On April 2, OPEC+ announced an oil production cut of 1.16 million bpd, bringing aggregate cuts to 3.66 million bpd which is approximately 3.7% of global demand, according to Reuters. Shortly after the announcement, Hightower Advisors chief investment strategist, Stephanie Link, appeared in an interview on CNBC to discuss this development in the energy sector and what it means for energy stocks. Stephanie Link thinks that "it's obviously a positive for the energy sector" as companies in the space will be able to generate more free cash flow and drive shareholder returns through buybacks and dividends, as oil prices rise. However, Link thinks that it could be negative for consumers if oil prices rise, and the Fed might remain hawkish on inflation. She also noted that the Strategic Petroleum Reserve's record low levels are a concern and something needed to be addressed.
Stephanie Link discussed her investment strategy for the quarter, stating that she was overweight in oil stocks and owned Chevron Corporation (NYSE:CVX), Schlumberger Limited (NYSE:SLB), and Diamondback Energy, Inc. (NASDAQ:FANG). Link said that Chevron Corporation (NYSE:CVX) is a "high-quality" and "diversified" company that pays decent dividends. Link called Schlumberger Limited (NYSE:SLB) a "wonderful technology company". She believes that these companies are trading at attractive P/E ratios and generating abundant free cash flow. As of April 5, Chevron Corporation (NYSE:CVX) is trading at a PE multiple of 9x and is offering a forward dividend yield of 3.60%. Schlumberger Limited (NYSE:SLB) is trading at a PE multiple of 20x, as of April 5, and is offering a forward dividend yield of 1.97%.
Stephanie Link also shared her views regarding the outperformance of technology in the first quarter of 2023. Link suggests investors to opt for a more "balanced approach" in 2023. Here are some comments from Link:
"(technology) it was really more of a macro call. Why they have outperformed is because rates have come down in the first quarter, inflation has started to come down, you've had a flight to safety because of the bank scare, and then also a bit of mean reversion. If you think about it growth, year-to-date, has outperformed value by 12%. But last year, value outperformed growth by 20%. So there was some mean reversion in the first quarter this year as well."
Stephanie Link noted that there are "great stories and great total addressable markets" within the tech sector and as tech companies are cutting costs, they are improving their ability to generate cash flow and improve margins. However, she thinks the tech sector has "moved really far really fast".
Overall, Stephanie Link is bullish on the energy sector and believes that investors should have a balanced portfolio. Some other sectors she likes include industrials, aerospace, agriculture, and China reopening names. Link suggested that consumer spending would continue to rise, mainly focused on services, and there are opportunities for investors within the market to diversify and balance their portfolios.
We have compiled a list of the best undervalued energy stocks to buy now according to analysts, which include Diamondback Energy, Inc. (NASDAQ:FANG), Occidental Petroleum Corporation (NYSE:OXY), and Marathon Petroleum Corporation (NYSE:MPC). Let's now discuss these stocks, among others, in detail below.
11 Best Undervalued Energy Stocks to Buy According to Analysts
Photo by Ruben Sukatendel on Unsplash
Our Methodology
We screened for energy stocks that were trading at a trailing twelve-month price-to-earnings ratio of less than 15, as of April 5. We then looked at each stock's consensus analyst rating and average price targets and narrowed down our selection to stocks that had the highest average upside potential and lowest TTM PE ratio, as of April 5, and held consensus Buy ratings among Wall Street analysts. We have also included the hedge fund sentiment for each stock, which was sourced from Insider Monkey's proprietary database of roughly 900 elite hedge funds. We have ranked these stocks in descending order of their TTM PE ratios, as of April 5.
11 Best Undervalued Energy Stocks to Buy According to Analysts
Average Analyst Price Target as of April 5: $149.39
Average Upside Potential as of April 5: 24.11%
PE Ratio (TTM) as of April 5: 9.11
On March 27, Morgan Stanley analyst Devin McDermott updated his price target on EOG Resources, Inc. (NYSE:EOG) to $132 from $140 and maintained an Overweight rating on the shares. Over the past 3 months, the stock has received 15 Buy ratings and 3 Hold ratings from Wall Street analysts and has a consensus Strong Buy rating.
