Over the past decade, energy transition efforts have intensified, but macroeconomic and geopolitical challenges since 2022 have tempered progress. Governments worldwide are now focusing on the development and use of renewable energy technologies. In 2024, energy and mining companies face numerous challenges amid a complex business environment and uncertain economic outlook, as per S&P Global’s latest report. Policy developments in 2022 and 2023 have created opportunities for the energy and mining sectors, particularly in the transition to renewable energy and critical minerals. However, 2024 is expected to bring significant headwinds due to elevated interest rates and slowing economic growth. Energy and utility companies, grappling with regulatory complexities and persistent inflation, face challenges in the rollout of both renewable and traditional energy infrastructure.
The energy landscape is influenced by four main disruptors – geopolitical factors, macroeconomic variables (like high interest rates and rising materials costs), evolving policies and regulations, and the emergence of new technologies. These factors significantly impact demand, supply, trade, and investment in the oil and gas industry. According to Deloitte, OPEC+'s output cuts and other disruptions have driven Brent oil prices above US$90/bbl, while US Henry Hub natural gas prices rebounded to US$3.50/mmBtu in November 2023. Despite these challenges, global oil demand is expected to grow by 2.3 mbpd in 2023, surpassing 100 mbpd for the first time. Electric vehicle sales increased by over 35% in 2023, with one in seven cars sold being an EV, highlighting regional differences in demand, infrastructure, technology adoption, regulatory policies, and socioeconomic factors. The industry is poised for a solid start in 2024, supported by its strong financial position and high oil prices, barring further macroeconomic deterioration. This strength is expected to facilitate investments, dividends, and a disciplined capital program, with the global upstream industry projected to maintain a 2023 hydrocarbon investment level of about US$580 billion and generate over US$800 billion in free cash flows in 2024.
As per Fitch Ratings, the performance of the global oil and gas sector in 2024 is expected to be consistent with 2023 and stronger than mid-cycle levels. Oil prices are anticipated to remain high and relatively stable year-on-year, attributed to OPEC+'s production cuts, geopolitical factors, and a slowdown in US crude production. Although demand growth is expected to decelerate, the spare capacity, primarily held by OPEC, is likely to be sufficient to absorb potential shocks. Looking ahead to 2025, a decline in oil prices is assumed as OPEC+'s control over supply may ease. Companies with strong cash flow and low leverage are projected to report robust earnings in 2024, supported by favorable prices and ongoing cost control measures. The cumulative EBITDA of Fitch-rated global O&G producers is expected to slightly decrease from 2023, approximately 25% lower than in 2022. Most companies are expected to maintain or reduce capital expenditures, with only about 25% increasing capex by more than 10%. Additionally, approximately 20% of companies are projected to raise dividends by more than 10%, while the rest will either maintain or decrease dividends.
To benefit from the growth potential in the energy sector, some of the best stocks to buy include Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), and Exxon Mobil Corporation (NYSE:XOM).
Our Methodology
We chose the top energy stocks based on overall hedge fund sentiment toward each stock. We have assessed the hedge fund sentiment from Insider Monkey’s database of 910 elite hedge funds tracked as of the end of the third quarter of 2023. The list is arranged in ascending order of the number of hedge fund holders in each firm. 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).
Top 12 Oil and Gas Stocks To Invest In According To Hedge Funds
An oil rig pumping station with a clear sky behind it, illustrating the company's wide range of activities in the oil and gas business.
Top Oil and Gas Stocks To Invest In According To Hedge Funds
PG&E Corporation (NYSE:PCG) operates through its subsidiary, Pacific Gas and Electric Company. The corporation is involved in the sale and delivery of electricity and natural gas in northern and central California. PG&E Corporation (NYSE:PCG) owns and manages transmission and distribution infrastructure for electricity, as well as natural gas transmission, storage, and distribution systems. It serves a wide range of customers, including residential, commercial, industrial, agricultural, and natural gas-fired electric generation facilities.
On November 30, PG&E Corporation (NYSE:PCG) priced an offering of $1.9 billion in 4.25% convertible senior secured notes due 2027 in a private placement, with an upsize of $400 million from the initial announcement. The offering includes an option for purchasers to acquire an additional $250 million. The net proceeds of about $1.876 billion, along with cash on hand, will be used to prepay outstanding loans under a secured term loan credit agreement.
According to Insider Monkey’s third quarter database, 49 hedge funds were bullish on PG&E Corporation (NYSE:PCG), compared to 51 funds in the prior quarter. Dan Loeb’s Third Point is the largest stakeholder of the company, with 56.8 million shares worth $917.15 million.
Like Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), and Exxon Mobil Corporation (NYSE:XOM), PG&E Corporation (NYSE:PCG) is one of the best energy stocks to monitor.
Third Point Management made the following comment about PG&E Corporation (NYSE:PCG) in its Q1 2023 investor letter:
“Our strategy is to preserve liquidity and buying power to take advantage of markets when they “break”. While overall indices remain elevated, we are finding more chances to provide liquidity across all three asset classes in which we invest – credit, structured credit, and equity – opportunities which have been key drivers of performance for the fund. Our portfolio is balanced across industries with a focus on event-driven names including companies involved in spin-offs, significant cost-cutting, or other types of under-appreciated business transformation. PG&E Corporation (NYSE:PCG), which is still our largest position, continues to deliver strong performance, down 50bps in the first quarter but up 6.2% for the year to date after the Fire Victims Trust sold another 60 million shares in a block trade.”
