In this article, we discuss the 10 most undervalued oil stocks to buy according to hedge funds. To skip the detailed analysis of the oil and gas sector, go directly to the 5 Most Undervalued Oil Stocks To Buy According To Hedge Funds.
During the stock market bloodbath of 2022, oil stocks emerged as one of the few success stories. Despite the negative impact of inflation on consumer spending and business sentiment, the price of crude oil experienced positive effects. Moreover, the geopolitical events, particularly Russia’s invasion of Ukraine, further contributed to the strong performance of oil stocks, leading to significant gains even amid the S&P 500 index’s approximate 20% loss for the year. However, the narrative took a turn in 2023 as crude oil prices saw a substantial decline, nearly halving from their 2022 peak of around $120 per barrel.
Following the unexpected attack on Israel on October 7, there has been a recent surge in geopolitical tensions in the Middle East, a region responsible for over a third of the world’s seaborne oil trade. This development has put financial markets on edge. Traders quickly factored in a risk premium of $3-4 per barrel as markets opened. Although oil prices have somewhat stabilized since then, with Brent futures trading at approximately $78.2 per barrel, the ongoing crisis continues to keep markets in a state of anticipation. While there hasn’t been a direct impact on the physical oil supply, observers are closely monitoring the situation as it unfolds. TD Asset Management suggests that if the conflict remains localized, oil prices may stay relatively conservative. However, if other countries become involved, there is a potential for prices to reach $120 per barrel or even spike to $150.
At the beginning of 2023, there were concerns among oil and gas experts regarding a potential market slowdown due to recession fears and a decline in economic activity in China. However, as the year advanced, these concerns diminished, and data from China also turned positive. According to a September report by the research firm Wood Mackenzie, 2023 is expected to continue the trend of robust recovery following the impact of COVID-19. The firm forecasts a notable increase of 2.0 million barrels per day in global oil demand for the year, slightly below the figures seen in 2022. Wood Mackenzie emphasized that, despite uncertainties in growth, China is poised to play a significant role in this expansion, recovering from the extensive pandemic-related lockdowns of the previous year. At present, global demand has surged to a new record high, surpassing 102 million barrels per day.
On the other hand, over the long term, the International Energy Agency (IEA) envisions a 25% reduction in fossil fuel demand by 2030 and an 80% decrease by 2050. According to a report from the Institute of Energy Economics and Financial Analysis, the decline of the oil and gas sector has been gradual, noting that it represented approximately 29% of the S&P 500 in 1980 and has now dwindled to 5.3%.
In any case, the oil and gas sector has been on the forefront of the stock market in terms of activity. In light of this, we will look at some of the most undervalued oil stocks in this article. Some notable names include the likes of Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), and Chesapeake Energy Corporation (NASDAQ:CHK).
An oil derrick silhouetted against a rising sun with a blue sky in the background.
Our Methodology
In compiling our selection of the most undervalued oil stocks to consider, we surveyed Insider Monkey’s database of 910 hedge funds. We identified 10 stocks operating in the oil and gas sector with PE ratios below 15 and the highest hedge fund investor interest. The stocks are arranged in ascending order according to hedge fund sentiment.
10. BP p.l.c. (NYSE:BP)
Number of Hedge Fund Holders: 35
P/E Ratio as of December 5: 4.21
BP p.l.c. (NYSE:BP), a British multinational oil and gas company based in London, England, stands as one of the oil and gas “supermajors” and is among the world’s largest companies in terms of revenues and profits. On November 6, Morgan Stanley analyst Martijn Rats upheld an Overweight rating on BP p.l.c. (NYSE:BP) shares, albeit with a reduced price target of 610 GBp from the previous 700 GBp.
Recently, BP p.l.c (NYSE:BP) has made a significant move in its transition strategy, agreeing to acquire the remaining 50.03% stake in the solar power developer Lightsource BP. Former CEO Bernard Looney’s vision is evidently influencing this decision. The initial payment for this acquisition amounts to £254 million, with potential additional payments contingent on the company’s performance and the divestment of identified assets.
As of the close of Q3 2023, 35 hedge funds tracked by Insider Monkey reported having stakes in BP p.l.c. (NYSE:BP), compared with 36 in the preceding quarter. The collective value of these stakes is more than $2.05 billion.
Much like Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), and Chesapeake Energy Corporation (NASDAQ:CHK), BP p.l.c. (NYSE:BP) is an undervalued oil stock that hedge funds are interested in.
9. Halliburton Company (NYSE:HAL)
Number of Hedge Fund Holders: 41
P/E Ratio as of December 5: 12.63
Halliburton Company (NYSE:HAL) operates as an oilfield service provider, specializing in serving the upstream oil and gas sector throughout the entire reservoir lifecycle. The company offers a comprehensive range of services, including activities spanning hydrocarbon discovery, geological data management, drilling, formation assessment, well construction, completion, and production optimization.