As of April 5, EOG Resources, Inc. (NYSE:EOG) is trading at a PE multiple of 9.11 and has an average upside potential of 24.11%. The stock is one of the best undervalued energy stocks to buy now according to analysts.
At the end of the fourth quarter of 2022, 50 hedge funds were bullish on EOG Resources, Inc. (NYSE:EOG) and disclosed stakes worth $1.19 billion in the company. Of those, Harris Associates was the leading shareholder in the company and held a position worth $792 million.
Artisan Partners made the following comment about EOG Resources, Inc. (NYSE:EOG) in its Q4 2022 investor letter:
“Our top three contributors for the full year were two energy holdings—Schlumberger and EOG Resources, Inc. (NYSE:EOG)—and health care company Merck. EOG is a US shale-focused E&P company. The current supportive commodity price environment and EOG’s continuing to deliver on its production goals and capex plans have led investors to bid up shares. 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 downturn. EOG has a low-cost production position with a strong reserve base, giving it an advantage versus peers. Further, EOG’s management focuses on return on invested capital and cash flow generation, distinguishing it from most of the company’s competitors who prioritize growth over profitability.”
Average Analyst Price Target as of April 5: $128.03
Average Upside Potential as of April 5: 9.39%
PE Ratio (TTM) as of April 5: 8.82
Exxon Mobil Corporation (NYSE:XOM) is one of the best undervalued energy stocks to buy now, according to analysts. The stock is trading at a PE multiple of 8x and has an average upside potential of 9.39%, as of April 5. Over the past 3 months, the stock has received 12 Buy ratings and 5 Hold ratings from Wall Street analysts.
This March, Mizuho raised its price target on Exxon Mobil Corporation (NYSE:XOM) to $147 from $140 and reiterated a Buy rating on the shares.
At the close of Q4 2022, Exxon Mobil Corporation (NYSE:XOM) was spotted on 79 hedge funds' portfolios. These funds held positions worth $7.10 billion in the company. As of December 31, GQG Partners is the top stockholder and has a position worth $3.6 billion.
Average Analyst Price Target as of April 5: $71.05
Average Upside Potential as of April 5: 20.83%
PE Ratio (TTM) as of April 5: 8.37
Canadian Natural Resources Limited (NYSE:CNQ) was a part of 41 investors' portfolios at the end of Q4 2022. These funds disclosed collective stakes worth $1.84 billion in the company. As of December 31, Yacktman Asset Management is the most prominent shareholder in the company and has a position worth $842.5 million.
Over the past 3 months, Canadian Natural Resources Limited (NYSE:CNQ) has received 5 Buy ratings and 3 Hold ratings from Wall Street analysts and has a consensus Buy rating. The stock has an average price target of $71.05. The stock's average price target represents an upside of 20.83% from current levels and, as of April 5, the stock is trading at a TTM PE ratio of 8.37. Canadian Natural Resources Limited (NYSE:CNQ) is placed ninth on our list of the best undervalued energy stocks to buy now.
On March 27, Morgan Stanley analyst Devin McDermott updated his price target on Canadian Natural Resources Limited (NYSE:CNQ) to C$87 from C$90 and maintained an Equal Weight rating on the shares.
Other cheap energy stocks that Wall Street analysts are bullish on include Diamondback Energy, Inc. (NASDAQ:FANG), Occidental Petroleum Corporation (NYSE:OXY), and Marathon Petroleum Corporation (NYSE:MPC).
Average Analyst Price Target as of April 5: $24.12
Average Upside Potential as of April 5: 31.56%
PE Ratio (TTM) as of April 5: 7.79
Cenovus Energy Inc. (NYSE:CVE) is one of the best undervalued energy stocks to buy now. This March, Morgan Stanley revised its price target on Cenovus Energy Inc. (NYSE:CVE) to C$32 from C$33 and reiterated an Overweight rating on the shares.
Over the past 3 months, Cenovus Energy Inc. (NYSE:CVE) has received 10 Buy ratings from Wall Street analysts and has a consensus Strong Buy rating. The stock has an average price target of $24.12, which implies an upside of 31.56% from current levels. As of April 5, the stock is trading at a PE ratio of 7.79.
