In this piece, we will take a look at the 13 oil stocks with the biggest upside. If you want to skip our overview of the oil sector and some recent news, then you can skip ahead to the 5 Oil Stocks with Biggest Upside.
When we talk about investing in major sectors of the stock market, such as oil stocks, the number of equities that are available for trading on major indexes runs into the hundreds. This means that selecting the right stocks to invest in becomes a tedious process that requires an investor to patiently work through copious amounts of financial data to see whether a share price is justified by a firm's underlying models.
Naturally, this is why the finance industry exists, with the sell side sector hiring teams to analyze stocks and write recommendations. Some such firms include banks such as JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS), and The Goldman Sachs Group, Inc. (NYSE:GS). These banks issue hundreds of stock notes each year, and often formulate lists of top firms in sectors such as oil to narrow down potential star stock performers.
Oil stocks in particular have been at the center of news coverage for the past couple of years, and despite significant demand up and downswings in the sector, their long term returns still resemble those that are characteristic of stable sectors. For instance, when we look at the five year performance of the S&P Oil & Gas Exploration & Production Select Industry Index, the index is up by 16%, a growth that discounts the effects of dividends in providing investors a larger bang for their buck.
In fact for the oil industry, even though 2023 was a boon in terms of revenue and high profits due to elevated gas prices stemming from the Russian invasion of Ukraine, it saw a sector that was still reeling from the effects of post pandemic global shutdowns and travel restrictions. These had ensured that the demand for oil was cut down significantly, and as the implications became clear, the same S&P oil index that is up by 16% over the past five years dropped by more than 30% over the course of a single summer month.
Just before this turmoil hit, i.e. in June 2022, Goldman Sachs had started to share its favored oil stocks which the bank's analyst Neil Mehta outlined had the potential for the greatest share price upside. The list was accompanied by a note that identified companies slated to benefit from a boom in global commodity demand and prices right when the global energy industry was undergoing a significant re shift on the supply side and fuels such as liquefied natural gas (LNG) boomed as an alternative to cheap Russian gas.
Mehta explained that the list of companies his teams had identified carried the potential of generating strong cash flows and potentially experiencing significant upside revisions down the road. He added that in case of long term crude oil prices hovering around $90, the top oil stocks could provide attractive valuations and end up being important components of a beta barbell investing strategy that allows an investor to focus on high and low risk stocks to strike an adequate balance between hedging a portfolio and seeking return.
Since then, Goldman Sachs has mostly stuck with its oil price forecast, which is important since the high cash flow companies that the analyst identified are said to be capable of using stable prices to generate high cash flow. Cash flow is the actual money that is available to a firm for its operations and investor returns, and the bank's latest oil price forecast sits at $87 after a $2 raise in February 2024.
With the outlook of oil still rosy despite a slow Chinese recovery, we decided to look at the top oil stocks with the biggest upside. Some notable picks are Chevron Corporation (NYSE:CVX), Hess Corporation (NYSE:HES), and Pioneer Natural Resources Company (NYSE:PXD).
13 Oil Stocks with Biggest Upside
An oil derrick in the North Sea, revealing the scope of the company's drilling operations.
Our Methodology
To make our list of the oil stocks with the highest upside, we ranked Goldman Sachs's top oil stock picks in 2022 and 2024 by the number of hedge funds that had bought the shares in 2023's December quarter. Out of these, the stocks with the highest number of hedge fund shareholders were chosen as the oil stocks with the highest upside. For the oil stocks from 2022, the share price performance from March 2022 is shared.
For these oil stocks with the largest upside, we used we used hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Magnolia Oil & Gas Corporation (NYSE:MGY) is a small American oil exploration firm headquartered in Houston, Texas. While the shares are down by 4.22% since March 2022, after the July dip, they have appreciated by 10%. The average analyst share price target is $24.77.
During December 2023, 25 out of the 933 hedge funds tracked by Insider Monkey had bought the firm's shares. Magnolia Oil & Gas Corporation (NYSE:MGY)'s largest stakeholder among these is Amy Minella's Cardinal Capital due to its $42.9 million investment.
Along with Hess Corporation (NYSE:HES), Chevron Corporation (NYSE:CVX), and Pioneer Natural Resources Company (NYSE:PXD), Magnolia Oil & Gas Corporation (NYSE:MGY) is an oil stock with significant upside.
