In this article, we are going to discuss the ten energy stocks that elite hedge funds currently admire the most. If you want to skip our detailed analysis of the energy sector, please have a look at Elite Hedge Funds Love These 5 Energy Stocks.
Following the COVID-19 pandemic, the economic recovery has led to price increases across a range of commodities. Energy prices and supply-security worries have increased even more as a result of the situation in Ukraine. However, the shift to a lower-carbon energy system is continuing and accelerating, and it is likely that the energy landscape will change quickly over the next few decades. According to a report published by Mckinsey & Company in April 2022, it is predicted that global energy consumption will level off in the coming decades. Although the global economy is expanding quickly, and with a growth in the world's population by two billion people, energy consumption is only expected to increase by 14%. By 2050, it is anticipated that the share of electricity in the total consumption mix will increase from 20% to 40%. Because of electrification and rising living standards, power consumption is predicted to triple by 2050. Renewables are expected to become the new baseload, accounting for 50% of the power mix by 2030 and 85% by 2050.
Despite a short-term recovery in liquids demand due to the effects of the COVID-19 pandemic, the global demand for liquids is predicted to reach its high in two to five years at roughly 102 MMb/d. Regionally, the demand for liquids has already peaked in the major oil markets of the US and the EU, and it is likely that all markets, including developing nations like India and Southeast Asia, will reach their peak before 2040. After peaking in the early 2020s, the demand for liquids in road transportation is predicted to fall by 75% by 2050 due to slower growth in the number of cars on the road, improved efficiency, and an increase in the uptake of electric vehicles (EVs), with bio- and synfuels further reducing demand for crude oil.
With a decreased supply due to unanticipated outages and underinvestment and higher demand due to a swift economic rebound and unforeseen weather circumstances, gas prices rose globally in 2021. Up until around 2035 to 2040, the gas demand for power is expected to increase significantly. After that, it is anticipated to increasingly serve as a backup for renewable energy sources. Power and decarbonization technologies are expected to increase at a 5% annual rate and reach over $1 trillion in value in 2050, starting from a relatively low EBIT base of about $300 billion today. Statista anticipates that primary energy consumption would be approximately 352 million barrels of oil equivalent per day by 2045. Oil and gas will continue to contribute the most energy, at 99 and 85.7 million barrels, respectively. As we move into 2022, many oil and gas companies are looking to reinvent themselves by practicing capital discipline, focusing on financial health, committing to climate change, and transforming business models. Keeping these motives in perspective, top players like Exxon Mobil Corporation (NYSE:XOM), Halliburton Company (NYSE:HAL), and Royal Dutch Shell plc (NYSE:RDS) have become the face of the industry.
Insider Monkey’s research shows that the consensus stock picks of the top hedge funds can produce returns that beat the broader market’s performance by a wide margin, which is why we actively track the portfolios of 895 hedge funds. The stocks that were included in our list were chosen based on hedge funds' popularity, fundamentals, analyst recommendations, and potential for future growth based on core business strengths.
10. PG&E Corporation (NYSE:PCG)
Number of Hedge Fund Holders as of Q2 2022: 51
A total of 51 hedge funds hold a stake in PG&E Corporation (NYSE:PCG) as of Q2, 2022. PCG was incorporated in 1905 and is headquartered in San Francisco, California. PG&E Corporation (NYSE:PCG), through its subsidiary, Pacific Gas and Electric Company, engages in the sale and delivery of electricity and natural gas to customers in Northern and Central California in the United States. The stock has gained 9.76% in the past six months and 2.21% year to date. It does not currently pay a dividend. Mizuho Securities analyst Paul Fremont maintained a Buy rating on PG&E Corporation (NYSE:PCG) on August 17 and set a price target of $18. The company’s shares closed at $12.48 on August 26. Dan Loeb's Third Point is the largest shareholder of PG&E Corporation (NYSE:PCG), holding 65.4 million PCG shares valued at $653 million, comprising 15.4% of its portfolio.
In its Q1 2022 investor letter, Third Point Management mentioned PG&E Corporation (NYSE:PCG) and explained its insights for the company. Here is what the fund said:
"We continue to see immense value and potential in our position in Pacific Gas & Electric, which emerged from bankruptcy just two years ago. PG&E’s new CEO, Patti Poppe, has transformed the organization, creating a new leadership and safety culture around a talented, committed, and dynamic executive team that is rethinking the way the Company addresses the energy needs of Northern Californians. California is at the forefront of the new energy transition with aggressive renewable procurement goals and high electric vehicle adoption, yet the state faces escalating climate change risks due to extreme drought conditions and wildfires. These conditions present unique challenges to utilities operating in the state. Patti and her team have brought new and creative solutions to these challenges with her focus on a lean operating system and an ambitious undergrounding plan.
In April, PG&E Corporation reported a straightforward and uneventful set of a results, delivering on its promises to customers and investors. As investors, we celebrate that simplicity. At current prices, the Company trades at under 12x 2022 consensus earnings compared to the utility index average of 21x and below its closest California peer, Edison International, at 15x. While there is an overhang from shares to be monetized by the PG&E Fire Victim Trust, PG&E will benefit from the reinstatement of a cash dividend in 2023 and if, as hoped, it is included in the S&P 500 index. Over the next year, we think PG&E will Page 7 continue to re-rate towards industry averages while also growing earnings at an industry-leading 10% per year. In this type of market environment, the financial equation of consistent earnings growth and multiple re-rating makes for a wonderfully boring story and a solid anchor for our portfolio as Third Point’s largest position."
