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.
8. Borr Drilling Limited (NYSE:BORR)
Number of Hedge Fund Investors: 11
Forward P/E Ratio as of November 5: 6.16
YTD Performance as of November 5: -43.14%
Borr Drilling Limited (NYSE:BORR) is a Norwegian offshore drilling contractor, operating a fleet of jack-up rigs. The company serves oil and gas exploration firms worldwide, especially in shallow-water drilling.
Borr Drilling Limited’s (NYSE:BORR) growth prospects are driven by several factors, including a strong order backlog, increasing day rates, and a tight supply-demand scenario for modern jack-up rigs. The company’s order backlog of $1.76 billion provides clear revenue and cash flow visibility, with 92% contract coverage for 2024 and 73% coverage for 2025.
The average day rate for new contracts is expected to trend higher, with a recent order intake at an average day rate of $184,000. Additionally, the company’s modern fleet and tight supply-demand scenario for jack-up rigs position it for EBITDA margin expansion and cash flow growth.
Borr Drilling Limited (NYSE:BORR) is focusing on offshore shallow-water drilling in the Middle East, which has an attractive breakeven point even at lower oil prices. The company’s CEO, Bruno Morand, expects incremental demand to continue outpacing potential supply growth, leading to higher day rates and increased revenue. The company is also targeting to reduce leverage to 2x in the medium term and achieve a long-term steady-state leverage of 1.5x.
Borr Drilling Limited (NYSE:BORR) presents a compelling investment opportunity with a strong order backlog, increasing day rates, and a tight supply-demand scenario for modern jack-up rigs.
7. Ecopetrol S.A. (NYSE:EC)
Number of Hedge Fund Investors: 11
Forward P/E Ratio as of November 5: 5.15
YTD Performance as of November 5: -35.18%
Ecopetrol S.A. (NYSE:EC) is Colombia’s state-owned oil company, responsible for oil and natural gas production. The company operates in the oil and gas value chain, including exploration, production, refining, and transportation. Ecopetrol S.A. (NYSE:EC) also plays a crucial role in developing Colombia’s oil reserves.
Ecopetrol S.A.’s (NYSE:EC) diversified asset base and strong cash flow profile make it an attractive investment opportunity. The company’s midstream and downstream operations, which include a 9,000-kilometer pipeline network and two refineries, generate stable and predictable cash flows, providing a cushion against potential disruptions in the exploration and production segment.
Additionally, Ecopetrol S.A.’s (NYSE:EC) ownership of transmission lines and toll roads through its subsidiary, Interconexión Eléctrica, further diversifies its revenue streams and provides a hedge against oil prices. With a free cash flow yield of approximately 14.6%, Ecopetrol S.A. (NYSE:EC) offers investors a compelling opportunity to generate returns in a volatile market.
Ecopetrol S.A.’s (NYSE:EC) production profile is also well-positioned for long-term growth, with a diverse portfolio of assets that includes the Rubiales, Castilla, and Chichimene oil fields, as well as operations in the Permian Basin.
The company’s water injection programs at Chichimene have been successful in offsetting natural production declines, and its partnership with Parex to explore the Llanos Foothills offers significant upside potential.
6. Kosmos Energy (NYSE:KOS)
Number of Hedge Fund Investors: 25
Forward P/E Ratio as of November 5: 3.68
YTD Performance as of November 5: -45.16%
Kosmos Energy Ltd. (NYSE:KOS) is a US-based exploration and production company, focusing on deepwater discoveries in emerging offshore areas such as West Africa and the Gulf of Mexico.
In Q3, Kosmos Energy Ltd. (NYSE:KOS) achieved net production of approximately 65,400 barrels of oil equivalent per day. With successful project completions in the U.S. Gulf of Mexico, Equatorial Guinea, and Greater Tortue Ahmeyim (GTA) project, the company is on track to reach its year-end production goal of around 90,000 boepd. As these projects ramp up, Kosmos Energy Ltd. (NYSE:KOS) expects to significantly reduce capital expenditure (CapEx), lowering from $210 million in Q3 to approximately $100 million in Q4. This decrease in CapEx will likely improve the company’s cost structure, potentially enhancing cash flows as production increases.
