Amrita Sen, Founder and Director of Research at Energy Aspects, a global data & intelligence provider for energy commodity and macro markets, on October 14, shared her insights on the current state of the energy market. According to Sen the prices of West Texas Intermediate (WTI) and ICE Brent have remained relatively on the lower side despite the ongoing geopolitical tensions in the Middle East, which is surprising because in the past, in a situation like this, oil would jump over $100 per barrel. Sen notes that the market is waiting to see how the situation in Iran and Israel pans out. Looking ahead to the future the market is expecting a surplus in 2025, which is driving the bearish sentiment.
However, Sen warns that the industry’s inventory levels are low, and if a significant event were to occur, such as an attack on Iranian energy infrastructure, there could be a lot of volatility ahead. She notes that many traders are trading via options, which could lead to significant price movements if they are forced to cover their positions in the futures market. This could lead to a rapid increase in prices, as traders scramble to cover their short positions, which could lead to a significant increase in prices.
Regarding the supply side, Sen notes that production in the United States has been flat this year, despite the expectation of 1-1.5 million barrels of growth. She attributes this to the fact that the industry is running out of acreage and that the biggest and mid-sized companies are unable to grow regardless of price. The Saudis have been warning other producers to stick to their allotted production limits and that if they don’t stick to their allotted production limits, they can produce a whole lot more oil. However, Sen notes that this is not a threat to flood the market, but rather a message to those who are not complying with their production limits. The Saudis want to ensure that everyone is working together to maintain a stable market, rather than trying to gain a competitive advantage. Sen acknowledges that the sanctions against Russia were never designed to lose Russian oil but it was designed to reduce the revenue going into Russia. The Russian oil is now redirected to China and India and that is why the market is jaded.
The current energy market dynamics are characterized by complex geopolitical tensions, supply chain constraints, and shifting demand. As the situation within the Middle East continues to unfold, markets can face significant volatility and price swings. With that in context, let’s take a look at the 10 oversold energy stocks to buy now.
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Our Methodology
To compile our list of the 10 oversold energy stocks to buy now, we used the Finviz and Yahoo stock screeners to find energy stocks that have fallen significantly on a YTD basis and have a forward P/E of less than 20, as of November 5. We then narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
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 smallcap and largecap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Oversold Energy Stocks To Buy Now
10. Cosan S.A. (NYSE:CSAN)
Number of Hedge Fund Investors: 7
Forward P/E Ratio as of November 5: 6.48
YTD Performance as of November 5: -47.38%
Cosan S.A. (NYSE:CSAN) is a Brazilian holding company that controls a diverse portfolio of businesses in energy, logistics, and agriculture. The company operates through several subsidiaries including Rumo, Compass, and Moove. Cosan S.A. (NYSE:CSAN) has a primary focus on ethanol, sugar production, and fuel distribution. The company also has stakes in gas distribution and lubricants, contributing to Brazil’s broader energy infrastructure.
Cosan’s (NYSE:CSAN) growth prospects are driven by its diversified business model and its exposure to the growing demand for renewable energy. The company’s ethanol production business is expected to benefit from the increasing demand for biofuels, driven by government policies and regulations.
The potential IPO of Moove, a lubricant distribution company, could be a major catalyst for Cosan S.A.’s (NYSE:CSAN) stock. Moove reported an EBITDA of $62 million, with a highlight being the EBITDA margin of 13.6%, which is the second highest ever recorded. The IPO could place 25 million shares on the market at a value between $14.50 and $17.50, totaling an average valuation of $10 billion. However, on October 9, Cosan S.A. (NYSE:CSAN) halted the IPO due to adverse market conditions.
9. Ultrapar Participações S.A. (NYSE:UGP)
Number of Hedge Fund Investors: 10
Forward P/E Ratio as of November 5: 8.40
YTD Performance as of November 5: -32.47%
Ultrapar Participações S.A. (NYSE:UGP) is a Brazilian conglomerate that operates across energy and logistics infrastructure through its subsidiaries Ipiranga, Ultragaz, and Ultracargo. The company’s fuel distribution unit, Ipiranga, is one of the largest in Brazil, Ultragaz is Brazil’s second-largest distributor of liquefied petroleum gas (LPG) and Ultracargo is one of Brazil’s largest bulk liquids storage company, primarily operating in the storage of petrochemicals, chemicals, biofuel, and vegetable oil.
Ultrapar Participações S.A.’s (NYSE:UGP) divestment of non-core assets, such as Oxiteno, Extrafarma, and Conectcar, has allowed the company to focus on its core businesses, including Ipiranga, Ultragaz, and Ultracargo. These businesses have shown solid market positions and growth potential.
In Q2, Ultrapar Participações S.A. (NYSE:UGP) reported a 37% increase in recurring EBITDA and a 106% year over year increase in net income. One of the key drivers of the company’s growth is the impressive performance of its Ipiranga unit, which delivered a 4% rise in volumes sold and higher margins. Furthermore, the company approved $48.48 million in interim dividends for 1H of 2024 and a reduction in net debt to $1.23 billion.
Another important factor contributing to Ultrapar Participações S.A.’ (NYSE:UGP) growth is the improvement in the performance of its Ultracargo segment. The company’s average stock capacity in Q2 grew by 12% year-over-year to 1,067,000 cubic meters and was largely driven by expanded capacity at the Opla, Vila do Conde, and Rondonopolis terminals. Cubic meters sold increased by 19% year-over-year, fueled by the start of operations at Opla and Rondonopolis, and higher fuel handling at Vila do Conde.
Ultrapar Participações S.A.’s (NYSE:UGP) strong portfolio of businesses presents an attractive investment opportunity for those looking to gain exposure to the Brazilian market.