In this article, we are going to discuss the top 12 oil and gas stocks to invest in according to hedge funds.
With a record average production of 12.9 million barrels per day in 2023, the United States is the Biggest Oil Producing Country in the World. Every year, the indigenous production of oil and gas helps save American consumers an estimated $203 billion, or $2,500 for each family of four. Moreover, the oil and gas industry supports over 12 million American jobs, provides billions of dollars in tax revenue, and ensures energy security.
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Global Demand for Oil in 2023:
According to OPEC, the global oil demand increased by 2.5 million barrels per day (mb/d) in 2023 to average 102.2 mb/d, surpassing pre-pandemic levels for the first time. The major part of this uptick came from the non-OECD countries, which posted YoY growth of about 2.4 mb/d to average 56.4 mb/d, surpassing pre-pandemic levels for the second consecutive year.
As per the IEA’s recent market outlook, growth in the global demand for oil is expected to slow down in the coming years as energy transitions advance. However, despite the sluggish growth, the world oil demand is still forecast to be 3.2 mb/d higher in 2030 than in 2023, unless stronger policy measures are implemented or changes in behavior take hold.
Future Outlook of the Global Oil Industry:
As 2024 comes to a close, oil prices have moved in the narrowest range this year since 2019, with Brent crude oil prices exhibiting a minimal average monthly change and a monthly range-bound movement between $69 and $90. The general opinion is that a soft demand, coupled with an abundant supply, even on hold, has contributed to the relative stability we witnessed this year.
China’s faltering economy and its shift towards electric vehicles and LNG-fueled trucks weighed heavily on the crude oil demand this year. According to a recent report by the state-owned China National Petroleum Corporation, the world’s largest oil-importing country may see its demand peak in 2025, five years earlier than expected, as the shift away from fossil fuels accelerates. The report reveals that China’s oil demand could reach 770 million tons next year, before gradually falling to 240 million tons by 2060.
As a consequence of the slowdown in the global oil demand, Brent futures prices have shed more than 5% so far this year, setting up a second consecutive annual loss. J.P. Morgan analysts have predicted that the global oil market is widely expected to be in a surplus in 2025, as supply will outpace demand to the tune of 1.2 million b/d. Brent crude prices are forecast to average around $73 a barrel next year, according to a Reuters tally of 11 brokerages that have issued price targets.
The bleak outlook has inevitably caused the oil and gas stocks to tumble and the broader market’s Energy sector has dropped by 13.42% over the last month, while the overall market has stayed relatively stable and lost only 0.3% during the same period.
However, despite the falling prices and decreasing margins, the oil and gas industry is contributing massively to the global economy and shareholder return. A recent report from Deloitte has revealed that the O&G sector distributed nearly $213 billion in dividends and $136 billion in buybacks between January 2024 and mid-November 2024. Also, over the last four years, the industry’s capital expenditures have increased by 53%, while its net profit has risen by nearly 16%. Moreover, an increasing number of oil majors are now investing in low-carbon technology projects to help balance the risks associated with the traditional fossil fuel market.
With that said, here are the Best Energy Stocks in the Oil and Gas Sector.
A row of massive oil rigs in a desert landscape, against a setting sun.
Methodology:
To collect data for this article, we scanned Insider Monkey’s database of 900 hedge funds and picked the top 8 companies operating in the oil and gas sector with the highest number of hedge fund investors. When two or more companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead. Following are the Best Energy Stocks Held by the Most 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).
12. Cenovus Energy Inc. (NYSE:CVE)
Number of Hedge Fund Holders: 48
Headquartered in Calgary, Canada, Cenovus Energy Inc. (NYSE:CVE) is an energy company that develops, produces, refines, transports, and markets crude oil, natural gas, and refined petroleum products.
Cenovus Energy Inc. (NYSE:CVE) reported a 56% fall in its Q3 2024 profit due to a decline in production and throughput volumes following oil sands and US refinery maintenance and lower commodity prices. Primarily due to the maintenance at its Christina Lake oil sands facility, the company’s total upstream production was 771,300 barrels of oil equivalent (BOE) per day in the quarter, down almost 3.2% from the same period last year. However, this decline was lower than expected, as Christina Lake completed its turnaround ahead of schedule. On the other hand, Cenovus Energy Inc. (NYSE:CVE) reported a significant increase in its downstream refining segment compared to Q2 2024, with total throughput up by almost 20,000 barrels per day. This was largely attributed to the successful completion of a major maintenance turnaround at the Lima Refinery. In its offshore business segment, production was approximately 66,000 BOE per day, in line with the previous quarter.