In September, Kosmos Energy Ltd. (NYSE:KOS) successfully issued $500 million in new Senior Notes due 2031, which refinanced near-term debt maturities. This strategic refinancing reduces the debt burden for 2026, 2027, and 2028, effectively extending the company’s debt profile and reducing near-term financial pressures. Additionally, the company increased its Reserve Based Lending Facility (RBL) by $145 million, reaching the full $1.35 billion borrowing base. With available liquidity of around $715 million, Kosmos Energy Ltd. (NYSE:KOS) is well-positioned to maintain financial flexibility and focus on growth initiatives.
5. Par Pacific Holdings, Inc. (NYSE:PARR)
Number of Hedge Fund Investors: 25
Forward P/E Ratio as of November 5: 8.34
YTD Performance as of November 5: -55.99%
Par Pacific Holdings, Inc. (NYSE:PARR) operates a diversified energy business with interests in refining, logistics, and retail distribution. The company’s core operations are based in the western United States, including Hawaii, Wyoming, Montana, and Washington. Par Pacific Holdings, Inc.’s (NYSE:PARR) refining assets and retail networks make it an important regional player in U.S. energy infrastructure, particularly in geographically isolated markets.
On October 3, J.P. Morgan made a notable switch in its stance, upgrading Par Pacific Holdings, Inc.’s (NYSE:PARR) to Overweight from Neutral. The upgrade of Par Pacific is based on the stock’s significant decline of over 50% year-to-date, which J.P. Morgan believes is an overcorrection. The firm’s analyst, John Royall, expects Par Pacific Holdings, Inc. (NYSE:PARR) to continue its aggressive share buybacks, which have been ongoing since the company’s acquisition of Billings Refinery.
Par Pacific Holdings, Inc. (NYSE:PARR) has a diversified business model. The company’s refining operations, complemented by its retail and logistics segments provide a steady stream of revenue and help mitigate the volatility associated with refining margins.
4. Vital Energy, Inc. (NYSE:VTLE)
Number of Hedge Fund Investors: 28
Forward P/E Ratio as of November 5: 2.71
YTD Performance as of November 5: -40.78%
Vital Energy, Inc. (NYSE:VTLE) formerly known as Laredo Petroleum, is an independent energy company focused on the exploration and production of oil and natural gas. With a primary focus on the Permian Basin in Texas, the company aims to maximize its assets in one of the world’s most productive oil regions.
Vital Energy, Inc. (NYSE:VTLE) has been making significant strides in the industry through strategic acquisitions. On September 23, Vital Energy, Inc. (NYSE:VTLE) and Northern Oil and Gas, Inc. (NYSE: NOG) completed their announced $1.1 billion all-cash acquisition of Point Energy Partners II’s assets. Vital Energy, Inc. (NYSE:VTLE) has acquired 80% of Point Energy’s assets at the purchase price of $815.2 million.
The acquisition is a strategic move for Vital Energy, Inc. (NYSE:VTLE) to expand its portfolio in the energy sector. The transaction adds 68 gross inventory locations (49 net) with an estimated average breakeven oil price of $47 per barrel NYMEX WTI. The acquisition supports the company in gaining access to new, high-quality drilling opportunities that can help drive growth and increase profitability. Additionally, the deal includes net production of approximately 30 thousand barrels of oil equivalent per day (67% oil), which will help to increase Vital Energy, Inc.’s (NYSE:VTLE) oil-weighted production and improve its overall commodity mix.
The acquisition will also help to expand Vital Energy, Inc.’s (NYSE:VTLE) operational scale in the Delaware Basin, increasing its position by approximately 25% to 84,000 net acres. This will give the company a larger footprint in the region and provide opportunities for further growth and development. Overall, the acquisition of Point Energy’s assets is expected to be a strategic and accretive deal for Vital Energy, Inc. (NYSE:VTLE) with new growth opportunities, increased operational scale, and improved financial performance.
3. APA Corporation (NASDAQ:APA)
Number of Hedge Fund Investors: 31
Forward P/E Ratio as of November 5: 6.08
YTD Performance as of November 5: -34.03%
APA Corporation (NASDAQ:APA), formerly known as Apache Corporation, is a US-based oil and gas exploration and production company with a global footprint, including significant operations in the Permian Basin, the North Sea, and Egypt.
On September 10, APA Corporation (NASDAQ:APA) announced that it had entered into an agreement to sell its non-core producing properties in the Permian Basin to an undisclosed buyer for $950 million. The properties, located in Texas and New Mexico, currently produce approximately 21,000 barrels of oil equivalent per day, with about 57% being oil. The sale is expected to close in the fourth quarter of 2024 and the proceeds will be used primarily to reduce debt.