09. EQT Corporation (NYSE:EQT)
Number of Hedge Fund Holders as of Q2 2022: 52
EQT Corporation (NYSE:EQT), a Pittsburgh, Pennsylvania-based energy corporation with a market capitalization of $18.3 billion, was established in 1888. Since the start of the year, EQT Corporation (NYSE:EQT) has delivered a massive 127.64% return to its shareholders. On August 26, 2022, the stock's price per share reached $49.67. The company has a decent payout ratio of 17.28% and has declared a quarterly dividend of $0.15 per share to the shareholders with records as on August 8. The dividend is to be paid on September 1.
On August 18, Mizuho analyst Vincent Lovaglio raised his price target for EQT Corporation (NYSE:EQT) from $55 to $59 and maintains a Buy rating on the stock. After the Q2 numbers, the analyst claims his broader thesis for the exploration and production industry is still valid. According to Lovaglio in a research note, structural undersupply, driven by multi-year underinvestment, should continue to support higher than anticipated commodity prices and better than anticipated cash returns, making the group a reasonably decent bargain compared to the broader market.
ClearBridge Mid Cap Growth Strategy Fund mentioned EQT Corporation (NYSE:EQT) in its Q2 2022 investor letter. Here is what the fund said:
“We initiated a position in EQT (NYSE:EQT), the largest natural gas producer in the U.S., which possesses high-quality acreage within the Marcellus Shale basin. EQT has benefited from tight supply and demand dynamics as cleaner-burning natural gas takes global share from coal and exports to Europe and Asia provide an avenue of demand growth. Longer-term contracts enhance EQT’s earnings visibility as Europe eliminates its dependence on Russian gas.”
08. Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Fund Holders as of Q2 2022: 54
Diamondback Energy, Inc. (NASDAQ:FANG) has just touched the peak of its popularity among the hedge funds tracked by Insider Monkey during Q2, 2022, as a total of 54 hedge funds are holding a stake in the company. On August 1, the company posted earnings per share of $7.93 and $2.77 billion in revenue, both above the market consensus. The stock has consistently beaten its EPS estimate for the past four quarters, with actual EPS jumping from $2.94 in Q3 2021 to $7.07 during the recent quarter. Diamondback Energy, Inc. (NASDAQ:FANG) has a payout ratio of 38.22%.
On August 18, Vincent Lovaglio of Mizuho lowered his price target for Diamondback Energy, Inc. (NASDAQ:FANG) to $203 from $224 while keeping a Buy rating on the shares. Just like Exxon Mobil Corporation (NYSE:XOM), Halliburton Company (NYSE:HAL), and Royal Dutch Shell plc (NYSE:RDS), Diamondback Energy, Inc. (NASDAQ:FANG) is one of the best energy stocks to buy, according to elite hedge funds.
07. Pioneer Natural Resources Company (NYSE:PXD)
Number of Hedge Fund Holders as of Q2 2022: 56
Pioneer Natural Resources Company (NYSE:PXD) is the largest Midland Basin (Texas) oil and gas firm paying out 80% of its free cash as a variable dividend. Due to the company's extremely low manufacturing costs, it has been able to produce very high free cash flow in the current high-price environment. With a high payout ratio of 65.36%, its dividend has shown growth for the past four years and it has a five-year dividend growth rate of 101.99%. For Q2, 2022, it posted EPS of $9.30, beating estimates by $0.58, and actual revenue of $6.92 billion, beating estimates by $101.33 million. Pioneer Natural Resources Company (NYSE:PXD) was in 56 hedge fund portfolios at the end of the second quarter of 2022, compared to 54 funds in the previous quarter. Pioneer Natural Resources Company (NYSE:PXD) delivered a 43.85% return year to date.
Tudor Pickering analyst Matthew Portillo, however, downgraded Pioneer Natural Resources to Hold from Buy on August 19.
In its Q1 2022 investor letter, Carillon Scout Mid Cap Fund mentioned Pioneer Natural Resources Company (NYSE:PXD). Here is what the fund said.
“Pioneer Natural Resources (NYSE:PXD) performed well in a strong energy sector. Pioneer stood out recently with a pledge to return a large majority of free cash flow to shareowners through dividends and stock buybacks, and ended hedging to give shareowners more earnings and dividend potential should oil and gas prices continue to rise.”
06. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders as of Q2 2022: 57
A total of 57 hedge funds are holding a stake in Devon Energy Corporation (NYSE:DVN) as of Q2, 2022, with Rajiv Jain's GQG Partners holding the largest stake with 15 million shares. On August 1, Devon Energy Corporation (NYSE:DVN) reported a non-GAAP EPS for the second quarter of $2.59, above expectations by $0.22. The $5.63 billion in revenue increased 132.6% year over year and has beaten the Wall Street expectation by $880 million. Devon Energy Corporation (NYSE:DVN) stock price return shows a 60% gain year-to-date and a 157% increase over the past year.
In the range of 600,000 to 610,000 Boe per day, the business increased its production forecast for FY2022 by 3%. Similarly, it revised its upstream capital guidance, moving it from a previous range of $2.1 billion to $2.4 billion.
On August 23, Mizuho's analyst Vincent Lovaglio boosted his price target from $88 to $91 for shares of Devon Energy Corporation (NYSE:DVN). The analyst reiterated his rating to "Buy". Just like Exxon Mobil Corporation (NYSE:XOM), Halliburton Company (NYSE:HAL), and Royal Dutch Shell plc (NYSE:RDS), Devon Energy Corporation (NYSE:DVN) is one of the best energy stocks to buy, according to elite hedge funds.
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Disclosure. None. Elite Hedge Funds Love These 10 Energy Stocks is originally published on Insider Monkey.