In this piece, we will take a look at ten very cheap energy stocks ready to explode. If you want to skip our overview of the energy industry and the latest news, then you can take a look at 5 Very Cheap Energy Stocks Ready To Explode.
The global energy industry, despite a growing focus on clean energy, continues to be one of the most important sectors in the world. Fossil fuels power humanity's homes and transport, and even the slightest disruption in the market can have painful consequences. This became clear in 2022 after the Russian invasion of Ukraine that upended the global energy market. Russia is one of the largest producers of oil and gas in the world, and the invasion saw Europe recalibrate its energy supply chain. This stressed non Russian oil sources and made crude oil prices shoot up which ended up contributing to inflation which is still high today.
As 2023 comes to an end, the outlook of the oil market is markedly different from what it was at the start of this year. While 2023 has seen inflation come down and the United States manage to avoid a recession, global economic performance is far from what oil analysts would have hoped. Economic performance is the biggest determinator of oil prices since higher output means more vehicles use fuel and so on. However, Chinese economic growth has been less than stellar in 2023, which has lowered the demand for oil and seen major oil producers scuttle to cut their production in order to beef up their balance sheets. The lower demand has translated into lower oil prices, as consumers are also likely to have noticed in the form of lower prices at the pump.
The scale of this economic slowdown's impact on global oil prices became clear for the week starting on December 11th as it saw U.S. oil futures fall for seven consecutive weeks. This is particularly interesting since the oil producers, led by Saudi Arabia and joined by Russia, had already promised to reduce their oil output by 2.2 million barrels per day throughout the first quarter of 2024. However, the dropping futures show that investors either do not believe that these production cuts will take place, or that thy are still uncertain about global economic prospects. Additionally, while U.S. oil futures fell, Brent oil futures edged up by 0.3% and U.S. WTI futures jumped by a marginal nine cents.
The market's decision to simply shrug off the announcement of oil production cuts is also evident in hedge funds selling oil in December. The general sentiment behind these decisions is believed to be an understanding that despite their announcements, oil producing countries cannot afford to further reduce their output since lower volumes shipped will reduce their revenues despite a beneficial effect on prices. Data compiled by Reuters shows that for the week ending on December 5th, hedge funds sold 58 million barrels of oil worth of futures and options contracts as they bet that oil would continue to trend lower. Since September 19th, the funds have reduced their positions by 385 million barrels, to cut their positions to 295 million barrels from the 680 million barrels at the start of the time period.
This bearishness is not limited to oil only. Gas consumers, as opposed to producers, will be glad to know that natural gas prices in America as reflected by futures prices dropped by 10.50% on the 11th. This marks a new low since summer and should come as a respite for a world that was dealt a natural gas shock last year after the Russian invasion.
Shifting gears to clean energy, the sector has been muted this year due to the effects of the invasion as well as the global economic climate. Investments in clean energy are risky since their returns are spread out over a long time period. Naturally, this means that when making their investment decisions, investors have to factor in opportunity costs i.e. the returns that they would have made elsewhere had they not invested in a budding solar power startup. This was also on the mind of Ray Dalio of Bridgewater Associates, who shared at the U.N.'s latest climate conference that the key determinant for investing in clean energy is the ability of investors to make a profit. He added that "you have to make it profitable, you just can't say, it's a good thing, go do it."
With fossil fuel prices dropping and climate investors becoming wary of un profitability, we decided to look at some very cheap energy stocks that can explode based on analyst estimates. Some top picks are Nabors Industries Ltd. (NYSE:NBR), Precision Drilling Corporation (NYSE:PDS), and Valaris Limited (NYSE:VAL).
10 Very Cheap Energy Stocks Ready To Explode
A vast oil and gas rig silhouetted in the sunset, capturing the power of Swift Energy Company.
Our Methodology
To make our list of the cheap energy stocks that are poised to explode, we ranked energy stocks by their average percentage share price upside and picked out the stocks with the highest upside.
Tidewater Inc. (NYSE:TDW) is an American backend oil and gas company that provides support services to offshore oil drilling companies. Even though its third quarter revenue marked a strong 39% annual revenue growth, the firm has missed or met analyst EPS estimates in all of its four latest quarters. However, the shares are rated Strong Buy on average.
As of Q3 2023 end, 39 out of the 910 hedge funds covered by Insider Monkey's research had bought and owned Tidewater Inc. (NYSE:TDW)'s shares. Dmitry Balyasny's Balyasny Asset Management was the largest shareholder due to its $82 million investment.
Along with Precision Drilling Corporation (NYSE:PDS), Nabors Industries Ltd. (NYSE:NBR), and Valaris Limited (NYSE:VAL), Tidewater Inc. (NYSE:TDW) is a cheap energy stock poised to explode.
Civitas Resources, Inc. (NYSE:CIVI) is a small oil and gas exploration and production firm headquartered in Denver Colorado. It operates primarily in its home state. The firm reported robust production and sales volumes for its third quarter, as it sold 33% more fuel. However, a slowdown in the energy industry this year meant that Civitas Resources, Inc. (NYSE:CIVI)'s average prices for its products dropped across the board with the natural gas prices dropping by 71%.
Insider Monkey took a look at 910 hedge funds for their third quarter of 2023 shareholdings and found that 27 had invested in Civitas Resources, Inc. (NYSE:CIVI).
Texas Pacific Land Corporation (NYSE:TPL) is a small Texas based company that holds royalty interests in properties in Texas. It is one of the most expensive stocks on our list, with the latest closing price sitting at $1,554. During the third quarter, the firm reported $158 million in revenue which marked a 22.6% annual drop on the back of a slowdown in the global commodities market.
During September 2023, 21 out of the 910 hedge funds part of Insider Monkey's database had held a stake in the company. Texas Pacific Land Corporation (NYSE:TPL)'s biggest hedge fund investor is Ed Beddow and William Tichy's Beddow Capital Management since it owns 11,413 shares that are worth $20.8 million.
Scorpio Tankers Inc. (NYSE:STNG) is a Monaco based company that ships petroleum products over the ocean all over the world. The firm's third quarter financials saw it report $100 million in net income. Its shares are up by a modest 2% year to date, and like most of the cheap energy stocks on our list, the stock is also rated Strong Buy on average. The average analyst share price target for Scorpio Tankers Inc. (NYSE:STNG) is $75.49, which prices in a 40% upside over the current closing share price.
By the end of this year's third quarter, 34 out of the 910 hedge funds profiled by Insider Monkey were Scorpio Tankers Inc. (NYSE:STNG)'s investors. The firm's largest shareholder out of these is Jim Simons' Renaissance Technologies as it owns 849,905 shares that are worth $45.9 million.
Chesapeake Energy Corporation (NASDAQ:CHK) is an Oklahoma based oil and gas exploration and production company. It has a presence in natural gas plays in Pennsylvania and Louisiana. The firm is currently interested in expanding its natural gas portfolio, as according to media reports, Chesapeake Energy Corporation (NASDAQ:CHK) is interested in buying an American natural gas company. While falling gas prices have led to EPS drops, it has nevertheless beaten analyst EPS estimates in all four of its latest quarters.
10 out of the 910 hedge funds part of Insider Monkey's Q3 2023 database had bought the firm's shares. Chesapeake Energy Corporation (NASDAQ:CHK)'s biggest investor is Howard Marks's Oaktree Capital Management courtesy of its $603 million stake.
Nabors Industries Ltd. (NYSE:NBR), Chesapeake Energy Corporation (NASDAQ:CHK), Precision Drilling Corporation (NYSE:PDS), and Valaris Limited (NYSE:VAL) are some cheap energy stocks with significant upside potential.
