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10 Energy Stocks to Buy Now According to Till Bechtolsheimer’s Arosa Capital

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·12 min read
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In this article, we will look at 10 energy stocks to buy now according to Till Bechtolsheimer's Arosa Capital. You can skip our detailed analysis of these stocks, Arosa Capital Management's investment philosophy, and go to 5 Energy Stocks to Buy Now According to Till Bechtolsheimer's Arosa Capital.

Mr. Till Bechtolsheimer graduated with a bachelor's degree in Economics and Philosophy from the University of Dublin in 2005, after which he joined UBS wealth management where he served as the associate director in private equity and hedge fund teams. In 2007, Mr. Bechtolsheimer joined UBS O' Connor where he was the portfolio manager for O' Connor's investments in the energy sector. After a period of about six and a half years, Till Bechtolsheimer co-founded his hedge fund, Arosa Capital Management, in 2013. Building on his experience from O' Connor, Mr. Bechtolsheimer focused on populating Arosa Capital's portfolio by mostly oil and gas companies.

The building block of Arosa Capital Management's investment strategy is extensive research and analysis of the oil and gas market. These analyses help the fund in identifying changing market trends, measuring market volatility, and then narrowing down investment opportunities with the goal of maximizing risk-adjusted positive returns. As of the fourth quarter of 2021, Mr. Bechtolsheimer manages over $405.3 million in 13F securities through his hedge fund, Arosa Capital Management.

Arosa Capital Management's investment portfolio is dominated by the energy sector. As of the fourth quarter of 2021, Arosa Capital's top hedge fund holdings included Chevron Corporation (NYSE:CVX), ConocoPhillips (NYSE:COP), and Shell plc (NYSE:SHEL).

Photo by David Thielen on Unsplash

Our Methodology

To compile this list of 10 energy stocks to buy now according to Till Bechtolsheimer's Arosa Capital we went through the hedge fund's 13F portfolio as of the end of the fourth quarter of 2021. We narrowed down our selection to stocks that were among Arosa Capital's top holdings. Further, we included the hedge fund sentiment and analyst ratings for these stocks, which we believe to be important metrics when it comes to investment decisions.

10 Energy Stocks to Buy Now According to Till Bechtolsheimer's Arosa Capital

10. Ovintiv Inc. (NYSE:OVV)

Stake Value of Arosa Capital Management: $7,358,000

Percentage of Arosa Capital Management's 13F Portfolio: 1.81%

Number of Hedge Fund Holders: 44

As of the fourth quarter of 2021, Ovintiv Inc. (NYSE:OVV) was a part of 44 hedge fund portfolios. The total stakes of these hedge funds were $1.07 billion, up from $684.07 million in the previous quarter. The fund's stake in Ovintiv Inc. (NYSE:OVV) is in excess of $7.35 million, which covers 1.81% of their investment portfolio. On February 28, 2022, Truist analyst Neal Dingman raised his price target on Ovintiv Inc. (NYSE:OVV) from $53 to $58.

On February 24, 2022, the board of directors of Ovintiv Inc. (NYSE:OVV) declared a quarterly dividend of $0.20 per share of common stock payable on March 31, 2022, to shareholders of record as of March 15, 2022. Moreover, the company put forth its earnings for the fiscal fourth quarter of 2021 on the same day. Ovintiv Inc. (NYSE:OVV) reported an EPS of $1.25 for the quarter and generated revenues amounting to $3.34 billion, up 118.52% year over year, beating revenue estimates by $1.41 billion.

Miller Value Partners published their fourth-quarter 2021 investor letter in which they shared their thoughts about Ovintiv Inc. (NYSE:OVV). Here's what they had to say:

“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.

We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.

One new name that illustrates the potential we see is Ovintiv (OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. OVV exemplifies the change.

OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”

Based on crude at $65 (well below the current $83.82 as of 1/14/22), the company guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”

9. Renewable Energy Group, Inc. (NASDAQ:REGI)

Stake Value of Arosa Capital Management: $7,516,000

Percentage of Arosa Capital Management's 13F Portfolio: 1.85%

Number of Hedge Fund Holders: 16

Renewable Energy Group, Inc. (NASDAQ:REGI) provides lower-carbon transportation fuels in the United States and internationally. Last November, the company reported its earnings for the fiscal third quarter of 2021 in which it beat on revenue. Renewable Energy Group, Inc. (NASDAQ:REGI) reported earnings per share of $0.83, and reported revenues of $1.01 billion, beating estimates by over $100 million.

