Top 10 Oil and Gas Stocks To Invest In According to Hedge Funds

In this article, we discuss the top 10 oil and gas stocks to invest in according to hedge funds.

Despite the high volatility in the oil and gas industries, the commodities are traded in high volumes and are highly profitable if bought at the right times. Both commodities are a part of the conventional energy market which accounted for 85% of global energy needs in 2022, as mentioned in our article about the largest energy companies.

Oil Market Updates and Forecast

According to the US Energy Information Administration’s (EIA) short-term energy outlook posted in April, the Brent Crude oil spot price is estimated to be around $85 per barrel in Q2 2023 which is $2 higher than the price forecast provided a month ago. The estimates revision is owed to OPEC’s announcement of cutting over a million barrels of oil per day on April 2. The announcement was led by Saudi Arabia cutting around 500,000 barrels of oil per day and later was followed by a few other members. In total, OPEC decided to cut the production of oil by around 1.16 million barrels per day.

The oil supply was already projected to shrink in the second half of 2022 as Russia had announced a production cut in crude oil by around 500,000 barrels per day between March and December 2023 due to the G7’s price cap and sanctions on Russian fuel imports. However, in March 2023, the total Russian crude oil production cuts amounted to over 700,000 barrels per day. These production cuts could lead the average crude oil prices to go higher for the rest of 2023.

After OPEC’s announcement, on April 3, the Brent and WTI Crude futures and oil stocks experienced a significant gain. Among the oil stocks in the S&P 500, Marathon Oil Corporation (NYSE:MRO) was the biggest gainer with its stock price rising by almost 10% at the end of the day. ConocoPhillips (NYSE:COP) and Exxon Mobil Corporation (NYSE:XOM) gained around 9% and 5.9%, respectively.

Gas Market Updates and Forecast

For natural gas, the EIA has some bad news for the second half of 2023. The average natural gas spot price is expected to be around $2.65 per million British thermal units (MMBtu) in the second quarter and for the full year, the agency predicts the commodity’s price to be around $3.00 per MMBtu, declining by over 50% from the prior year. The natural gas prices declined in the first quarter of 2023 due to the low rate of withdrawals, leading to the inventories rising above the 5-year average.

In the coming months, natural gas prices will depend on several factors. The recent warmer winters have resulted in a decline in natural gas demand. Nevertheless, warmer-than-usual summers could lead to a rise in demand in the electricity production sector causing the prices to surge. However, as natural gas is often called associated gas due to its production associated with crude oil production. An increase in oil drilling due to higher prices can lead to increased production of natural gas which can put downward pressure on natural gas prices.

In these volatile market conditions, some of the best energy stocks are Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and Schlumberger Limited (NYSE:SLB).

Copyright: 3dsculptor / 123RF Stock Photo

Our Methodology

We compiled this list of the top 10 oil and gas stocks purely based on their hedge fund sentiment as of the fourth quarter of 2022. The data was taken from Insider Monkey’s database of 943 elite hedge funds.

Top 10 Oil and Gas Stocks To Invest In According to Hedge Funds

10. Devon Energy Corporation (NYSE:DVN)

Number of Hedge Fund Holders: 55

Devon Energy Corporation (NYSE:DVN) is a hydrocarbon exploration company headquartered in Oklahoma. Most of the company’s reserves consist of petroleum followed by natural gas and natural gas liquids. Devon Energy Corporation (NYSE:DVN) has assets distributed across the US Midwest but most of its operations take place in the Permian Basin.

With increased inflation, companies have been experiencing an increase in breakeven WTI prices. However, for Devon Energy Corporation (NYSE:DVN), the breakeven is $40 WTI, which is quite well-regulated compared to its peers. Moreover, the company exited FY 2022 with $4.5 billion in liquidity and carries a strong balance sheet currently.

In the fourth quarter of 2022, 55 hedge funds had a stake in Devon Energy Corporation (NYSE:DVN) compared to 51 in the previous quarter. Yacktman Asset Management was the biggest hedge fund holder for the quarter with over 2.8 million shares worth $172.525 million.

According to hedge funds, Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and Schlumberger Limited (NYSE:SLB) are some of the best energy to invest in along with Devon Energy Corporation (NYSE:DVN).