46 hedge funds disclosed having stakes in Cenovus Energy Inc. (NYSE:CVE) at the close of Q4 2022. The total value of these stakes amounted to $2.31 billion. As of December 31, Soroban Capital Partners is the largest investor in the company and has a stake worth $1 billion.
Here is what L1 Capital had to say about Cenovus Energy Inc. (NYSE:CVE) in its Q3 2022 investor letter:
“Cenovus Energy (Long -13%) shares declined over the quarter due to an ~18% decline in oil prices on increasing fears of a U.S recession and a slowdown in global growth. Given the long-life nature of its oil sand assets and its low cost of production, we estimate Cenovus is free cash flow break-even at an oil price of ~US$40/bbl. Despite the recent fall, oil prices remain more than double this break-even point, implying considerable free cash flow generation potential for the company at current levels, with Cenovus currently trading on a consensus FY22 free cash flow yield of around 20%. There are also additional value realisation catalysts with the company continuing to progress the de-gearing of its balance sheet via organic cash generation and asset sales.”
Average Analyst Price Target as of April 5: $134.47
Average Upside Potential as of April 5: 24.80%
PE Ratio (TTM) as of April 5: 7.40
ConocoPhillips (NYSE:COP) is on analysts' radars. The stock has received 13 Buy ratings and 5 Hold ratings from Wall Street analysts over the past 3 months. ConocoPhillips (NYSE:COP) has an average upside potential of 24.80%, as of April 5, and is trading at a TTM PE multiple of 7x. ConocoPhillips (NYSE:COP) is placed seventh on our list of the best undervalued energy stocks to buy now, according to analysts.
On March 27, Morgan Stanley analyst Devin McDermott revised his price target on ConocoPhillips (NYSE:COP) to $115 from $122 and maintained an Overweight rating on the shares.
ConocoPhillips (NYSE:COP) was held by 67 hedge funds at the close of Q4 2022 that disclosed collective stakes worth $2.98 billion in the company. Of those, Diamond Hill Capital was the top shareholder and held a position worth $650.5 million.
Here is what ClearBridge Investments had to say about ConocoPhillips (NYSE:COP) in its Q4 2022 investor letter:
“The risk-on environment supported by China reopening drove strong returns for the energy sector, despite underlying commodity prices falling from recent highs. In the portfolio, leading E&P company ConocoPhillips (NYSE:COP) was again among the top contributors; it maintains one of the best balance sheets in the industry and continues to execute well while benefiting from being a low-cost producer and growing liquefied natural gas demand. ConocoPhillips is also investing in field electrification and carbon capture across its portfolio, with ambitions to deliver oil production with industry-low CO2 intensity.”
Average Analyst Price Target as of April 5: $252.41
Average Upside Potential as of April 5: 19.97%
PE Ratio (TTM) as of April 5: 6.76
55 hedge funds held stakes in Pioneer Natural Resources Company (NYSE:PXD) at the end of Q4 2022. The total value of these stakes amounted to $841.9 million. As of December 31, Yacktman Asset Management is the leading shareholder in the company and has a position worth $165.5 million.
On March 23, Citi analyst Scott Gruber upgraded Pioneer Natural Resources Company (NYSE:PXD) to Buy from Neutral and raised his price target on the stock to $210 from $193.
Over the past 3 months, Pioneer Natural Resources Company (NYSE:PXD) has received 10 Buy ratings and 7 Hold ratings from Wall Street analysts. The stock has an average price target of $252.41, which represents an upside of 19.97% from current levels. Pioneer Natural Resources Company (NYSE:PXD) is trading at a PE multiple of 6x, as of April 5. The stock is one of the best undervalued energy stocks to buy now.
In addition to Pioneer Natural Resources Company (NYSE:PXD), other energy stocks that are currently trading at bargain levels and have consensus Buy ratings among Wall Street analysts include Diamondback Energy, Inc. (NASDAQ:FANG), Occidental Petroleum Corporation (NYSE:OXY), and Marathon Petroleum Corporation (NYSE:MPC).