According to management, the sale is part of the company’s strategy to “high grade” and focus its US asset base. The company has made several transactions this year, including the acquisition of Callon Petroleum, which has increased its onshore US production by approximately 66,000 barrels of oil equivalent per day in 2024. The company’s remaining Permian position has scale and balance in the unconventional Midland and Delaware Basins, and its global portfolio provides geographic and price diversification, as well as exploration upside. As a result of the sale, APA Corporation’s (NASDAQ:APA) pro-forma fourth-quarter US production guidance is expected to be 307,000 barrels of oil equivalent per day, which is 34% above the company’s fourth-quarter 2023 production.
APA Corporation’s (NASDAQ:APA) diversified portfolio and strong presence in both domestic and international markets position it as a key player in the global energy industry.
2. Noble Corporation plc (NYSE:NE)
Number of Hedge Fund Investors: 38
Forward P/E Ratio as of November 5: 5.48
YTD Performance as of November 5: -34.20%
Noble Corporation plc (NYSE:NE) is an offshore drilling contractor with a fleet of rigs used for deepwater and harsh-environment exploration. Headquartered in the UK, the company operates in several key energy markets, including the Gulf of Mexico and the North Sea. Noble Corporation’s (NYSE:NE) focus on high-specification drilling assets helps it compete in the challenging offshore market.
On September 4, Noble Corporation plc (NYSE:NE) successfully finalized its acquisition of Diamond Offshore Drilling, Inc. for $1.59 billion. The acquisition, which was announced in June, has created the largest fleet of 7th-generation dual-BOP drillships, showcasing Noble Corporation plc’s (NYSE:NE) commitment to expanding its capabilities and solidifying its leadership in the industry. With the addition of Diamond’s assets, Noble Corporation plc’s (NYSE:NE) fleet now comprises 41 rigs, including 28 floaters and 13 jack-ups.
The acquisition is expected to add approximately $2 billion to Noble Corporation plc’s (NYSE:NE) backlog and take the total backlog to around $6.7 billion. Noble Corporation plc (NYSE:NE) has also published an updated fleet status report, highlighting the addition of 4.8 rig years of backlog awarded under the Commercial Enabling Agreement with ExxonMobil for its four drillships operating in Guyana.
1. Transocean Ltd. (NYSE:RIG)
Number of Hedge Fund Investors: 42
Forward P/E Ratio as of November 5: 16.95
YTD Performance as of November 5: -30.26%
Transocean Ltd. (NYSE:RIG) is one of the world’s largest offshore drilling contractors, specializing in ultra-deepwater and harsh-environment drilling. The company owns a global fleet of rigs, servicing major oil and gas companies across various regions.
On September 10, Transocean Ltd. (NYSE:RIG) announced a significant contract award for its ultra-deepwater drillship, Deepwater Atlas. The contract, valued at approximately $232 million, was secured with bp (formerly British Petroleum) for operations in the U.S. Gulf of Mexico. The agreement is for a period of 365 days, with an option to extend for an additional 365 days.
The contract is expected to commence in the second quarter of 2028, and the program will contribute significantly to the company’s backlog. The agreement does not include any additional services beyond the drilling contract. The Deepwater Atlas is a state-of-the-art drillship designed to operate in the most challenging offshore environments. The vessel is equipped with advanced drilling technology and has a strong track record of delivering high-performance drilling services.
On September 3, Transocean Ltd. (NYSE:RIG) agreed to sell two warm-stacked 6th-generation floaters. This move is a positive step towards reducing debt and focusing on more strategic assets. The sale of the two floaters, Discoverer Inspiration and Development Driller III, for $342 million will result in an estimated non-cash impairment charge of $630-645 million. The sale proceeds will be used to repay existing indebtedness, which will reduce the company’s debt-to-capitalization ratio. Moreover, the sale of these non-strategic assets is a prudent decision, as it allows the company to focus on its more valuable and in-demand assets.
Transocean’s (NYSE:RIG) active fleet, which includes high-specification 7th-generation drillships, is well-positioned to benefit from the expected increase in offshore drilling activity in 2025.
While we acknowledge the potential of Transocean Ltd. (NYSE:RIG) 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 RIG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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