Cenovus Energy Inc. (NYSE:CVE) generated $2.4 billion in operating margin in Q3, with about $600 million of free funds flow. It also spent $1.3 billion as capital investment during the quarter and its annual guidance for capital spending of $4.5 billion to $5 billion remains unchanged. Cenovous remains committed to its disciplined capital management strategy, maintaining net debt near $4 billion ($4.2 billion at the end of Q3) while returning 100% of excess free funds flow to shareholders. In fact, through its base dividend and share buyback program, the company returned approximately $1.1 billion of cash to its shareholders in the quarter, far exceeding 100% of its excess free funds flow.
L1 Capital stated the following about Cenovus Energy Inc. (NYSE:CVE) in its Q3 2024 investor letter:
“Cenovus Energy Inc. (NYSE:CVE) (Long -15%) and MEG Energy (Long -13%) shares fell as the WTI oil price decreased 17% to ~US$69/bbl on the back of increased concerns around a potential increase in OPEC supply along with slower global economic growth. Despite OPEC delaying a previously planned increase in oil output, the oil price continued to weaken due to the weaker demand outlook. During the quarter, we attended the Peters & Co oil and gas conference in Toronto, meeting one-on-one with management from Cenovus and MEG Energy, along with the entire peer group. We continue to favor Cenovus and MEG in the sector due to their strong cash flow generation, the long-life nature of their oil sands assets, low cost of production and strong balance sheets. Both Cenovus and MEG have now transitioned to returning 100% of free cash flow back to shareholders, having reached their respective net debt targets. As a result, we see both names offering sector leading shareholder returns, combined with some modest, accretive output growth.”
11. Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders: 48
Shell plc (NYSE:SHEL) engages in oil and natural gas production, operating through the following segments: Integrated Gas, Upstream, Downstream, and Corporate. Shell is number one globally in liquified natural gas (LNG), a sector that is expected to grow substantially over the coming decade.
Shell plc (NYSE:SHEL) reported adjusted earnings of $6 billion in Q3 2024, surpassing analysts’ estimates by 13.2%. Free cash flow also increased to $10.83 billion, compared to $7.5 billion in the same period last year. Moreover, the London-based company announced that it would buy back a further $3.5 billion of its shares until the end of this year while holding its dividend unchanged at $0.34 per share. This marks the 12th consecutive quarter that the oil and gas giant has announced at least $3 billion in buybacks. Net debt came in at $35.2 billion, down 13% YoY.
However, Shell plc (NYSE:SHEL) has faced criticism after its Q3 2024 investments in the renewables and energy solutions division fell to 8% of its overall capital expenditure, down from 9% in Q2. The decline in green energy investments comes after the oil major weakened its 2030 carbon emissions reduction target in March this year.
Shell plc (NYSE:SHEL) continues to invest in traditional hydrocarbon projects and it was recently reported that the company’s Nigerian subsidiary has announced a final investment decision (FID) on Bonga North, a deep-water project off the coast of Nigeria. The $5 billion initiative marks a significant step in the development of the African country’s oil and gas industry, with production expected by the end of the decade. It was also announced earlier this month that Shell plc (NYSE:SHEL) and Norway’s Equinor are to combine their UK offshore oil and gas assets and expertise to form a new company which will be the UK North Sea’s biggest independent producer.
Shell plc (NYSE:SHEL) was included in our list of the Best ADR Stocks to Invest In According to Analysts.
10. Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Fund Holders: 49
Diamondback Energy, Inc. (NASDAQ:FANG) is a Texas-based independent oil and natural gas company, specializing in unconventional, onshore oil and natural gas reserves in the Permian Basin of West Texas. In September, Diamondback completed its merger with Endeavor Energy Resources, creating a leading operator focused on the Permian Basin. Moreover, the company has also announced an asset trade agreement with TRP Energy, enhancing its Midland Basin position.
Diamondback Energy, Inc. (NASDAQ:FANG) had a strong Q3 as it reported a revenue uptick of 13%, driven by higher production volumes following the merger and an increase in oil sales. It also had a net income of $659 million and adjusted net income of $698 million for the third quarter. The company reported a free cash flow of $708 million and declared a quarterly dividend of $0.9 per share. Diamondback Energy, Inc. (NASDAQ:FANG) has experienced six straight years of dividend growth and has a 5-year dividend CAGR of almost 49%. The company has also increased its share repurchase authorization to $6 billion, demonstrating a commitment to returning capital to shareholders.
At the end of Q3 2024, shares of Diamondback Energy, Inc. (NASDAQ:FANG) were held by 49 hedge funds in the IM database with a total stake value of $1.67 billion, up by a significant 85.5% from the previous quarter.
Chartwell Investment Partners, LLC, said the following about Diamondback Energy, Inc. (NASDAQ:FANG) in its Q3 investment letter:
“Diamondback Energy, Inc. (NASDAQ:FANG) is an exploration and production company with operations focused on the Mid-land and Delaware basins, both located within the Permian Basin in West Texas and southeastern New Mexico. While fundamental performance remains solid, shares were pressured by lower oil prices.”