In this article, we will take a look at the 8 Best Undervalued Energy Stocks To Buy According to Analysts.
Following another eventful year for the global energy sector, 2024 continues the trend of disruptions, headwinds, and opportunities. The previous year concluded with a landmark agreement at COP28 to reduce global methane emissions, a significant contributor to worldwide emissions. Despite being one of the world’s more mature industries, the international energy sector remains incredibly dynamic, with journalists, governments, investors, and analysts paying special interest to developments within the industry to assess their potential impact on the global business and economic landscapes.
Energy stocks experienced negative returns in 2023, but have risen in early 2024 alongside the price of oil. Generally, energy stock prices tend to track changes in energy prices. For instance, when energy prices peaked in 2022 due to Russia’s invasion of Ukraine and the lingering effects of the COVID-19 pandemic, many companies in the energy sector saw gains. Global production levels are also crucial to the sector’s performance. While U.S. oil production has been relatively high in recent months, many OPEC+ countries have capped production. Although demand for energy products continues to grow, there is uncertainty about whether supply will increase accordingly.
On another front, global investment in the energy transition has increased tremendously over the years, hitting the $1.8 trillion mark in 2023, flagging a 17% rise from the previous year, according to BloombergNEF. However, this amount is a fraction of the $1.77 trillion invested globally, with the business case for adopting renewable energy becoming more compelling for companies. Conversely, the oil and gas sector has seen a significant surge in merger and acquisition activity, with over $155 billion in deals in the fourth quarter of 2023. This total surpasses the combined value of deals from the previous five quarters. Facing challenging market and economic conditions, oil and gas companies—especially those in upstream, midstream, and oil field services—are expected to continue this consolidation trend into 2024.
Oil prices bottomed on June 5 due to an unexpected increase in U.S. crude stocks and a larger-than-anticipated rise in fuel inventories, heightening demand concerns amid potential supply growth later this year. At the time data from the U.S. Energy Information Administration showed that the U.S. crude stockpile rose by 1.2 million barrels in the week ending May 31, contrary to analysts’ expectations of a 2.3 million barrel draw. However, this build was less than the American Petroleum Institute’s report, which indicated an increase of over 4 million barrels. On the other hand, gasoline inventories increased by 2.1 million barrels, exceeding expectations of a 2 million barrel rise. This contributed to demand concerns, as the week reflected fuel usage around the Memorial Day holiday, traditionally seen as the start of the U.S. summer driving season. Oil prices increased by about $5 since then, currently trading above $78 per barrel.
The energy industry is not only massive but also holds significant growth potential. According to the United Nations, achieving the goals of the Paris Climate Agreement will require an annual investment of $2.4 trillion in energy systems over the next 11 years. Illustrating this growth, a report states that the global renewable energy market, valued at $899.24 billion in 2022, is expected to grow from $1,050.31 billion in 2023 to $3,637.99 billion by 2031, at a CAGR of 16.80% during the forecast period.
The current year promises to be another rollercoaster ride for the energy industry, raising critical questions about the feasibility of achieving the net-zero targets outlined in the Paris Agreement. Commenting on this, Rystad Energy CEO Jarand Rystad remarked:
“Last year was a pivotal one for the energy world. Renewable energy capacity expanded rapidly, keeping up with global power demand growth for the first time. Solar PV needed to grow by 220 gigawatts (GW) in 2023 to track the 1.6 DG scenario for global warming. The latest figures now indicate that it could end up at above 400 GW. And there is now supply chain visibility for an annual delivery of 1,500 GW. Global coal demand most likely peaked in 2023, and clean energy technologies are now more affordable than fossil fuel alternatives in most parts of the world. Fossil fuels will, however, remain an important component of the energy mix for the next decades. Countries like Denmark, Finland and Portugal are close to achieving zero carbon power sectors, successfully dealing with the intermittency challenge of renewables. Still, there are also setbacks in renewable deployment, like the cost inflation seen in offshore wind, and governments will need to step up stimulation to get these sectors back on track. This year could see more inflection points in the energy transition, with impacts felt well into the latter half of the decade.”
With this context in mind, we are now talk about Wall Street analysts’ best undervalued energy stocks to buy.
Our Methodology
To compile our list of the best undervalued energy stocks to buy according to analysts, we used a stock screener to identify energy stocks with price-to-earnings (P/E) ratios below 25. We then ranked these firms based on their average analyst share price target upside. For each of these energy stocks, we have also included hedge fund sentiment. Why do we track stocks that hedge funds pile into? 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 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8. Occidental Petroleum Corporation (NYSE:OXY)
Average Analyst Estimates as of May 28: $72.15
Average Analyst Upside as of May 28: 15.74%
P/E Ratio: 17.06
Occidental Petroleum Corporation (NYSE:OXY), headquartered in Houston and incorporated in Delaware, is a U.S.-based company specializing in hydrocarbon exploration in the United States and the Middle East. The company also operates petrochemical manufacturing facilities in the United States, Canada, and Chile.