On February 25, 2022, it was reported that Chevron Corporation (NYSE:CVX) is in talks to acquire Renewable Energy Group, Inc. (NASDAQ:REGI) for roughly $3 billion, at $61.50 per share. This announcement drove the company's share price to spike by 34% in after-hours trading.

By the end of the fourth quarter of 2021, 16 hedge funds held stakes in Renewable Energy Group, Inc. (NASDAQ:REGI). The total value of these stakes was $84.62 million, up from 15 positions in the previous quarter with stakes worth $40.43 million. Based on these numbers, the hedge fund sentiment for Renewable Energy Group, Inc. (NASDAQ:REGI) is positive.

Hazelton Capital Partners mentioned Renewable Energy Group, Inc. (NASDAQ:REGI) in their third-quarter 2021 investor letter. Here's their take on whether Renewable Energy Group, Inc. (NASDAQ:REGI) is a good long term investment:

“Since the beginning of the year, Renewable Energy Group’s share price has declined over 35% and nearly 60% since February when Hazelton Capital Partners cut its position in half. During the 3rd quarter, Hazelton Capital Partners repurchased another tranche, returning REGI to the Fund’s largest portfolio holding with a share count greater than where the position started the year. Renewable Energy Group continues to execute well in a market where supply and demand pressures remain both dynamic and uncertain. Beneath the veneer of a company that has a track record of meeting/beating its revenue and profit guidance, lies a management team whose main focus is on its supply chain and logistic operations. REGI leverages its competitive edge at both procuring cheap feedstocks and delivering its refined biodiesel & renewable diesel to the highest value markets while growing downstream opportunities. The company recently announced partnerships with both GoodFuels, which supplies biofuels to the marine industry and Canadian National Railway. Both companies are looking to expand biodiesel into their fuel mix to reduce their greenhouse gas emissions.

In October of 2021, Renewable Energy Group broke ground on its 250 million gallon/year (mmgy) renewable diesel refinery expansion at its Geismar, Louisiana refinery. The $950 million project is expected to come online by 2023, achieving a full run rate by 2024. With debt of $550 million and a net cash position of roughly $500 million, REGI’s balance sheet is prepared for the upcoming expansion. About 80% of the long lead items have been procured, and their prices locked in. The construction costs will be spread out over the upcoming years, with 15% of the total construction costs hitting in 2021, 45% in 2022, and the remainder in 2023. The nameplate capacity of the new refinery is 250mmgy but given that all of REGI’s refineries have an effective capacity that exceeds their nameplate, one can expect that Geismar will be producing over 400mmgy (Geismar ist refinery effective capacity should benefit from site improvements as well). That will greatly change Renewable Energy Group’s renewable diesel mix from 17% to 46% of total production and have a meaningful impact on the company’s future margins and cash flows.”

8. Baker Hughes Company (NASDAQ:BKR)

Stake Value of Arosa Capital Management: $8,045,000

Percentage of Arosa Capital Management's 13F Portfolio: 1.98%

Number of Hedge Fund Holders: 35

This January Barclays analyst J. David Anderson raised his price target on Baker Hughes Company (NASDAQ:BKR) to $31 from $30 and reiterated an Overweight rating on the shares. As of the fourth quarter of 2021, Arosa Capital Management's stake in the company stands at $8.04 million. The investment covers 1.98% of the hedge fund's 13F portfolio.

As of March 1, 2022, Baker Hughes Company (NASDAQ:BKR) has a forward dividend yield of 2.44%. The company announced earnings for the fiscal fourth quarter of 2021 on January 20, 2022, in which the company beat on both EPS and revenue. According to their report, the company's revenue for the quarter was in excess of $5.52 billion, and the company's earnings per share for the quarter were $0.32.

Baker Hughes Company (NASDAQ:BKR) was spotted on 35 hedge fund portfolios by the end of the fourth quarter of 2021. These 35 funds' stakes in the company were more than $747.83 million.