Here is what GoodHaven Capital Management had to say about Devon Energy Corporation (NYSE:DVN) in its Q2 2022 investor letter:

“Our biggest dollar gainer within this period was Devon Energy Corporation (NYSE:DVN), a position which emanated from a takeover in early 2021 of our long time holding WPX Energy. We are sitting on a material (unrealized) gain from our cost and are now receiving material dividends thanks to Devon’s thoughtful fixed/variable dividend policy. Energy is now a hot sector for investors but we have had a material exposure for a long time. We remember a bit too well $40 oil, NEGATIVELY PRICED front-month oil contract, and what it’s like to own a company with leverage and negative free cash flow during such periods. Our desire to have our biggest portfolio exposures be high return, growing, reasonably predictable and moderately levered companies lead us to reduce our Devon exposure in the past. When the recent facts and circumstances for the industry changed and appeared supportive of healthy oil prices, we decided to maintain a sizable holding and more recently added to the position. At Devon’s Q1 dividend rate, which is mostly variable in nature, the shares now yield approximately 10% and our yield on our average cost is materially higher. In addition, we maintain additional energy exposure through our long-term (and successful) holding in Hess Midstream and less directly through TerraVest and Berkshire Hathaway’s energy investments.”

9. Pioneer Natural Resources Company (NYSE:PXD)

Number of Hedge Fund Holders: 55

Pioneer Natural Resources Company (NYSE:PXD) is a Texan hydrocarbon exploration company operating in the Permian Basin. Around April 7, Exxon Mobil Corporation (NYSE:XOM) held preliminary talks with the company’s management for a possible acquisition. As a result, between April 6-14, Pioneer Natural Resources Company (NYSE:PXD) stock has gone up by nearly 10.5%.

In the last three months, Pioneer Natural Resources Company (NYSE:PXD) has been covered by 18 analysts with 10 of them maintaining a Buy or Overweight rating on the company stock. The average price target of Wall Street analysts for the company is around $253, compared to the stock price of $230 at the time of market close on April 14.

In Q4 2022, hedge funds showed a positive sentiment toward Pioneer Natural Resources Company (NYSE:PXD) and the company was a part of 55 portfolios compared to 49 in the previous quarter.

TimesSquare Capital Management made the following comment about Pioneer Natural Resources Company (NYSE:PXD) in its Q4 2022 investor letter:

“Better was the 8% surge from Pioneer Natural Resources Company (NYSE:PXD), an exploration and production company with operations in Texas. They reported a slight beat to production estimates with other metrics within their guidance range. The company continued with its aggressive capital return program inclusive of a sizable quarterly dividend and share repurchases. Management announced a shift to its drilling plans by focusing on acreage with higher expected returns.”

8. EQT Corporation (NYSE:EQT)

Number of Hedge Fund Holders: 56

EQT Corporation (NYSE:EQT) is a Pennsylvania-based oil and gas exploration and pipeline transport company. It is also one of the most promising stocks to buy according to analysts. As of 2022, EQT Corporation (NYSE:EQT) had total proven reserves of over 25 trillion cubic feet of gas equivalent.

In the fourth quarter of 2022, EQT Corporation (NYSE:EQT)’s shares were held by 56 hedge funds with Soroban Capital Partners as the most significant stakeholder. The hedge fund owned nearly 6.5 million of the company shares, worth over $218.8 million.

EQT Corporation (NYSE:EQT) has a TTM PE ratio of 7.57x at the time of writing and its stock price has declined by around 36.23% to $33.14 from its 52-week highs. However, the company has a strong balance sheet, and natural gas prices are expected to recover slightly in the latter part of the year which can create a good entry point for EQT Corporation (NYSE:EQT) investors.

Artisan Partners made the following comment about EQT Corporation (NYSE:EQT) in its Q4 2022 investor letter:

“Finally, shares of US natural gas producer EQT Corporation (NYSE:EQT) fell on lower-than-expected production due to extreme weather in December. However, the company still produced strong free cash flow that beat expectations. EQT is one of the largest producers of natural gas, an energy source that emits significantly less carbon dioxide than other fossil fuels, such as coal or oil. We sold the position, as it had reached its target valuation.

7. Chevron Corporation (NYSE:CVX)

Number of Hedge Fund Holders: 57

Chevron Corporation (NYSE:CVX) is an American integrated oil and gas company headquartered in California, US. In 2022, the company posted record profits and reported earnings of $35.4 billion or $18.28 per diluted share. As of the fourth quarter of 2022, 57 hedge funds had a stake in the company worth approximately $32.25 billion.

