In this article, we talk about the 10 oil and gas stocks to buy according to billionaire Steve Cohen. If you wish to skip our detailed analysis of the energy sector and Cohen’s hedge fund history, go directly to 5 Oil and Gas Stocks to Buy According to Billionaire Steve Cohen.
Because of the Russian attack on Ukraine, global trade patterns have shifted towards costlier options, and the enthused transition to green energy faces a significant setback, according to the latest Commodity Markets Outlook report by the World Bank. The increase in global energy prices recorded between 2020 and present day is the biggest hike since the oil crisis of 1973, and the World Bank expects prices to increase 50% in 2022 alone. Brent crude oil, with a five-year average of $60 per barrel, is now expected to average $100 per barrel in 2022, before coming down to $92 in 2023. The report also predicts that natural gas prices in Europe will likely be twice as high in 2022 as compared to the year before.
Riding this wave, oil and gas firms have made windfall profits lately and have also become the recipients of significantly increased investor attention. Billionaire Steve Cohen, who runs Point72 Asset Management, boasts many prominent energy stocks in his portfolio, including Shell plc (NYSE:SHEL), ConocoPhillips (NYSE:COP), and BP plc (NYSE:BP). Cohen, with a personal net worth of nearly $12 billion, and a 97.2% stake in the New York Mets baseball team, manages a vibrant portfolio consisting of stocks from various sectors, with Services, Healthcare, Technology, Basic Materials and Others taking up the majority share.
Our Methodology
Oil and Gas Stocks to Buy According to Billionaire Steve Cohen
10. Chesapeake Energy Corporation (NYSE:CHK)
Point72 Asset Management’s Stake Value: $58.59 million
Percentage of Point72 Asset Management’s 13F Portfolio: 0.23%
Number of Hedge Fund Holders: 59
Point72 Asset Management initiated a position in Chesapeake Energy Corporation (NYSE:CHK) in the first quarter, consisting of roughly 674,000 shares worth $58.6 million. The company produces oil, natural gas, and natural gas liquids through its portfolio of properties spread across the United States. It offers a $0.50 per share quarterly dividend, with a 2.74% yield as of July 6.
On June 14, Credit Suisse analyst William Janela initiated coverage of Chesapeake Energy Corporation (NYSE:CHK) with an ‘Outperform’ rating and a $115 price target. He noted that the company has pivoted towards natural gas with two acquisitions, which should allow it to deliver above-average cash returns to shareholders. Janela also noted that the company has emerged from its restructuring with a “substantially stronger” balance sheet and lower cost structure.
On June 22, Chesapeake Energy Corporation (NYSE:CHK) announced that it was doubling its previously announced share repurchase program authorization to $2 billion from $1 billion.
Investors were seen snapping up on Chesapeake Energy Corporation (NYSE:CHK). According to the database of Insider Monkey, 59 hedge funds were bullish on the energy company’s shares at the end of the first quarter, as compared to 50 hedge funds in the previous quarter. Oaktree Capital Management of Howard Marks was the largest shareholder of Chesapeake Energy Corporation (NYSE:CHK) in the first quarter, with a stake consisting of 11 million shares worth more than $957 million.
Here is what ClearBridge Investments had to say about the larger industry prospects around Chesapeake Energy Corporation (NYSE:CHK) in its Q1 2022 investor letter:
“In the early days of the invasion, we made two measured changes to the portfolio based on longer-term fallout we anticipate from Russia’s invasion of Ukraine. First, we initiated small positions in U.S. natural gas producers Chesapeake (NYSE:CHK).
Given its superior environmental profile compared to other fossil fuels, we have long favored natural gas in our energy holdings. Combustion of natural gas releases 50% less CO2 than coal, 25% less CO2 than gasoline and dramatically less particulate and pollution, per the U.S. Energy Information Administration. With the advances in shale production this century, the U.S. has become a natural gas powerhouse with some of the lowest-cost and largest reserves in the world. But because natural gas is difficult to ship across the ocean (it must be liquefied, which requires expensive infrastructure on both ends of the voyage), America’s gas bounty has ironically proved a burden for U.S. producers.
The surplus of natural gas in North America has resulted in low prices and weak earnings for gas-focused producers. Exports, while growing, are restrained by the high cost of building export infrastructure. Europe, in a Faustian bargain, has relied on abundant, inexpensive Russian gas transported by pipeline.
Despite the abundance of low-cost resources and a superior environmental profile, the investment case for U.S. natural gas producers was previously unfavorable due to oversupply in the domestic market.