Citigroup raised the stock target for Halliburton Company (NYSE:HAL) on October 4, adjusting it from $42.00 to $46.00, aligning with analyst Scott Gruber’s positive outlook on future earnings and operational efficiency. Gruber’s “Buy” rating is based on the expectation that Halliburton’s investments in electronic fracking, coupled with effective execution, will result in market share growth and improvements in Completion and Production (C&P) margins.
Insider Monkey’s analysis of the third quarter 2023 investment activities of 910 hedge funds revealed 41 funds with investments in Halliburton Company (NYSE:HAL). The leading shareholder in Insider Monkey’s database is Pzena Investment Management, managed by Richard S. Pzena, holding 3.56 million shares valued at $144.49 million.
Carillon Eagle Mid Cap Growth Fund made the following comment about Halliburton Company (NYSE:HAL) in its Q3 2023 investor letter:
“Halliburton Company (NYSE:HAL) provides equipment and services to the global energy industry. The stock was an impressive outperformer in the quarter, as the recent sharp increase in oil prices should translate to healthy levels of North American shale activity in the remainder of the year and into 2024. Halliburton also is poised to benefit from the ongoing multi-year international and offshore upstream investment cycle.”
8. Valero Energy Corporation (NYSE:VLO)
Number of Hedge Fund Holders: 44
P/E Ratio as of December 5: 4.39
Valero Energy Corporation (NYSE:VLO), headquartered in San Antonio, Texas, is an American-based downstream petroleum company primarily engaged in the manufacturing and marketing of transportation fuels, along with other petrochemical products and power.
Valero Energy Corporation (NYSE:VLO) exceeded third-quarter profit expectations on October 26, driven by persistent demand for fuel and refined products amid tight supplies. The company reported that throughput volumes averaged 3 million barrels per day in the quarter, remaining steady compared to the previous year but surpassing the Street’s estimate of 2.96 million bpd. For the present quarter, Valero anticipates refining throughput to range between 2.93 million and 3.04 million bpd.
44 hedge funds out of the 910 part of Insider Monkey’s Q3 2023 research had held a stake in the company. Valero Energy Corporation (NYSE:VLO)’s largest investor in our database is Cliff Asness’ AQR Capital Management as it owns $287.09 million worth of shares.
7. Chesapeake Energy Corporation (NASDAQ:CHK)
Number of Hedge Fund Holders: 45
P/E Ratio as of December 5: 2.11
Established in 1989, Chesapeake Energy Corporation (NASDAQ:CHK) specializes in the exploration and responsible development of key assets within three prominent U.S. oil and gas regions: the Eagle Ford, Haynesville, and Marcellus Shales. Headquartered in Oklahoma City, a major hub for the natural gas and oil industry, the company achieved a daily production rate of around 4.0 billion cubic feet equivalent (bcfe) per day throughout 2022.
Chesapeake Energy Corporation (NASDAQ:CHK) is currently in the early stages of contemplating the acquisition of its fellow gas industry counterpart, Southwestern Energy, valued at over $8 billion. Initial discussions between Chesapeake and Southwestern were reported by Reuters on October 17. If a merger between the two companies materializes, they would surpass EQT Corporation, becoming the largest exploration and production enterprise focused on natural gas in the United States, measured by market value.
As of the end of the third quarter of this year, Insider Monkey’s survey of 910 hedge funds identified 45 that had invested in Chesapeake Energy Corporation (NASDAQ:CHK). The largest stakeholder among these is Oaktree Capital Management, led by Howard Marks, with holdings valued at $603.6 million.
6. Marathon Petroleum Corporation (NYSE:MPC)
Number of Hedge Fund Holders: 48
P/E Ratio as of December 5: 5.69
Marathon Petroleum Corporation (NYSE:MPC) is a U.S.-based company primarily engaged in petroleum refining, marketing, and transportation, with its headquarters located in Findlay, Ohio. Formerly a wholly-owned subsidiary of Marathon Oil until a corporate spin-off in 2011, the company boasts a position as one of the world’s largest pipeline companies, operating a network of nearly 14,000 miles.
On October 25, Marathon Petroleum Corporation (NYSE:MPC) declared a dividend of $0.825 per share on common stock, signaling approximately a 10% growth compared to its previous dividend of $0.75 per share. The dividend is scheduled for distribution on December 11, 2023, to shareholders on record as of November 16, 2023. Additionally, MPC recently approved an additional $5 billion share repurchase authorization, supplementing its existing authorization, which had roughly $4.3 billion remaining as of September 30.
In the third quarter of 2023, the company featured in 48 hedge fund portfolios, an increase from 42 in the previous quarter. Paul Singer’s Elliott Management emerged as the largest stakeholder of Marathon Petroleum Corporation (NYSE:MPC) in Q3, holding over 11 million shares valued at approximately $1.67 billion.
In addition to Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), and Chesapeake Energy Corporation (NASDAQ:CHK), Marathon Petroleum Corporation (NYSE:MPC) is an undervalued stock investors should pay attention to.
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Disclosure: None. 10 Most Undervalued Oil Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
