In this article, we will take a look at the 13 best American energy stocks to buy now. To see more such companies, go directly to 5 Best American Energy Stocks To Buy Now.
Energy stocks have been enjoying gains in the third quarter, thanks to a surge in oil prices that came on the back of production cuts and an overall sentiment that the US might be able to avoid a full-blown recession. Oil prices have hit their record highs this year, creating a dilemma for policy makers since a rise in oil prices contributes to inflation, which is already a major headache for central banks around the globe. If the Federal Reserve will not be able to keep inflation under control, it will have to begin another rate-hike spree, which could spook investors and could result in a slowdown in economic activity, crushing the oil markets. This double-edged sword is expected to hang over the economy for several months to come. But energy stocks have a solid market sentiment. Recently, a Wall Street Journal report quoted Bill Fitzpatrick, managing director at Logan Capital, who said that there is no capacity to absorb any additional demand of oil and investors “need to be positioned for an extended period of higher oil prices because that’s the most likely scenario.”
Among the reasons making oil stocks attractive this year is their valuation, too. Earlier this year oil stocks took a massive hit amid recession fears and production glut. Now that oil stocks are trading at attractive valuations, long-term investors are piling into the sector for share price gains and dividends. Oil companies are famous for their lucrative and consistent dividends and when times are tough and volatile, investors hardly pass on any opportunity for hefty dividend payments.
The WSJ report also quoted Nate Thooft, chief investment officer of the multi-asset solutions team at Manulife Investment Management, who said that the oil industry and its recent dynamics are expected to create some “anxiety” for the energy sector.
Long-term analysts were already expecting a rally in oil stocks. For example, in December 2022, when there was a doom and gloom scenario for the economy everywhere, JPMorgan had said that Brent crude would finish 2023 at levels 20% higher than the levels seen during December 2022. JPMorgan, however, had noted that the decline in oil prices was not reflected in oil stocks at that time and urged investors that if they wanted to pile into oil stocks they should wait for a 20% to 30% pullback. Fast forward a few months and the perfect opportunity for investors had arrived and even today oil stocks are trading at attractive valuations.
Our Methodology
For this article we scanned Insider Monkey’s database of 910 hedge funds and picked 13 American energy stocks with the highest number of hedge fund investors. These are the best American energy stocks to buy now according to hedge funds.
Best American Energy Stocks To Buy Now
13. Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Fund Holders: 44
Texas-based energy company Diamondback Energy, Inc. (NASDAQ:FANG) is one of the best American energy stocks to buy according to hedge funds.
Out of the 910 hedge funds tracked by Insider Monkey, 44 hedge funds were long Diamondback Energy, Inc. (NASDAQ:FANG). The biggest stakeholder of Diamondback Energy, Inc. (NASDAQ:FANG) was Donald Yacktman’s Yacktman Asset Management which owns a $190.1 million stake in the company.
12. Chesapeake Energy Corporation (NASDAQ:CHK)
Number of Hedge Fund Holders: 44
American oil company Chesapeake Energy Corporation (NASDAQ:CHK) ranks 12th in our list of the best American energy stocks to buy now. In August Chesapeake Energy Corporation (NASDAQ:CHK) jumped after the company joined the S&P MidCap 400.
As of the end of the second quarter of 2023, 44 hedge funds out of the 2023 funds in Insider Monkey’s database had stakes in Chesapeake Energy Corporation (NASDAQ:CHK).
Chesapeake Energy Corporation (NASDAQ:CHK) said the following in its Q2 earnings call about its future plans:
“The flexibility is a competitive advantage and enables us to focus on smarter decisions for value creation through cycles. In today’s market, that means voluntarily reducing activity levels and deferring TILs in production in periods of stronger pricing. While our second quarter production reached the high end of our quarterly guidance at approximately 3.7 Bcf per day, Our second half 2023 activity will be approximately one-third lower than our first half as measured by rig spuds, completions and CapEx. As we reduce our, spend on development activities, we continue to buyback shares and have increased our base dividend. In addition to our return program, we are using our strong position to strategically lease acreage. Year-to-date, we have added approximately 10,000 acres in our Marcellus and Haynesville footprint at an average cost of $2,400 per acre and expect more opportunities to add valuable acreage in the second half of the year focused on improving and adding to our inventory length.