On April 13, Scotiabank analyst Paul Cheng upgraded Chevron Corporation (NYSE:CVX) to Outperform from Sector Perform and raised his price target to $200 from $195. The analyst upgraded the company stock because Chevron Corporation (NYSE:CVX) has a higher oil beta among its super major peers.

Chevron Corporation (NYSE:CVX) is a decent dividend-paying stock with a yield of 3.50% at the time of writing. The company has increased its dividends for the last 37 years and is one of the best energy stocks to invest in according to analysts.

Carillon Tower Advisers made the following comment about Chevron Corporation (NYSE:CVX)  in its Q4 2022 investor letter:

“Energy performed well during the fourth quarter, with the sector up about 23%. Investors returned to the sector after the Organization of the Petroleum Exporting Countries (OPEC) signaled it would reduce production. Chevron Corporation (NYSE:CVX) reported strong quarterly results while buying back stock, paying a healthy dividend, and maintaining a strong balance sheet.”

6. Chesapeake Energy Corporation (NASDAQ:CHK)

Number of Hedge Fund Holders: 58

Chesapeake Energy Corporation (NASDAQ:CHK) is an Oklahoma-based oil and gas company with most of its production focused on natural gas. It is one of the best energy stocks because despite natural gas prices falling, Chesapeake Energy Corporation (NASDAQ:CHK) can withstand the decline as a significant portion of the company’s production is hedged until the end of 2023 making it one of the best energy stocks.

In the fourth quarter of 2022, Chesapeake Energy Corporation (NASDAQ:CHK) was held by 58 hedge funds and Orbis Investment Management was the most prominent shareholder with over 3.2 million shares worth $303.757 million.

On March 12, Benchmark analyst Subash Chandra maintained a Buy rating on Chesapeake Energy Corporation (NASDAQ:CHK)’s share and lowered his price target for the firm from $112 to $107. The analyst’s price revision came due to weaker oil and gas prices compared to the forecast for the first quarter of 2023.

Chesapeake Energy Corporation (NASDAQ:CHK) is one of the best energy stocks to invest in according to hedge funds along the likes of Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and Schlumberger Limited (NYSE:SLB).

Carillon Tower Advisers made the following comment about Chesapeake Energy Corporation (NASDAQ:CHK) in its Q3 2022 investor letter:

“Chesapeake Energy Corporation (NASDAQ:CHK), a natural gas exploration and production company, emerged from bankruptcy with little fanfare in 2021, despite having rid itself of its debt burden and onerous pipeline contracts. The company was able to make two large acquisitions at very reasonable prices within its core producing areas, allowing for scale and cost savings. Then in 2022, natural gas prices began to rise well above expectations, increasing the value of Chesapeake’s large natural gas resources and production and contributing to its outperformance.”

5. Cheniere Energy, Inc. (NYSE:LNG)

Number of Hedge Fund Holders: 64

Cheniere Energy, Inc. (NYSE:LNG) started as an oil and gas company but later on, the company changed its focus toward liquified natural gas. It was the first US company to export liquified natural gas when Cheniere Energy, Inc. (NYSE:LNG)’s Sabine Pass terminal started to operate in 2016.

In 2022, Cheniere Energy, Inc. (NYSE:LNG) experienced some solid revenue and income growth with revenue more than doubling year-over-year to $33.43 billion. The company’s earnings per share for the year were $5.64, compared loss per share of $9.25 in the previous year.

Cheniere Energy, Inc. (NYSE:LNG) was held by 64 hedge funds in the fourth quarter of 2022. In the same quarter, D E Shaw increased its holdings in the company by 11% to 907,792 shares worth $136.13 million and was the largest stakeholder in the company.

TimesSquare Capital Management made the following comment about Cheniere Energy, Inc. (NYSE:LNG) in its Q4 2022 investor letter:

“Within Energy, Cheniere Energy, Inc. (NYSE:LNG) 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: 67

ConocoPhillips (NYSE:COP) is an American oil and gas exploration and production company headquartered in Texas. The company was ranked #77 on the Fortune 500 in 2022 after jumping 79 spots from its 2021 rankings.

On April 12, ConocoPhillips (NYSE:COP) revealed its mega plan for shareholder returns. In the next 10 years, the company plans to spend $115 billion of its free cash flow on shareholder distributions and capital spending. The company’s average annual shareholder returns are expected to be around 5% through dividends and repurchases.

