In the next decade, global power demand is expected to grow by over 30%, largely fueled by economic growth in emerging markets and the electrification of various sectors. Data centers and artificial intelligence are becoming major energy consumers, increasingly relying on renewable sources like solar and wind power. Although efforts to improve energy efficiency may help mitigate some of this demand, the Asia-Pacific region is projected to account for a significant portion of the increase, capturing 66% of the total growth in electricity demand.
In response to the rising demand, there is a strong focus on clean energy sources to meet environmental, social, and governance (ESG) goals, as well as to qualify for tax incentives, reshaping the entire industry. Renewable energy is projected to increase by more than 740 gigawatts each year from now until 2035. By that year, carbon-free resources, including renewables, hydropower, nuclear energy, and battery storage, are expected to make up 70% of the total installed generation capacity.
This shift is also driving significant investments and various initiatives across the industry. This includes renewable energy startups, traditional oil and gas companies, and associated manufacturing and technology firms. Investment in the energy transition is gaining momentum, with the US experiencing a 22% increase in 2023, reaching $303 billion. While this amount is substantial, it remains relatively small compared to the global total of $1.77 trillion.
In the United States, fossil fuels and nuclear power together account for 75% of energy production, while renewables contribute just under 25%. On a global scale, renewable sources now represent 30% of electricity generation.
Another emerging trend in the energy sector is the rise of mergers and acquisitions. According to Bloomberg, over $155 billion in deals were finalized in the fourth quarter of 2023 alone, exceeding the total from the previous five quarters combined. As companies face challenging market and economic conditions, consolidation within the oil and gas industry, particularly among upstream, midstream, and oil field services companies, is expected to continue.
Oil prices significantly influence the performance of energy stocks, leading to a volatile year for the sector. Stock prices have fluctuated in response to changing oil prices. Despite this volatility, there are still investment opportunities within the energy sector, including traditional oil and gas companies, midstream businesses, and firms focused on renewable energy. With this context in mind, let's take a look at the 10 most promising energy stocks according to hedge funds.
Our Methodology
To shortlist the 10 most promising energy stocks, we used stock screeners like Yahoo Finance and Finviz to identify the largest energy companies. From there, we refined our selections to 10 stocks based on hedge fund sentiment using our database of 912 top hedge funds as of Q2 2024. The most promising energy stocks have been ranked in ascending order of the number of hedge funds holding a stake in them.
Note: Although the theme of the article is Oil and Gas stocks, we've also added renewable energy stocks since many oil and gas companies are also diversifying in renewable energy.
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).
Constellation Energy Corporation (NASDAQ:CEG) Rated "Hold" by DBS, Analyst Sets $250 Target Amid Positive Long-Term Developments
An aerial view of the energy producing facility, highlighting its potential of providing utilities to the public.
GE Vernova Inc. (NYSE:GEV), a newly formed independent company spun off from General Electric, is a leading player in the electric power industry. The company specializes in manufacturing energy equipment and providing support services, with a strong emphasis on sustainable energy solutions. GE Vernova aims to achieve carbon neutrality in its operations by 2030.
GE Vernova Inc. (NYSE:GEV) contributes to about 25% of the world's electricity generation, supported by its extensive technology base, which includes roughly 55,000 wind turbines and 7,000 gas turbines. This positions the company as a key player in the energy transition.
Since going public, the company has posted strong financial results, reporting $8.2 billion in revenue for Q2 2024 and total orders of $11.8 billion, along with a decent increase in its cash balance since the spinoff. These solid results and market position have led analysts to be optimistic about the stock. Currently, analysts have assigned GE Vernova Inc. (NYSE:GEV) an average rating of “Strong Buy” and a 12-month average price target of $285.3, suggesting a potential upside of over 7% from the current price levels.
“GE Vernova is a global electric power company that was recently spun out of a much larger industrial conglomerate. The company’s shares performed well in their first quarter as a standalone compa- ny, primarily as a result of the increasing outlook for power demand growth, both domestically and abroad. We believe GE Vernova is well positioned to capitalize on this growing trend across its various products and services, but most notably within its large-scale gas turbine equipment and related services, as well as in its high-volt- age electrical transmission products.”
Overall GEV ranks 3rd among the most promising energy stocks according to hedge funds. While we acknowledge the potential of GEV as an investment, our conviction lies in the belief that 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 GEV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