Shell plc (NYSE:SHEL) is a global energy and petrochemical company. It operates through Integrated Gas, Upstream, Marketing, Chemicals and Products, and Renewables and Energy Solutions segments. Shell plc (NYSE:SHEL) engages in the exploration and extraction of crude oil, natural gas, and natural gas liquids, along with marketing, transporting, and trading these resources. It is one of the best energy stocks to invest in.
On February 1, Shell plc (NYSE:SHEL) declared a $0.688 per share quarterly dividend, a 3.9% increase from its prior dividend of $0.662. The dividend is payable on March 25, to shareholders of record on February 16. The board initiated a share repurchase plan of $3.5 billion. The program is set to conclude before the company's Q1 2024 financial results.
According to Insider Monkey’s third quarter database, 49 hedge funds were bullish on Shell plc (NYSE:SHEL), compared to 43 funds in the last quarter. Ken Fisher’s Fisher Asset Management is the largest stakeholder of the company, with 22.4 million shares worth $1.4 billion.
Third Point Management made the following comment about Shell plc (NYSE:SHEL) in its second quarter 2023 investor letter:
“We initiated a position in Shell plc (NYSE:SHEL) in the summer of 2021 and highlighted the company’s significant discount to intrinsic value as well as to US-listed peers after decades of poor performance. While shares have performed well since we initiated the investment, the company still trades at staggering discount to intrinsic value and represents a compelling investment at current levels. We initially argued (and still believe) that the fastest path to improved performance and better valuation would be a separation of Shell’s business units to better attract shareholders and improve accountability, the latter of which was essential when the company was in the hands of executives who had demonstrated virtually no focus on shareholder value creation.
Devon Energy Corporation (NYSE:DVN) engages in the exploration, development, and extraction of oil, natural gas, and natural gas liquids within the United States. Established in 1971, the company is based in Oklahoma City, Oklahoma. Devon Energy Corporation (NYSE:DVN) is one of the best energy stocks to invest in.
On November 7, Devon Energy Corporation (NYSE:DVN) reported a Q3 non-GAAP EPS of $1.65 and a revenue of $3.84 billion, topping Wall Street estimates by $0.10 and $210 million, respectively. Devon Energy Corporation (NYSE:DVN) anticipates a capital expenditure in the range of $870 million to $930 million for the fourth quarter. With this investment, the company aims to initiate approximately 100 gross operated wells during the quarter. Projected production for the fourth quarter is expected to be between 640,000 and 660,000 barrels of oil equivalent per day, with oil production estimated at around 315,000 barrels per day.
According to Insider Monkey’s third quarter database, 52 hedge funds were bullish on Devon Energy Corporation (NYSE:DVN), compared to 45 funds in the prior quarter. Donald Yacktman’s Yacktman Asset Management is the leading position holder in the company, with 3 million shares worth $145.2 million.
GoodHaven Capital Management released its second-quarter 2022 investor letter and mentioned Devon Energy Corporation (NYSE:DVN). Here is what they said:
“Our biggest dollar gainer within this period was Devon Energy Corporation (NYSE:DVN), a position which emanated from a takeover in early 2021 of our long time holding WPX Energy. We are sitting on a material (unrealized) gain from our cost and are now receiving material dividends thanks to Devon’s thoughtful fixed/variable dividend policy. Energy is now a hot sector for investors but we have had a material exposure for a long time. We remember a bit too well $40 oil, NEGATIVELY PRICED front-month oil contract, and what it’s like to own a company with leverage and negative free cash flow during such periods. Our desire to have our biggest portfolio exposures be high return, growing, reasonably predictable and moderately levered companies lead us to reduce our Devon exposure in the past. When the recent facts and circumstances for the industry changed and appeared supportive of healthy oil prices, we decided to maintain a sizable holding and more recently added to the position. At Devon’s Q1 dividend rate, which is mostly variable in nature, the shares now yield approximately 10% and our yield on our average cost is materially higher. In addition, we maintain additional energy exposure through our long-term (and successful) holding in Hess Midstream and less directly through TerraVest and Berkshire Hathaway’s energy investments.”
Hess Corporation (NYSE:HES) is an exploration and production company that engages in the exploration, development, production, purchase, transportation, and sale of crude oil, natural gas liquids, and natural gas. It operates in two segments – Exploration and Production, and Midstream. Hess Corporation (NYSE:HES) is one of the top energy stocks to invest in.
On January 31, Hess Corporation (NYSE:HES) reported a Q4 non-GAAP EPS of $1.63 and a revenue of $3.01 billion, outperforming Wall Street estimates by $0.24 and $140 million, respectively.
According to Insider Monkey’s third quarter database, 58 hedge funds were bullish on Hess Corporation (NYSE:HES), compared to 52 funds in the prior quarter. Ben Jacobs’ Anomaly Capital Management is the leading position holder in the company, with 1.2 million shares worth $183.6 million.
