Despite the stated goal of energy dominance, the US has already achieved significant milestones in energy production. For six consecutive years, the US has led the world in oil production and was one of the largest exporters of natural gas in 2023. The Trump administration aims to further strengthen the position of the US in global oil and gas markets, challenging OPEC and other major producers.
To achieve this growth, the American Petroleum Institute (API), the association of oil and natural gas industry trade, has urged Trump to implement a five-point plan that includes authorizing additional liquefied natural gas (LNG) exports, expanding drilling on federal lands, easing pipeline permitting, repealing stringent vehicle emissions and fuel economy standards, and preserving current corporate tax rates. According to CNBC, Trump has indicated plans to sign executive orders related to energy policy upon taking office on January 20. He is also establishing a National Energy Council, which aims to reduce regulatory barriers and advance US energy dominance.
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US Oil Producers and the Challenge of Lower Oil Prices
In an interview with CNBC on December 5, Helima Croft, Managing Director and Global Head of Commodity Strategy at RBC Capital Markets, discussed that while President Trump and his administration have been vocal about their desire for lower oil prices, this poses significant challenges for the US oil producers because they are already operating in a highly competitive environment. The equilibrium price that balances the interests of businesses and consumers is a critical question, as producers do not want to drill themselves out of business. Croft explained that there is a collective production cut agreement between OPEC countries running through the end of 2025. In addition to the collective production cut, there is a voluntary cut by eight producers that has been phased slowly. The current expectation was that these producers would maintain this stance due to sanctions and a less optimistic demand outlook.
Croft acknowledged that geopolitical tensions particularly in the Middle East play a role in influencing market sentiment. However, she emphasized that the biggest issue right now is from the demand side, due to the impact of possible tariffs on China. Weak Chinese demand has been a problem for the oil market this year, and the potential implications of tariffs will be closely watched as they could further affect demand.
The US has achieved significant milestones in energy production in recent years and the Trump administration plans to further strengthen it in the global oil and gas markets. With that in context, let’s take a look at the 10 best undervalued energy stocks to buy according to hedge funds.
A drilling rig fueled by the energy and expertise of the oil & gas exploration and production company.
Our Methodology
To compile our list of the 10 best undervalued energy stocks to buy according to hedge funds, we used Finviz and Yahoo stock screeners to find the 25 largest energy companies trading below a forward P/E ratio of 15, as of December 16. We then used Insider Monkey’s Hedge Fund database to rank 10 stocks according to the largest number of hedge fund holders, as of Q3 2024. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? 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).
10 Best Undervalued Energy Stocks To Buy According to Hedge Funds
10. Shell plc (NYSE:SHEL)
Number of Hedge Fund Investors: 48
Forward P/E Ratio as of December 16: 8.05
Shell plc (NYSE:SHEL) is one of the world’s largest integrated energy companies, with operations in 70 countries. The company is engaged in oil and gas exploration, production, refining, and marketing, as well as renewable energy initiatives. Shell plc (NYSE:SHEL) serves industrial, commercial, and retail customers globally by offering fuels, lubricants, and energy solutions.
Shell plc (NYSE:SHEL) is leveraging its strengths in liquefied natural gas (LNG) and deep water assets to drive future growth. The company believes that gas, particularly LNG, will remain a foundational part of the global energy system for decades to come. This belief is underpinned by significant investments in LNG projects, including the recent acquisition of Pavilion Energy, which adds 6.5 million tons of LNG capacity. Shell plc (NYSE:SHEL) is also advancing major projects such as LNG Canada and the Qatar LNG expansion which aims to export natural gas to Asian markets. The two projects are expected to significantly enhance the company’s position as a leading LNG player.
Shell plc (NYSE:SHEL) is also committed to optimizing its cost structure and capital allocation to ensure resilience and sustainability. The company is focusing on reducing capital expenditures, by implementing disciplined project management, cost-saving initiatives, and a focus on high-return investments.
9. Canadian Natural Resources Limited (NYSE:CNQ)
Number of Hedge Fund Investors: 48
Forward P/E Ratio as of December 16: 11.75
Canadian Natural Resources Limited (NYSE:CNQ) is a leading Canadian oil and gas producer with a diversified portfolio of assets, including oil sands, conventional oil, and natural gas. The company’s operations are centered in Canada, the North Sea, and offshore Africa. The company sells its hydrocarbon production to refineries and utility companies.
