyst Jason Gabelman raised his price target on Chevron Corporation to $179 from $165 and kept an Outperform rating on the shares. In Gabelman’s view, oil stocks will continue rising through the year end. He is particularly impressed with Chevron’s strong position to return cash through cycle.
Chevron Corporation has a dividend yield of 3.79% as of June 28 and the company has been consecutively growing its dividend payouts for 35 years, indicating a strong commitment to pay income to its shareholders.
Given Chevron’s dividend history, its low risk fundamentals and earnings growth, it is safe to say that it’s one of the top oil and gas stocks to invest in.
ClearBridge Investments had some good things to say about Chevron Corporation in their Q1 2022 investor letter. Here’s what they 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 holding Chevron benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
7. Pioneer Natural Resources Company (NYSE:PXD)
Number of Hedge Fund Holders: 54
Pioneer Natural Resources Company (NYSE:PXD) is another American hydrocarbon explorer. It operates in the Cline Shale in the Permian Basin. As of 2022, the company has 2 billion barrels of oil equivalent of proven reserves, 44% of which is petroleum and 16% is gas.
The 54 hedge funds that are invested in the company hold an equity of $1 billion in total as of Q1 2022. Pioneer Natural Resources Company is fundamentally strong. The company’s leverage equaled its net margins of 23% in the first quarter of 2022.
Pioneer Natural Resources Company is a dividend stock with a yield of 1.33% as of June 28.
On May 25, Barclays analyst Jeanine Wai raised the price target on Pioneer Natural Resources Company to $302 from $296 and kept an Overweight rating on the shares. Wai believes that payout yields will be the key performance driver for hydrocarbon exploration and production companies, stating that yield sustainability will become more and more important throughout the year.
ClearBridge Investments discussed Pioneer Natural Resources Company in their Q1 2022 investor letter. Here’s what the letter said:
“Our underweight to the energy sector weighed on performance, as energy prices skyrocketed from inflationary pressures and the threat of reduced supply. We have a limited footprint within the sector but continue to look for companies that will generate strong, long-term returns such as Pioneer Natural Resources. Pioneer is an oil and gas exploration and production company that offers a combination of a strong asset base, quality balance sheet and compelling free cash flow yield at current commodity prices. We believe Pioneer has strong underlying drivers that will generate attractive risk-adjusted returns beyond shorter-term fluctuations in energy prices.”
6. Chesapeake Energy Corporation (NASDAQ:CHK)
Number of Hedge Fund Holders: 59
Chesapeake Energy Corporation (NASDAQ:CHK) is an Oklahoma based hydrocarbon-exploration energy company with 1.6 billion barrels of oil equivalent reserves. Of these, natural gas makes up 69% while petroleum, 24%.
On April 5, Wolfe Research analyst Josh Silverstein raised the price target on the Chesapeake Energy Corporation to $111 from $104 and kept an Outperform rating on the stock.
On June 22, Chesapeake Energy Corporation announced that its Board has doubled its previously announced stock-buyback program authorization from $1 billion to $2 billion in aggregate value of its common stocks and/or warrants through year-end 2023. Under the company’s previously authorized program, Chesapeake Energy Corporation has already repurchased roughly 5.4 million shares of its common stock at an average price of $89 per share.
Chesapeake Energy Corporation is a dividend stock. Shareholders of record on May 19 were paid a dividend of $2.34 per share on June 2. As of June 28, the company’s annual dividend yield is 2.26%.
The company’s risk in terms of short-term and long-term debt obligations is low, given its Debt to Equity and Quick ratios of 0.52 and 0.34 respectively as of the first quarter of 2022. In the same quarter, 59 hedge funds held equity in Chesapeake Energy Corporation.
The company’s ratio of natural gas to petroleum reserves is considerably higher than Exxon Mobil Corporation, ConocoPhillips and Occidental Petroleum Corporation. The latter three have a higher petroleum output.
ClearBridge Investments discussed their position in Chesapeake Energy in the wake of Russian conflict in their 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.”
5. Cheniere Energy, Inc. (NYSE:LNG)
Number of Hedge Fund Holders: 62
Cheniere Energy, Inc. (NYSE:LNG) is a US energy corporation that specializes in the production of Liquified Natural Gas. As of Q1 2022, 62 hedge funds collectively hold $3 billion worth of equity in the company.
Cheniere Energy, Inc. took analysts by surprise with quarterly earnings of $7.53 per share in its Q1 results, which were above consensus estimates by a whopping $3.87. Its results on revenue were equally baffling as the company beat analyst estimates by almost $2 billion, with a total revenue of $7.48 billion.
On May 23, RBC Capital analyst Elvira Scotto raised the price target on Cheniere Energy to $178 from $151 and kept an Outperform rating on the shares post the Q1 results. The analyst is of the view that Cheniere Energy should benefit from strong margins due to its open capacity and added that the company remains well-positioned to benefit from growing demand for LNG.
Cheniere Energy is a dividend paying stock and has an annual dividend yield of 0.98% as of June 28. Investors of record on May 10 were paid a dividend of $0.33 per share on May 17. This means a $1.32 dividend on an annualized basis.