We’re doing all of this as we continue on our path to reaching an investment-grade credit rating. Today, our net debt to total cap is about 10%, and we received two recent upgrades from our credit rating agencies. We expect that our balance sheet will be further strengthened through the completion of our Eagle Ford exit, which continues to progress. Our capital allocation strategy prioritizes shareholder returns and has resulted in more than $500 million being returned to shareholders so far this year, while gas prices have fallen significantly. Our approach includes a stable and growing base dividend, which has returned $150 million year-to-date in which we raised 4.5% this quarter.”
Read the complete earnings call here.
Carillon Tower Advisers made the following comment about Chesapeake Energy Corporation (NASDAQ:CHK) in its Q3 2022 investor letter:
“Chesapeake Energy Corporation (NASDAQ:CHK), a natural gas exploration and production company, emerged from bankruptcy with little fanfare in 2021, despite having rid itself of its debt burden and onerous pipeline contracts. The company was able to make two large acquisitions at very reasonable prices within its core producing areas, allowing for scale and cost savings. Then in 2022, natural gas prices began to rise well above expectations, increasing the value of Chesapeake’s large natural gas resources and production and contributing to its outperformance.”
11. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 45
Devon Energy Corporation (NYSE:DVN) shares are under pressure after the company posted weak Q2 results and a reduced dividend. Recently, TD Cowen analyst David Deckelbaum said that Devon Energy Corporation (NYSE:DVN)’s shareholder returns have “have slowly declined while its dividend payout is 3.7% of annualized yield, down from 6% in Q2.”
Devon Energy Corporation (NYSE:DVN) however could be a solid buy for the long term. As of the end of the second quarter of 2023, 45 hedge funds tracked by Insider Monkey were long Devon Energy Corporation (NYSE:DVN). The biggest hedge fund stakeholder of Devon Energy Corporation (NYSE:DVN) was Donald Yacktman’s Yacktman Asset Management which owns a $146 million stake.
10. Valero Energy Corporation (NYSE:VLO)
Number of Hedge Fund Holders: 49
American downstream petroleum company Valero Energy Corporation (NYSE:VLO) ranks 10th in our list of the best American energy stocks to buy now. Valero Energy Corporation (NYSE:VLO) recently authorized a share repurchase program of up to $2.5 billion, with no expiration date.
A total of 49 hedge funds tracked by Insider Monkey reported owning stakes in Valero Energy Corporation (NYSE:VLO). The biggest stake in Valero Energy Corporation (NYSE:VLO) was held by Israel Englander’s Millennium Management which owns a $325 million stake in the company.
9. EQT Corporation (NYSE:EQT)
Number of Hedge Fund Holders: 51
EQT Corporation (NYSE:EQT) swung to a loss on an adjusted basis during the second quarter amid declining commodity prices and declining sales volumes.
Insider Monkey’s database of 910 hedge funds shows that 51 hedge funds were long EQT Corporation (NYSE:EQT) as of the end of the second quarter. The most significant stakeholder of EQT Corporation (NYSE:EQT) was Eric W. Mandelblatt’s Soroban Capital Partners which owns a $234 million stake in the company.
ClearBridge Mid Cap Growth Strategy made the following comment about EQT Corporation (NYSE:EQT) in its Q2 2023 investor letter:
“The energy sector was another positive contributor, primarily driven by our investment in EQT Corporation (NYSE:EQT). As North America’s leading natural gas provider, EQT had seen its share price slide as the lackluster reopening of China and a milder-than-expected winter in the northern hemisphere weighed on natural gas prices. However, as recessionary fears have given way to optimism and the prospect for greater energy demand, EQT’s share price has rebounded. While we continue to expect volatility in commodities prices, we believe that global energy demand, especially in Europe, along with the company’s leadership position in the natural gas market, make it a strong long-term compounder for the portfolio.”
8. Hess Corporation (NYSE:HES)
Number of Hedge Fund Holders: 52
Hess Corporation (NYSE:HES) shares jumped in July after the company posted better-than-expected second quarter earnings. Q2 Adjusted EPS in the quarter came in at $0.65 beating estimates by $0.14. Revenue in the period fell 22.4% year over year to $2.32 billion, missing estimates by $20 million. Hess Corporation (NYSE:HES) also revealed a new oil discovery in the Gulf of Mexico.