In Q4 2022, 67 hedge funds had a stake worth nearly $3 billion in ConocoPhillips (NYSE:COP). In the previous quarter, the company was a part of 64 hedge fund portfolios at a combined value of $2.67 billion. ConocoPhillips (NYSE:COP)’s most prominent hedge fund holder in Q4 was Diamond Hill Capital with over 5.5 million shares worth $650.5 million.

Oakmark Fund made the following comment about ConocoPhillips (NYSE:COP) in its Q1 2023 investor letter:

“ConocoPhillips (NYSE:COP) is one of the largest and lowest cost U.S. exploration and production companies in the country, led by CEO Ryan Lance—in our view one of the best value creators in the industry. ConocoPhillips’s share prices fell in the first quarter as oil prices receded, which is not atypical. We were buying the company at prices where it could generate its entire market cap in free cash flow over the next decade while growing the production such that at the end of that time, the base of production would be one-third higher. This sort of reinvestment opportunity is unique to ConocoPhillips and clearly not reflected in the current share price.”

3. Schlumberger Limited (NYSE:SLB)

Number of Hedge Fund Holders: 67

Schlumberger Limited (NYSE:SLB) is the world’s largest offshore drilling company and is headquartered in Texas. The company provides services such as seismic data processing, formation evaluation, well testing, and directional drilling among others to petroleum companies worldwide.

Schlumberger Limited (NYSE:SLB)’s hedge fund sentiment increased quite significantly in the fourth quarter of 2022 compared to the previous quarter. The company was held by 67 hedge funds with a combined value of $4.66 billion in Q4, compared to 63 hedge funds with a combined value of $2.44 billion in the previous quarter.

On April 3, Susquehanna maintained a Positive rating on Schlumberger Limited (NYSE:SLB) and lowered the price target to $65 from $68. The firm revised its price target as it “modestly lowered” the H2 2022 estimates for several North American oil field services companies.

VGI Partners made the following comment about Schlumberger Limited (NYSE:SLB) 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 (NYSE:SLB) earlier this year and grew this to a circa 8% weight during the year (now circa 3%)”

2. Occidental Petroleum Corporation (NYSE:OXY)

Number of Hedge Fund Holders: 71

Occidental Petroleum Corporation (NYSE:OXY) is a Texan oil and gas company and is one of the best-undervalued energy stocks to buy according to analysts. The company operates in the USA, Canada, the Middle East, and Chile.

Occidental Petroleum Corporation (NYSE:OXY) was held by 71 hedge funds in the fourth quarter of 2022. Berkshire Hathaway was the most prominent shareholder of the company in the quarter with shares worth over $12.24 billion. On top of that, as we previously mentioned that Berkshire Hathaway gained approval from the Federal Energy Regulatory Commission in August 2022 to buy up to 50% of Occidental Petroleum Corporation (NYSE:OXY)’s stock, the firm has been aggressively buying the company’s shares.

On April 13, Truist analyst Neal Dingmann reaffirmed a Buy rating on Occidental Petroleum Corporation (NYSE:OXY)’s shares and raised his price target to $86 from $84. On the same day, Citi analyst Scott Gruber also raised his price target on the firm to $66 from $63 and maintained a Neutral rating on the company shares.

Here is what Smead Capital Management had 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 (NYSE:OXY), was one of the standouts. Up through the bear market came a “bubblin’ crude!”

1. Exxon Mobil Corporation (NYSE:XOM)

Number of Hedge Fund Holders: 79

Exxon Mobil Corporation (NYSE:XOM) is an American oil and gas company and is the top oil and gas stock to invest in according to hedge funds as 79 hedge funds had a stake worth $7.1 billion in the company in the fourth quarter of 2022. It is also one of our top safe stocks to buy for beginners.

In the last three months, Exxon Mobil Corporation (NYSE:XOM) has been covered by 18 analysts with an average price target of slightly over $128. Out of the 18 analysts, 11 maintain a Buy or Overweight rating on the company stock.

Exxon Mobil Corporation (NYSE:XOM) is a dividend stock with a history of dividend increases over the last 4 decades. The company paid out its latest quarterly dividend of $0.91 on March 10 and the next one is expected to be paid out in June.

Here’s what First Eagle Investments said about Exxon Mobil Corporation (NYSE:XOM) 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.”

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Disclosure. None. Top 10 Oil and Gas Stocks To Invest In According to Hedge Funds is originally published on Insider Monkey.