We recently compiled a list of the 10 Best American Energy Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where EOG Resources Inc. (NYSE:EOG) stands against the other American energy stocks.
The energy industry includes stocks that are involved in the production or supply of energy. Companies engaged in oil and gas drilling, refining, and discovering and developing oil or gas reserves are all part of the energy sector or industry. The energy industry also comprises integrated power utility companies that use renewable energy and coal.
Energy companies continue to suffer challenges as oil supply exceeds demand. Oil prices have been below $70/barrel since early September. According to U.S. Bank Asset Management’s senior investment strategy director, Rob Haworth:
“The oil market is one that remains well supplied but isn’t well demanded.” Although the U.S. economy is strong, other major oil users like China and Germany are experiencing economic challenges. As a result, global demand is lagging.”
Nonetheless, a number of energy companies have made encouraging achievements in 2024, and investors have reaped financial rewards as the energy sector of the broader market has grown by 12.74% since the start of the year. Based on exceptional results in 2021 and 2022, it has increased by 19.89% in just three years and by 10.61% growth over the previous five years.
However, according to RSM’s Energy Outlook 2024 report, the North American energy sector will confront significant potential problems due to a global move toward renewable energy sources, aging infrastructure, and rising electricity consumption. Infrastructure limitations continue to be a major obstacle. Scalability concerns have been brought to light by record U.S. oil and natural gas output as well as a boom in renewable energy, affecting projects like solar farms in California and drilling in Texas. These challenges show how urgently infrastructure modernization investments are needed.
As per the aforementioned report, North America’s demand for electricity has increased to levels not seen in many years. Emerging technologies like green hydrogen, the use of electric vehicles, and growing data centers are important drivers. The use of machine learning and other analytical AI technology is growing among energy companies. This change alters the energy sector and aligns with tax incentives and the company’s environmental, social, and governance goals. Most importantly, integrating clean energy is essential as companies adjust to meet rising demand sustainably.
According to BloombergNEF, $303 billion was spent on U.S. renewable energy in 2023, a 22% increase from the year before, showing the continued pace of the energy transformation. Globally, $1.77 trillion was invested, signifying a strong push toward decarbonization. Even though renewable energy requires more cash, companies of all sizes—from startups to established oil and gas companies—are shifting their focus to renewables as the case for clean energy grows. This change sets up the energy industry for a significant and sustainable future.
Methodology:
We sifted through holdings of Energy ETFs and online rankings to form an initial list of 20 American Energy stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order based on the number of hedge funds that have stakes in them, as per Insider Monkey’s database of Q3 2024. We have used the stock’s market cap as of November 21, 2024, as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in 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)
An oil rig in action in a vast desert, drilling for natural gas.
EOG Resources Inc. (NYSE:EOG)
Number of Hedge Fund Investors: 46
One of the best American stocks to buy, EOG Resources, Inc. (NYSE:EOG) is an oil and gas company holding properties in numerous US shale plays, including the Permian Basin and the Eagle Ford. EOG’s approach to capital allocation is slightly different from that of other US exploration and production companies. The company primarily concentrates on organic exploration activities, although the consolidation bug has also hit its peers and integrated majors. Furthermore, it has adopted a capital allocation strategy that concentrates on paying shareholders back while still being open to investing in modest production growth, similar to that of its US E&P peers. Ultimately, the company changed course earlier than most to become a low-cost provider in a market that overextended itself during the shale revolution. EOG is positioned as a top shale company with industry-leading returns on capital due to its impressive asset mix, which includes its dominant position in the Delaware Basin.
Total hydrocarbon output increased by about 3% sequentially or 8% annually to almost 1,076 thousand barrels of oil equivalent per day in Q3 2024. Additionally, in this quarter, the operating cash flow reached $3.6 billion, up 32.69% year over year, maintaining a healthy cash flow over the years. The company has a stable and regularly growing dividend. EOG Resources, Inc. (NYSE:EOG) announced a $5 billion increase in share repurchase authorization along with a 7% dividend increase, showing confidence in the company and its capacity to maintain growth across commodity price cycles.
John Freeman, an analyst with Raymond James, maintained his Strong Buy rating on EOG Resources, Inc. (NYSE:EOG) shares on November 21, 2024, and raised the price objective from $156 to $167. In a research note, the analyst informs investors that EOG’s Q3 results were good, with a slight beat on production volumes and topline beats on earnings measures. As a result of EOG’s continued strong performance in Utica, the company has decided to give the region a higher value in its terminal cash flow.
Natixis Global Asset Management’s Harris Associates was the largest stakeholder in the company from among the funds in Insider Monkey’s database as of Q3 2024.. It owns over 7 million shares worth $861.5 million.
Artisan Value Fund stated the following regarding EOG Resources, Inc. (NYSE:EOG) in its fourth quarter 2023 investor letter:
“On the downside in Q4, our two energy holdings, Schlumberger, the world’s largest oil services company, and EOG Resources, Inc. (NYSE:EOG), a US shale-focused E&P company, were weak along with the broader sector. EOG is one of the highest quality operators in the E&P space. EOG has a low-cost production position with a strong reserve base, giving it an advantage versus peers. Further, EOG’s management has long focused on return on invested capital and cash flow generation, distinguishing it from many of the company’s competitors, which prioritize growth over profitability. Its commitment to return excess capital to shareholders via regular and special dividends is also highly appealing, particularly in a period of rising interest rates. The company has proven its ability to create economic value for shareholders, even over the past decade that included the toughest energy commodity environment of the last 30+ years. The company’s strong balance sheet enabled it to increase production capabilities during the prior downturn.”
Overall EOG ranks 9th on our list of the best American energy stocks to buy. While we acknowledge the potential for EOG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EOG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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