Hess Corporation (NYSE:HES) shared some updates on that during its earnings call:
“We are excited to announce that the first well of our 2023 Gulf of Mexico drilling program has resulted in an oil discovery. The Hess operated Pickerel-1 infrastructure-led exploration well in Mississippi Canyon, encountered approximately 90-feet of net pay and high-quality oil-bearing Miocene-aged reservoir. Long lead construction activities are underway to tie the well back to the Tubular Bells production facility, with production expected to commence in mid-2024. Following Pickerel, we plan to drill the Black Pearl development well in which Hess is the operator and has a 25% working interest and Chevron, CNOC and Equinor each have 25%. This well is planned as a tieback to the Stampede Production Facility. Following Black Pearl, we plan to drill the Vancouver prospect located in Green Canyon Block 287.”
Read the full earnings call transcript here.
7. Pioneer Natural Resources Company (NYSE:PXD)
Number of Hedge Fund Holders: 54
Pioneer Natural Resources Company (NYSE:PXD) ranks 7th in our list of the best American energy stocks to buy now. In August, JPMorgan upgraded three oil stocks, including Pioneer Natural Resources Company (NYSE:PXD), to Overweight from Neutral. JPMorgan cited better risk/reward position for these three companies over the next 6-12 months.
As of the end of the second quarter of 2023, 54 hedge funds out of the 910 funds tracked by Insider Monkey were long Pioneer Natural Resources Company (NYSE:PXD). The biggest stakeholder of Pioneer Natural Resources Company (NYSE:PXD) was Donald Yacktman’s Yacktman Asset Management which owns a $264 million stake in the company.
Ave Maria World Equity Fund made the following comment about Pioneer Natural Resources Company (NYSE:PXD) in its Q1 2023 investor letter:
“Pioneer Natural Resources Company (NYSE:PXD) is one of the largest independent E&P companies in the United States focused on the Permian Basin. Pioneer is a low-cost producer in the Permian basin and can generate free cash flow when the price of oil is more than $30 per barrel. Pioneer was one of the first companies in the industry to embrace a disciplined investment framework focused on returning excess capital to shareholders during periods of high realized pricing. This framework has materially benefited shareholders given the sharp rise in the price of crude oil.”
6. Schlumberger Limited (NYSE:SLB)
Number of Hedge Fund Holders: 60
Schlumberger Limited (NYSE:SLB), now SLB, is one of the biggest oilfield services companies in the world. Schlumberger Limited (NYSE:SLB) beat Q2 EPS estimates but missed revenue forecasts.
Schlumberger Limited (NYSE:SLB)’s CEO Olivier Le Peuch talked about the company’s expectations for the rest of the year during second quarter earnings call.
“After a positive first half, we remain confident in our full-year financial ambitions and have visibility into a significant baseload of activity that reinforces our 2023 full-year forecasts, and our growth ambition beyond. We continue to expect year-on-year revenue growth of more than 15% and adjusted EBITDA growth in the mid-20s. Turning specifically to the third quarter, we expect revenue to grow by mid-single digits in the international markets, with all international geographical areas growing sequentially, led by the Middle East and Asia. In contrast, North America revenue will be slightly down. With our focus on the quality of revenue, harnessing operating leverage, and further technology adoption, we expect global operating margins to further expand by more than 50 basis points sequentially.”
Read the full earnings call transcript here.
VGI Partners made the following comment about Schlumberger Limited (NYSE:SLB) in its 2022 annual investor letter:
“In addition to defence, we have focused our efforts on other new sectors where we see structural growth, including energy and medical technology. The long-term outlook for energy looks highly attractive given many years of under-investment and more recently amplified by ESG constraints and corporate discipline. Although we reviewed commodity owners (where we leveraged the expertise of the Regal resources team), we focused our efforts on the second derivative – the oil service companies. These are the picks-and-shovels of the industry and arguably the highest-quality way to gain exposure. As a result, we invested in Schlumberger Limited (NYSE:SLB) earlier this year and grew this to a circa 8% weight during the year (now circa 3%)”
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Disclosure: None. 13 Best American Energy Stocks To Buy Now is originally published on Insider Monkey.