In the days preceding the invasion, we were quick to realize the war would change global energy flows. Europe is shifting away from Russia and toward new sources of imported liquified natural gas. We purchased our stakes in Chesapeake to capitalize on these trends. The recently announced energy pact between the U.S. and Europe represents an early positive datapoint in support of this investment thesis.”
Just like Shell plc (NYSE:SHEL), ConocoPhillips (NYSE:COP), and BP plc (NYSE:BP), Chesapeake Energy Corporation (NYSE:CHK) is one of the best energy stocks to buy now.
9. Targa Resources Corp. (NYSE:TRGP)
Point72 Asset Management’s Stake Value: $83.60 million
Percentage of Point72 Asset Management’s 13F Portfolio: 0.33%
Number of Hedge Fund Holders: 32
Targa Resources Corp. (NYSE:TRGP) ranks among the largest independent midstream energy companies in the United States, and is headquartered in Houston, Texas. It deals in the storage, processing, transportation and distribution of natural gas, natural gas liquids (NGL) and crude oil. The company recently completed the $3.5 billion acquisition of Lucid Energy Delaware, further enhancing its energy infrastructure assets.
On April 28, Targa Resources Corp. (NYSE:TRGP) declared a $0.35 per share quarterly dividend, bringing its yield to 2.46% as of July 6. The company stock has enjoyed growth of 29.38% in the last 12 months.
Morgan Stanley analyst Robert Kad in April maintained an ‘Overweight’ rating on Targa Resources Corp. (NYSE:TRGP) shares and raised the price target to $103 from $74. He remains positive on the outlook for the midstream sector over the remainder of 2022, and expects strong earnings and future guidance given the favorable commodity backdrop.
Steve Cohen’s hedge fund owned 1.10 million shares of Targa Resources Corp. (NYSE:TRGP) in the first quarter at a value of $83.6 million. This represented 0.33% of the fund’s total portfolio and highlighted a 18% reduction in stake over the previous quarter, where Point72 Asset Management held 1.34 million shares of the company
In total, 32 hedge funds from the Q1 database of Insider Monkey held positions worth $1.04 billion in Targa Resources Corp. (NYSE:TRGP), down from 35 hedge funds with $626 million worth of stakes a quarter earlier. Zimmer Partners was the largest shareholder of the company in the first quarter with a nearly $268 million position. Citadel Investment Group and Millennium Management also held prominent stakes in Targa Resources Corp. (NYSE:TRGP), which were boosted by 51% and 46% in the first quarter, respectively.
8. Antero Resources Corp (NYSE:AR)
Point72 Asset Management’s Stake Value: $84.02 million
Percentage of Point72 Asset Management’s 13F Portfolio: 0.33%
Number of Hedge Fund Holders: 53
Antero Resources Corp (NYSE:AR) was upgraded to ‘Buy’ from ‘Hold’ by Truist analyst Neal Dingmann on July 5, who also increased the price target to $50 from $42. He noted that the company is one of the best ways to play the post-Covid recovery in domestic and international demand for natural gas. Dingmann also assessed that the recent sell-off in Antero shares is overdone, which occurred after the market reacted nervously to news of Freeport LNG’s Texas plant going offline until September due to a fire at the site. This allows investors an attractive entry point into Antero shares, according to the analyst, who also expressed confidence on the continued strength of the oil, gas and natural gas liquids market.
Based in Denver, Colorado, Antero Resources Corp (NYSE:AR) is an energy company with oil and natural gas assets spread across the United States, mainly in the Upper Devonian Shale and the Appalachian Basin. The company has been a leading beneficiary of elevated energy prices, posting growth of 98.16% in the last 12 months as of July 6.
Hedge fund interest in Antero Resources Corp (NYSE:AR) recorded an uptick in the first quarter. 53 hedge funds were bullish on the company shares at the end of March, as compared to 46 hedge funds a quarter earlier. Two Sigma Advisors, with a nearly $137 million position, was the largest shareholder of Antero Resources Corp (NYSE:AR) in the first quarter of 2022.
7. Shell plc (NYSE:SHEL)
Point72 Asset Management’s Stake Value: $97.26 million
Percentage of Point72 Asset Management’s 13F Portfolio: 0.38%
Number of Hedge Fund Holders: 37
Shell plc (NYSE:SHEL) is an energy giant with a global footprint and a $176 billion market cap. It was recently selected by Qatar Energy as a partner in the $29 billion North Field East LNG project in Qatar. Shell will own a 6.25% holding in the overall project, which is the largest venture in the history of the LNG industry, and will boost Qatar’s production from 77 million metric tons per year in 2022 to 110 million by 2026.