Canadian Natural Resources (NYSE:CNQ) has to acquire a 20% interest in the Athabasca Oil Sands Project (AOSP) from Chevron Canada Limited. This acquisition will increase the company’s total interest in AOSP to 90%. The deal includes a 20% stake in the Muskeg River and Jackpine mines, the Scotford Upgrader, and the Quest Carbon Capture and Storage facility. The acquisition is expected to add approximately 62,500 barrels per day of synthetic crude oil production to the company’s portfolio.
In a separate agreement, Canadian Natural Resources (NYSE:CNQ) has also agreed to acquire Chevron’s 70% operated working interest in light crude oil and liquids-rich assets in the Duvernay play in Alberta. This acquisition is expected to add approximately 60,000 barrels of oil equivalent per day to the company’s production in 2025. The Duvernay assets are expected to provide near-term growth and contribute to the company’s free cash flow.
Together, the acquisitions are expected to add approximately 122,500 barrels of oil equivalent per day to the company’s production in 2025 and increase the company’s total proved and probable reserves by approximately 1,448 million barrels of oil equivalent.
8. Cenovus Energy Inc. (NYSE:CVE)
Number of Hedge Fund Investors: 48
Forward P/E Ratio as of December 16: 11.53
Cenovus Energy Inc. (NYSE:CVE) based in Calgary, is a major Canadian oil sands producer and integrated energy company. The company is involved in oil and natural gas production, refining, and marketing. Cenovus Energy Inc.’s (NYSE:CVE) customers include industrial users and retail consumers, served through its fuel distribution networks.
Cenovus Energy Inc. (NYSE:CVE) is actively pursuing several key growth initiatives to enhance its long-term value and operational efficiency. One of the most significant projects is the development of the Narrows Lake expansion at Christina Lake. This project is expected to add 20,000 to 30,000 barrels per day to Christina Lake’s production, with first production anticipated in mid-2025. Additionally, Cenovus Energy Inc. (NYSE:CVE) is focusing on the development of the Sunrise and Foster Creek Optimization projects, which are expected to drive material growth in the oil sands business over the next two years. These projects are designed to be highly profitable, even at bottom-of-the-cycle pricing, and will add significant incremental value at very low capital costs.
Additionally, Cenovus Energy Inc. (NYSE:CVE) is focused on reducing costs, enhancing production efficiency, and pursuing environmental initiatives such as carbon capture and renewable energy projects. The company’s strategic focus includes optimizing its existing assets, expanding its growth projects, and enhancing the reliability and efficiency of its downstream operations.
7. Diamondback Energy, Inc. (NYSE:FANG)
Number of Hedge Fund Investors: 49
Forward P/E Ratio as of December 16: 11.31
Diamondback Energy, Inc. (NYSE:FANG) is a leading independent oil and natural gas producer with operations concentrated in the Permian Basin. The company generates revenue from selling oil, natural gas, and NGLs.
Diamondback Energy, Inc. (NASDAQ:FANG) is focusing on infrastructure and transportation improvements to access higher-value markets for its gas. In Q3, the company secured substantial capacity on key pipelines, including Whistler and Matterhorn, with approximately 250 million cubic feet of gas per day of capacity. This ensures that a significant portion of the company’s gas production can reach markets where it can command better prices. Moreover, the company holds a 10% stake in the upcoming Blackcomb pipeline, which will transport gas from the Permian Basin to South Texas and is expected to become operational in the coming years.
Diamondback Energy, Inc. (NASDAQ:FANG) is also exploring innovative strategies to enhance the value of its gas production. One such initiative involves the development of power generation facilities using its natural gas resources. By converting natural gas into electricity, the company aims to achieve higher margins and protect its operations from gas price volatility. The company is currently collaborating with data center operators and other potential partners to develop power solutions that leverage the low-cost gas available in the Permian Basin.
Diamondback Energy, Inc. (NASDAQ:FANG) is also evaluating opportunities to monetize its midstream assets, including the potential drop-down of mineral interests to its subsidiary, Viper Energy Partners, and further investments in the EPIC pipeline and the Deep Blue Midland Basin.
6. Permian Resources Corporation (NYSE:PR)
Number of Hedge Fund Investors: 56
Forward P/E Ratio as of December 16: 10.60
Permian Resources Corporation (NYSE:PR) specializes in oil and gas exploration and production in the Permian Basin, one of the most productive energy regions in the United States. The company’s customer base includes refiners, industrial users, and utility companies. Permian Resources Corporation (NYSE:PR) focuses on horizontal drilling and advanced completion techniques to maximize well performance.