Kosmos Energy Ltd. (NYSE:KOS) is an American oil and gas company with exploration projects in the U.S. and other countries. Its shares have been on a roller coaster trajectory since March 2022, and while the stock has soared by as much as 45% during this period, over the long term it is still down by roughly 6%.
As of Q4 2023 end, 62 out of the 933 hedge funds part of Insider Monkey's database had bought and owned a stake in Kosmos Energy Ltd. (NYSE:KOS). Len Kipp and Xavier Majic's Maple Rock Capital was the firm's biggest investor since it owned $60 million worth of shares.
Ovintiv Inc. (NYSE:OVV) produces oil in several American states and Canadian provinces. While the stock was quick to recover most of its 2022 losses in the next couple of months, a sell off that took place in July 2023 after it announced a $250 million asset sale is yet to reverse itself.
Insider Monkey scoured through 933 hedge fund holdings for last year's fourth quarter and found that 35 had invested in Ovintiv Inc. (NYSE:OVV). Michael Rockefeller and Karl Kroeker's Woodline Partners was the biggest investor since it held a $136 million stake.
Antero Resources Corporation (NYSE:AR) is a Colorado based oil company with operations in the Appalachian basin and the Upper Devonian Shale. Looking at its financials to see how cash flows have done over the past couple of years, the operating cash flow dropped significantly in 2023 over 2022, on the back of a lower net income.
By December 2023 end, 39 out of the 933 hedge funds surveyed by Insider Monkey were the firm's shareholders. Antero Resources Corporation (NYSE:AR)'s largest stakeholder is Phill Gross and Robert Atchinson's Adage Capital Management as it owns $107 million worth of shares.
EQT Corporation (NYSE:EQT) is a pure play natural gas company headquartered in Pittsburgh, Pennsylvania. A greater interest in U.S. oil production following the Russian invasion has helped the stock over the past twelve months as the shares are up by 9.85%.
Insider Monkey dug through 933 hedge fund portfolios for 2023's December quarter to find 40 EQT Corporation (NYSE:EQT) investors. Eric W. Mandelblatt's Soroban Capital Partners owned the biggest stake which was worth $214 million.
Coterra Energy Inc. (NYSE:CTRA) is another natural gas company. The fact that its shares are also up since March marks a crucial divergence on our list of the oil stocks with the biggest upside. This comes in the form of natural gas, as gas companies have managed to sustain investor interest due to the need to develop Russian alternatives. Year to date the stock is flat on the back of weaker natural gas prices.
During last year's final quarter, 42 out of the 933 hedge funds tracked by Insider Monkey had bought the firm's shares. Coterra Energy Inc. (NYSE:CTRA)'s largest hedge fund investor is Steve Cohen's Point72 Asset Management since it owns 5.5 million shares that are worth $141 million.
Diamondback Energy, Inc. (NASDAQ:FANG) is one of the highest performing stocks on our list of the top stocks with the highest upside. A somewhat diversified firm, it is involved in producing oil and gas and transporting it as well. Not only are the shares up by 36.75% since March 2022, but this doesn't capture the full return as Diamondback Energy, Inc. (NASDAQ:FANG) also pays a $2 dividend for a 4.5% yield.
Insider Monkey's fourth quarter of 2023 survey covered 933 hedge funds and found 42 Diamondback Energy, Inc. (NASDAQ:FANG) shareholders. Ric Dillon's Diamond Hill Capital was the biggest shareholder through its $248 million stake.
ConocoPhillips (NYSE:COP) is a Texas based diversified oil firm with a presence in several countries. It's also one of the top rated stocks on our list, having secured an average share rating of Strong Buy and an average share price target of $136 that promises a hefty upside.
59 out of the 933 hedge funds part of Insider Monkey's Q4 2023 database had bought and owned the firm's shares. ConocoPhillips (NYSE:COP)'s largest hedge fund investor is Boykin Curry's Eagle Capital Management due to its $1.5 billion investment.
Chevron Corporation (NYSE:CVX), Hess Corporation (NYSE:HES), ConocoPhillips (NYSE:COP), and Pioneer Natural Resources Company (NYSE:PXD) are some top Goldman Sachs oil stocks with high potential upside.