Cheniere Energy was highlighted in the Q3 2021 investor letter of ClearBridge Investments. Here is what the firm said:
“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.”
4. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 66
Number four on our list of top oil and gas stocks to invest in, is Devon Energy Corporation (NYSE:DVN). It is a hydrocarbon exploration company that primarily operates in the Barnett Shale. As of 2022, the company has $1.6 billion barrels of oil equivalent of proven reserves, 44% of which is petroleum and 29% is natural gas.
In terms of fundamentals and profitability, the company has a lower-than-industry-average P/E ratio of 10.8 and profit margins of 26%.
Devon Energy has been consecutively growing the cash payouts to its investors for five years. As of June 27, the company has an annual dividend yield of 9.45%.
On June 10, Mizuho analyst Vincent Lovaglio raised the price target on Devon Energy to $94 from $92 and kept a Buy rating on the stock following the company’s announced acquisition of Rim Rock for $865 million. The transaction adds 15,000 boed and 38,000 net-acres to Devon Energy’s existing Bakken position at four times free-cash-multiple on next 12 month strip.
3. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 67
The third pick in the top oil and gas stocks to invest in is Occidental Petroleum Corporation. It is an American hydrocarbon explorer operating primarily in the United States, Middle-East and Colombia. The company has 3 billion barrels of oil equivalent of proven reserves at its disposal in 2022. The reserves make up 51% in petroleum and 30% in natural gas.
The company’s next quarterly dividend payout of $0.13 per share is set to be paid to shareholders on July 15. Occidental does not yet have a history of consecutively growing its payouts. However, its payout ratio is highly sustainable at almost 8% which does raise the likelihood of the company establishing a good record of consecutive dividend-growing in the future.
Occidental Petroleum has a lower-than-industry-average P/E ratio of 9 and boasts a 47% Return on Equity as of the first quarter of 2022. The company massively beat consensus by nearly half a billion dollars in its Q1 results, with a revenue of $8.5 billion. Its earnings earnings by $0.09 and had an EPS of $2.12.
On June 27, Occidental Petroleum disclosed in a regulatory filing that Berkshire Hathaway, the fund managed by Warren Buffett, had increased its stake in the company by $44 million. On May 31, Mizuho analyst Vincent Lovaglio raised the price target on Occidental Petroleum to $89 from $85 and kept a Buy rating on the stock.
Smead Capital Management highlighted Occidental Petroleum in a broader note on oil stocks in their Q3 2021 investor letter. 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. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 67
ConocoPhillips is one of the largest hydrocarbon exploration companies in the United States. It operates in 15 countries and has proven reserves of 5 billion barrels of oil equivalent. Petroleum and natural gas make up 50% and 37% of these reserves respectively.
ConocoPhillips has an annual dividend yield of 3.16% as of June 28. The company has been consecutively growing its dividend payouts for five years. The energy giant has a dividend payout ratio of 19% as of Q1 2022 which reinforces the likelihood of sustained dividend growth.
On April 25, Raymond James analyst John Freeman raised his price target on ConocoPhillips (COP) to $160 from $120 and kept a Strong Buy rating on the shares. In his research note, the analyst observed that A-rated debt and diverse-asset base continue to place the company in a league of its own. He went on to add that full exposure to strip pricing should continue to drive free cash flow for ConocoPhillips.
The company has a P/E ratio of 9.5, far lower than the industry average. ConocoPhillips boasts low risk to investors given its leverage that is only 36% of shareholder equity. The total number of hedge funds invested in the company as of the first quarter of 2022 are 67. They collectively hold $2.5 billion worth of shares in ConocoPhillips.
ClearBridge Investments brought up ConocoPhillips’ stellar Q1 performance in their Q1 2022 investor letter. Here is what the letter 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 benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
1. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 83
Exxon Mobil Corporation is the number one on the list of top oil and gas stocks to invest in. It is the largest non-government-owned energy company in the world and produces around 3% of the world’s oil.
On June 7, Evercore ISI analyst Stephen Richardson upgraded Exxon Mobil to Outperform rating and raised the price target to $120 from $88. Richardson believes that the company’s current valuation is at a greater than 20% discount to historical levels at a time where returns are also expected to rise significantly.
The analyst sees the company’s long-term earnings increase to be driven by upstream upgrading and cost reductions. He noted that ExxonMobil will likely have an industry-leading Return On Capital Employed (ROCE) target of 15% by 2025 and 17% by the year 2027.
Exxon Mobil Corporation is one of the most reliable dividend payers in the world. It has been consecutively growing its dividend payouts over 38 years and has an annual dividend yield of 3.88% as of June 28. The strong fundamentals, profitability and dividend history make it one of the top oil and gas stocks to invest in.
Saturna Capital mentioned Exxon Mobil in their Q4 2021 investor letter. Here’s what the investment firm believes about the company:
“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.”
You can also take a peek at Analysts Just Turned Bullish on These 10 Stocks and 10 Cheap Dividend Stocks with Over 6% Yield
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