Permian Resources Corporation (NYSE:PR) continues to drive operational efficiencies and cost reductions, which are central to its growth strategy. In Q3, the company achieved record drilling times and increased pumping hours per day, which led to a 15% reduction in cost per foot, translating to over $1 million in savings per well. Permian Resources Corporation (NYSE:PR) has also been proactive in expanding its asset base through strategic acquisitions. In Q3, the company successfully closed the Barilla Draw acquisition, which will add 9,900 net royalty acres to the company’s footprint in the Permian Basin and is expected to increase production by about 15,000 barrels of oil equivalent per day.
Permian Resources Corporation (NYSE:PR) is also one of the largest natural gas producers in the Permian Basin, producing approximately 600 million cubic feet of residue gas per day. The company is actively exploring ways to maximize the value of its natural gas production, including increasing the volume of gas sold at the Gulf Coast, which currently stands at about 50% of total gas sales. The company is also exploring the use of natural gas for power operations, recognizing the potential demand implications of increasing power demand, particularly in the Permian Basin.
5. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Investors: 63
Forward P/E Ratio as of December 16: 12.79
Chevron Corporation (NYSE:CVX) is one of the largest integrated energy companies in the world, headquartered in California. The company operates across the oil and gas value chain, including exploration, production, refining, and marketing. Chevron Corporation (NYSE:CVX) serves industrial and retail customers worldwide, providing fuels, lubricants, and petrochemicals.
Chevron Corporation (NYSE:CVX) is making significant progress on several major projects that are expected to drive production and cash flow growth in the coming years. The company’s high-pressure Anchor project in the Gulf of Mexico has started up, and water injection has begun to boost production at the Jack/St. Malo and Tahiti fields. These projects, along with others planned through 2025, are expected to increase Gulf of Mexico production to 300,000 barrels per day by 2026. At the Tengizchevroil (TCO) project in Kazakhstan, all four pressure boost facilities are now online, and the team is on track to begin start-up procedures in the first quarter of 2025.
Chevron Corporation (NYSE:CVX) has been actively divesting non-core assets and making strategic acquisitions. The company recently sold assets in Canada, Alaska, and Congo, which are expected to generate approximately $8 billion in proceeds before taxes. The company’s decision to divest these assets was driven by a desire to focus on assets that align more closely with its long-term strategic goals. Chevron Corporation (NYSE:CVX) is also expanding its CO2 storage portfolio, adding over 2 million acres offshore Western Australia, and continues to invest in advanced technologies such as drones, robotics, and digital to transform how it operates and maintains its facilities.
4. Schlumberger Limited (NYSE:SLB)
Number of Hedge Fund Investors: 65
Forward P/E Ratio as of December 16: 11.21
Schlumberger Limited (NYSE:SLB) is a global leader in oilfield services, providing technology and solutions for reservoir characterization, drilling, and production. The company’s clients include major oil and gas producers worldwide. Schlumberger Limited (NYSE:SLB) generates revenue by offering cutting-edge technologies and integrated solutions that enhance exploration and production efficiency. The company is also expanding into the energy transition space, focusing on geothermal, carbon capture, and digital transformation.
Schlumberger Limited (NYSE:SLB) is at the forefront of digital innovation, leveraging its digital platform to offer advanced solutions. The company’s Digital & Integration segment is a key differentiator in the industry. Schlumberger Limited (NYSE:SLB) partners with independent software developers to provide data analytics for operational analysis and over 150 engineered AI solutions, including the DELFI and LUMI platforms. These digital solutions are designed to catalyze future growth by optimizing operations and enhancing efficiency. The total addressable market for these digital solutions is expanding rapidly, which further highlights the immense potential of these solutions.
Schlumberger Limited (NYSE:SLB) has been strategic with its acquisitions, aiming to optimize various phases of the oil and gas operations cycle. The pending acquisition of ChampionX (CHX) is on track to be finalized by Q1 2025. This deal brings geographic synergies by integrating ChampionX’s production-focused expertise in North America with Schlumberger Limited’s (NYSE:SLB) extensive global footprint. Additionally, the acquisition enhances Schlumberger Limited’s (NYSE:SLB) capabilities in production optimization and extends the lifespan of equipment, driving higher margins through lower maintenance expenses and quicker service delivery.
3. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Investors: 66
Forward P/E Ratio as of December 16: 10.99
ConocoPhillips (NYSE:COP) is a global independent oil and natural gas exploration and production company. The company operates in prolific basins, including the Permian, Bakken, and Eagle Ford in the U.S., as well as in international markets. ConocoPhillips (NYSE:COP) earns revenue by selling its hydrocarbons to global markets.