NextEra Energy, Inc. (NYSE:NEE) are involved in the generation, transmission, distribution, and sale of electric power in North America. NextEra Energy, Inc. (NYSE:NEE) is engaged in selling energy commodities and manages electric generation facilities in wholesale energy markets. On January 25, the company reported a Q4 non-GAAP EPS of $0.52 and a revenue of $6.87 billion, outperforming Wall Street estimates by $0.03 and $550 million, respectively.
According to Insider Monkey’s third quarter database, 58 hedge funds were bullish on NextEra Energy, Inc. (NYSE:NEE), compared to 59 funds in the last quarter. John Overdeck and David Siegel’s Two Sigma Advisors is a prominent stakeholder of the company, with 4.5 million shares worth $261.2 million.
ClearBridge All Cap Value Strategy made the following comment about NextEra Energy, Inc. (NYSE:NEE) in its Q3 2023 investor letter:
“Many businesses are threatened by a higher cost of capital, but one where reality has set in, and which also touches many other growth areas of the market, is the utility company NextEra Energy, Inc. (NYSE:NEE). Over the past few years, the company developed into a growth darling thanks to its strong track record in renewable energy development and tailwinds from the global energy transition and incentives in the Inflation Reduction Act. The problem for NextEra, and the transition broadly, is that this transformation is immensely capital intensive and many renewables projects offer lower returns on that capital. This requires high capital expenditures – often resulting in negative free cash flow – to meet the growth and financing needs of companies like NextEra. To help, the company leaned on financial engineering by using a publicly traded limited partnership called NextEra Energy Partners, providing further capacity for its parent to continue its development plans. NEP used layers of its own financial engineering to fund its own negative free cash flow and a large, growing dividend yield that we believe it could not sustain organically. Ultimately, the higher cost of debt from rising rates led NEP to lower its own growth ambitions, driving concerns about whether NextEra can execute on its extensive backlog. As a result, the stock has declined by approximately 30% year to date.”
Cheniere Energy, Inc. (NYSE:LNG) is an American energy infrastructure company primarily focused on liquefied natural gas operations. It is one of the best energy stocks to monitor, ranking 7th on our list. On January 26, Cheniere Energy, Inc. (NYSE:LNG) declared a $0.435 per share quarterly dividend, in line with previous. The dividend is payable on February 23, to shareholders on record as of February 6.
According to Insider Monkey’s third quarter database, Cheniere Energy, Inc. (NYSE:LNG) was part of 58 hedge fund portfolios, compared to 60 in the preceding quarter. D E Shaw is the largest stakeholder of the company, with 1.3 million shares worth $222.3 million.
TimesSquare Capital U.S. Mid Cap Growth Strategy made the following comment about Cheniere Energy, Inc. (NYSE:LNG) in its Q3 2023 investor letter:
“We often see the ebb and flow of the Energy sector tied to underlying commodity prices. In this area, we seek low-cost exploration & production companies with high-yielding acreage or specialized service providers. Cheniere Energy, Inc. (NYSE:LNG) operates liquefied natural gas terminals in Louisiana and Texas. The company reported a solid quarter and raised forward guidance. During the quarter, Cheniere bought back stock and paid down debt. Although these amounts did not meet Street expectations, management is building cash to fund projects and plans to accelerate share repurchases in the back half of the year. Its 9% return fell short of the index sector average of 15%.”
ConocoPhillips (NYSE:COP) is a global energy company engaged in the exploration, production, transportation, and marketing of crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids. Founded in 1917, ConocoPhillips is headquartered in Houston, Texas. On February 8, ConocoPhillips (NYSE:COP) reported a Q4 non-GAAP EPS of $2.40, beating market estimates by $0.23. The company also declared a $0.58 per share quarterly dividend, in line with previous. The dividend is payable on March 1, to shareholders of record on February 19.
According to Insider Monkey’s third quarter database, 62 hedge funds were bullish on ConocoPhillips (NYSE:COP), same as the prior quarter. Harris Associates is the largest stakeholder of the company, with 13.5 million shares worth $1.6 billion.
In addition to Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), and Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP) ranks 6th on our list of the best oil and gas stocks.
Oakmark Select Fund made the following comment about ConocoPhillips (NYSE:COP) in its second quarter 2023 investor letter:
“ConocoPhillips (NYSE:COP) is one of the largest and most efficient exploration and production companies in the country. The company has an extensive resource base of high-quality drilling inventory in the U.S. and various international locations as well as a growing liquified natural gas business. In our view, the depth and quality of ConocoPhillips’s inventory is a competitive differentiator that is not fully captured in today’s share price. Over the next 10 years, we believe ConocoPhillips will be able to return more than 100% of its current market cap to shareholders via dividends and share repurchases while growing its production at a mid-single-digit annual pace. We believe ConocoPhillips is also among the best managed companies in the oil and gas industry and we are impressed by its history of accretive capital allocation under CEO Ryan Lance. The stock has meaningfully underperformed the broader market year-to-date and is an attractive addition to our portfolio.”