Here's what Madison Funds had to say about Baker Hughes Company (NASDAQ:BKR) in its third-quarter 2021 investor letter:

BKR is a leading oilfield services provider that helps its customers with oil and gas exploration and production. Its customers include companies that discover oil, energy data management firms, drilling companies, well construction, and production and completion firms. The firm is also synonymous with the U.S. rig count. BKR also helps make energy cleaner and more efficient, and is a leader in energy transition businesses, including carbon capture and hydrogen, along with being a market leader in supplying equipment for liquified natural gas (LNG) projects….”

7. EQT Corporation (NYSE:EQT)

Stake Value of Arosa Capital Management: $8,070,000

Percentage of Arosa Capital Management's 13F Portfolio: 1.99%

Number of Hedge Fund Holders: 46

EQT Corporation (NYSE:EQT) is an American energy company engaged in hydrocarbon exploration and pipeline transport. It was one of the latest additions to Arosa Capital Management's 13F portfolio in the fourth quarter of 2021. The hedge fund's stake in the energy company is $8.07 million, which accounts for 1.99% of the fund's investment portfolio.

This February, EQT Corporation (NYSE:EQT) announced fiscal fourth-quarter 2021 earnings in which the company's profit surged, beating on revenue. EQT Corporation (NYSE:EQT) reported revenues of $3.84 billion, up 206.54% year over year, and beat revenue estimates by $2.35 billion. The company reported earnings per share of $0.41.

By the end of the fourth quarter of 2021, 46 hedge funds held stakes in EQT Corporation (NYSE:EQT) which were worth over $1.21 billion. This is compared to 57 positions in the prior quarter, with a total stake of $838.22 million.

6. Diamondback Energy, Inc. (NASDAQ:FANG)

Stake Value of Arosa Capital Management: $8,178,000

Percentage of Arosa Capital Management's 13F Portfolio: 2.01%

Number of Hedge Fund Holders: 45

On February 24, 2022, RBC Capital analyst Scott Hanold raised his price target on Diamondback Energy, Inc. (NASDAQ:FANG) to $160 from $150 and reiterated an Outperform rating on the shares. According to the fourth quarter 2021 filings, the fund's stake in Diamondback Energy, Inc. (NASDAQ:FANG) is in excess of $8.17 million.

On February 22, 2022, Diamondback Energy, Inc. (NASDAQ:FANG) declared a quarterly cash dividend of $0.60 per share, which is a 20% increase from the prior dividend of $0.50. The stock's forward yield at the time was 1.87%. The dividend is payable on March 11, for shareholders of record March 4, 2022.

Diamondback Energy, Inc. (NASDAQ:FANG) reported revenues of $2.02 billion for the fiscal fourth quarter of 2021, up 162.94% year over year from $769 million. The company announced its earnings on February 22, 2022. Diamondback Energy, Inc. (NASDAQ:FANG) also reported earnings per share of $3.63, beating EPS estimates by $0.27.

Insider Monkey was able to identify 45 hedge funds that held stakes in Diamondback Energy, Inc. (NASDAQ:FANG) by the end of the fourth quarter of 2021. The total value of these stakes exceeded $572.4 million.

Here's what Miller Value Partners said about Diamondback Energy, Inc. (NASDAQ:FANG) in its fourth-quarter 2021 investor letter:

Diamondback Energy (FANG) returned 14.4% in the quarter as oil price rose and fell during the quarter ending the period largely in the same place that it started. The company reported strong 3Q results beating on the top and bottom line. The company reported revenue of $1.9B beating consensus of $1.5B with EPS of $2.94 beating expectations for $2.79. The beat was driven by a combination of higher volumes, higher realizations, and efficiency gains. The company increased its total production guidance for the year to 370-372mboe/d1 (up from 363-370mboe/d) while lowering Capital Expenditure (CAPEX) guidance for the second time this year to $1.49-1.53B. The company raised the dividend for the third time this year to $2/share annually while authorizing a new $2B share repurchase program. Starting in 4Q21, the company plans to return 50% of Free Cash Flow to shareholders through the base dividend and a combination of buybacks and special dividends. Finally, the CEO Travis Stice announced plans to reduce methane emissions by 70% as part of the firm’s ESG initiative.”

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Disclosure: None. 10 Energy Stocks to Buy Now According to Till Bechtolsheimer's Arosa Capital is originally published on Insider Monkey.