Steve Cohen’s position in Shell plc (NYSE:SHEL) was initiated during the first quarter of 2022, and consisted of 1.77 million shares valued at $97.2 million, which represented 0.38% of the billionaire’s total holdings. Overall, 37 hedge funds owned $5.36 billion worth of stakes in Shell plc (NYSE:SHEL) at the end of the first quarter. Many hedge funds initiated positions in Shell plc (NYSE:SHEL) during the first quarter, and its largest shareholder was Fisher Asset Management with a $1.07 billion position.
In June, Credit Suisse analyst Amy Wong named Shell plc (NYSE:SHEL) as her top pick in the European integrated energy sector, noting that its leading energy transition strategy is not reflected in the share price. She initiated coverage of SHEL with an ‘Outperform’ rating and a 3,000 GBp price target. The stock has risen 15.41% in the last 12 months as of July 1.
Shell plc (NYSE:SHEL) posted a gigantic revenue of $84.2 billion for the first quarter, beating estimates by $39.4 billion and growing 51.27% over the same period last year. The company announced a $0.50 per share quarterly dividend on May 19, and offers a 4.13% yield as of July 6.
Harding Loevner, an investment management firm, talked about many stocks in its Q1 2022 investor letter, and Shell plc (NYSE:SHEL) was one of them. Here’s what was said:
“While risks of unforeseen consequences arising from the Ukraine conflict are high, on this front we are cautiously optimistic that China will work hard to maintain its neutrality in a credible way, as it is a huge beneficiary of trade with the rest of the world, especially the rich developed nations. We think it likely that China, along with India, will continue to buy oil and gas from Russia (just as Europe, at least for now, plans to keep its gas pipelines open), and do not expect that fact to alter China’s trade relations with the West much. Nevertheless, we must contemplate that our optimism is misplaced on the importance of membership in the global network of exchange. If our central and optimistic case—admittedly an educated guess—is wrong, then we’d need to greatly modify our views of which companies in our opportunity set will face new barriers to profitable growth, and which might stand to benefit, relatively, from a further receding of globalization. (Global trade, after all, has never matched the peak share of GDP it reached in 2008, before the Global Financial Crisis.) We’d expect such a world to be less efficient, as the cold logic of comparative advantage is demoted as a determinant of which goods or services are produced and where. That would lead to a less prosperous world, since exploiting comparative advantage is a cornerstone of wealth creation. If regional blocs began to raise limits on the movement of capital as well as goods, we’d need to parse which of our multi-national companies were at risk of declining sales from increasingly hostile, siloed countries. Royal Dutch Shell (NYSE:SHEL) has found its Siberian oil and gas joint venture assets stranded by the combination of sanctions and the public opprobrium of Russia’s actions.”
6. Ovintiv Inc. (NYSE:OVV)
Point72 Asset Management’s Stake Value: $102.85 million
Percentage of Point72 Asset Management’s 13F Portfolio: 0.4%
Number of Hedge Fund Holders: 44
Ovintiv Inc. (NYSE:OVV) is a Colorado-based energy firm which owns and operates a portfolio of oil and gas properties in the United States and Canada. Steve Cohen held 1.9 million shares of the company at the end of the first quarter, worth $102.9 million and amounting to a 0.4% slice of his overall portfolio. In total, 44 hedge funds were stakeholders in Ovintiv Inc. (NYSE:OVV) at the end of March with combined positions worth $2.09 billion.
On June 28, JPMorgan analyst Arun Jayaram upgraded Ovintiv Inc. (NYSE:OVV) to ‘Overweight’ from ‘Neutral’ with a revised price target of $64, up from $56. The analyst noted that that the problems faced by the firm in the first-half of 2022 would subside in the near term. After the recent pullback, OVV shares are trading at 33% free cash flow yield according to 2023 estimates, which is the fourth best figure in the industry, and a 17.4% return of capital yield, which ranks as third best in the exploration and production group, according to Jayaram, who has increased confidence around the firm’s execution.
Ovintiv Inc. (NYSE:OVV) announced on July 6 that it has agreed to sell $250 million worth of its oil and gas assets in the Uinta and Bakken basins, whilst doubling its cash returns to shareholders. On June 14, the company announced a $0.25 per share quarterly dividend, bringing its yield to 2.64% as of July 6.
Miller Value Partners, an asset management firm, discussed the prospects and market position of Ovintiv Inc. (NYSE:OVV) in its Q4 2021 investor letter, stating
“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.”
Along with Shell plc (NYSE:SHEL), ConocoPhillips (NYSE:COP), and BP plc (NYSE:BP), investors are plying into Ovintiv Inc. (NYSE:OVV) as an exciting play in the energy sector.
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