ConocoPhillips (NYSE:COP) is expanding its presence in the liquefied natural gas (LNG) market to capitalize on growing global demand. The company has made significant investments in LNG projects, including the APLNG and Port Arthur LNG facilities, and is actively working to secure long-term supply contracts in key markets such as Europe and Asia. In Q3, ConocoPhillips (NYSE:COP) executed three new agreements in Europe, representing about 1.8 million tons per annum (MTPA) of capacity, which will enable the company to place volumes more efficiently into multiple European markets. ConocoPhillips (NYSE:COP) remains bullish on long-term demand growth and is positioning itself to capture value from premium gas markets.
ConocoPhillips (NYSE:COP) is maintaining a disciplined approach to capital spending, with a focus on projects that offer strong returns and competitive cost structures. For 2025, the company expects to grow production at a low-single-digit rate with a pro-forma capital expenditure (CapEx) of less than $13 billion. Key projects include the Willow development in Alaska, the Port Arthur LNG project, and the Callaway expansion. These projects are expected to contribute to the company’s production growth and enhance its position in premium markets. Additionally, the company is actively managing its portfolio through asset dispositions, targeting $2 billion in non-core asset sales over the next several years to further optimize its asset base and redeploy capital to higher-return opportunities.
2. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Investors: 71
Forward P/E Ratio as of December 16: 14.56
Occidental Petroleum Corporation (NYSE:OXY) is a major energy company engaged in oil and gas exploration, production, and marketing. The company operates primarily in the United States, the Middle East, and Latin America. The company’s customers include refiners, utilities, and industrial users.
Occidental Petroleum Corporation (NYSE:OXY) is leveraging its vast acreage in the Permian Basin to utilize existing infrastructure to produce from multiple stacked basins. The company is continually investing in advanced drilling and production techniques to unlock the full potential of its reserves. Infill development, which involves drilling additional wells within existing fields, has been particularly effective in increasing production and extending the life of its assets. By focusing on infill development and leveraging technological advancements, Occidental Petroleum Corporation (NYSE:OXY) aims to add significant reserves without the need for new acquisitions. Occidental Petroleum Corporation (NYSE:OXY) is also diversifying its portfolio by investing in the chemicals business. The company’s OxyChem segment, which includes the tile ground expansion and modernization project, is expected to reach peak construction activity in 2025 and is on track for completion in mid-2026.
The company is advancing its direct air capture (DAC) projects, which are designed to capture carbon dioxide directly from the atmosphere and store it geologically. The company’s STRATOS, the world’s largest DAC facility, with an initial 250,000 tons per annum load capacity expected to come online in mid-2025. Occidental Petroleum Corporation (NYSE:OXY) is also making significant progress on its South Texas DAC project. These investments not only position Occidental Petroleum Corporation (NYSE:OXY) as a leader in carbon management but also create new revenue streams by selling carbon credits on the voluntary market to other businesses and getting government subsidies. The company’s South Texas DAC project recently received up to $500 million in funding from the U.S. Department of Energy.
1. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Investors: 86
Forward P/E Ratio as of December 16: 12.50
Exxon Mobil Corporation (NYSE:XOM) is one of the world’s largest publicly traded energy companies, with operations spanning oil and gas exploration, production, refining, and chemicals. The company serves global markets with fuels, lubricants, and petrochemical products.
Exxon Mobil Corporation (NYSE:XOM) is actively investing in low-carbon solutions to address the global energy transition. The company is developing the world’s largest low-carbon hydrogen production facility in Baytown, Texas, which will produce 1 billion cubic feet per day of carbon-free hydrogen, with 98% of CO2 emissions captured and stored. This project has garnered significant interest, with partnerships from ADNOC and Mitsubishi. Additionally, Exxon Mobil Corporation (NYSE:XOM) is advancing its carbon capture and storage (CCS) capabilities and has secured a 271,000-acre offshore CO2 storage site, through an agreement with the Texas General Land Office.
Exxon Mobil Corporation (NYSE:XOM) is also building a natural gas plant to power a data center and then use its carbon capture and storage technology to reduce the emissions of the plant by 90%. The company estimates that decarbonizing AI data centers could represent up to 20% of its addressable market for carbon capture and storage by 2050.
While we acknowledge the potential of Exxon Mobil Corporation (NYSE:XOM) to grow, 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 XOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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