Occidental Petroleum Corporation (NYSE:OXY) received a reaffirmed Neutral rating and a $70.00 price target from Roth/MKM on June 10. The firm’s stance is influenced by several factors, including Occidental’s relatively higher debt levels compared to its competitors, lower projected long-term production growth, and investments in direct air capture (DAC) carbon capture projects that may not yield short-term profits. This outlook follows the recent disclosure that Warren Buffett’s Berkshire Hathaway acquired a substantial amount of OXY stock. Between June 5 and June 7, Berkshire Hathaway purchased 2.6 million shares of Occidental, amounting to $153.3 million at an average price of $59.75 per share.
The company recently completed a large-scale asset divestiture program and used the net proceeds from asset sales and free cash flow to repay near- and medium-term debt maturities. In addition, Occidental Petroleum Corporation (NYSE:OXY) successfully extended a near-term $7 billion debt maturity beyond 2025. The company continues its debt reduction initiatives with plans to reduce the remaining $3.7 billion in debt maturing between 2024 and 2026. We like these debt reduction initiatives, but the company still has a substantial amount of debt and trade at a forward PE of 14. There are other energy companies with less debt and lower PE ratios than OXY.
As of the end of the first quarter of 2024, 61 hedge funds out of the 919 funds tracked by Insider Monkey had stakes in Occidental Petroleum Corp (NYSE:OXY). Warren Buffett’s Berkshire Hathaway emerged as the company’s largest shareholder as it owns a $16.1 billion stake in OXY.
7. Chevron Corporation (NYSE:CVX)
Average Analyst Estimates as of May 28: $187.20
Average Analyst Upside as of May 28: 16.34%
P/E Ratio: 14.82
Chevron Corporation (NYSE:CVX), headquartered in San Ramon, California, is a prominent American multinational energy company primarily focused on the oil and gas industry. Originally established as the Standard Oil Company of California, it is the second-largest direct descendant of Standard Oil. The company operates in over 180 countries worldwide.
The company has been making several significant market moves recently. Chevron Corporation (NYSE:CVX) and its partners in Namibia’s Petroleum Exploration License 82 (PEL82) have signed an agreement transferring the operatorship of the offshore asset to Chevron, which already operates on the Namibian side of the Orange Basin.
Additionally, Hess shareholders recently approved a $53 billion takeover by Chevron Corporation (NYSE:CVX), advancing a controversial acquisition central to a high-profile clash between the leading U.S. oil companies.
Furthermore, at its 2024 Annual Meeting of Stockholders, Chevron Corporation (NYSE:CVX) reported a record-high production of 3.1 million barrels of oil-equivalent per day in 2023. The company also achieved its ninth consecutive quarter with adjusted earnings exceeding $5 billion and posted an adjusted return on capital employed (ROCE) above 12% for the first quarter of this year. CVX currently trades at a forward P/E of 12.
As of the end of the first quarter of 2024, 62 hedge funds tracked by Insider Monkey held stakes in Chevron Corporation (NYSE:CVX), a decline from the 71 hedge funds in the previous quarter.
6. Chesapeake Energy Corporation (NASDAQ:CHK)
Average Analyst Estimates as of May 28: $106.75
Average Analyst Upside as of May 28: 17.31%
P/E Ratio: 12.25
Founded in 1989, Chesapeake Energy Corporation (NASDAQ:CHK) focuses on the exploration and responsible development of key assets in three major U.S. oil and gas regions: the Eagle Ford, Haynesville, and Marcellus Shales. The company’s headquarters are located in Oklahoma City, a significant hub for the natural gas and oil industry.
At the beginning of 2024, Chesapeake Energy Corporation (NASDAQ:CHK) announced that it was set to merge with Southwestern Energy in an all-stock deal valued at $7.4 billion, which would position Chesapeake as the largest natural gas producer in the U.S. The merger will add 7.9 billion cubic feet equivalent per day to Chesapeake’s production from Southwestern’s operations in the Appalachian shale formations and the Haynesville basin in Louisiana. However, in April, Chesapeake Energy Corporation (NASDAQ:CHK) announced that the proposed merger had been deferred to the latter half of the year following a second request for additional information from a U.S. regulator. The merger is now under FTC scrutiny, highlighting a broader trend of U.S. lawmakers demanding more rigorous examination of multi-billion-dollar deals in the oil and gas sector.
The string of bad news continued for Chesapeake Energy Corporation (NASDAQ:CHK) as the company missed Wall Street estimates for first-quarter profit in early May. Persistently low natural gas prices significantly impacted the company’s top-line results. Natural gas prices fell by 20.4% in the first quarter compared to the same period last year, with high inventory and weak demand leading producers like Chesapeake to reduce gas production. With that in view, Chesapeake Energy Corporation (NASDAQ:CHK) reported first-quarter EPS of $0.56, falling short of the analyst estimate of $0.60, while revenue for the quarter was $1.08 billion, missing the consensus estimate of $1.28 billion.
As of the end of the first quarter of this year, a survey by Insider Monkey of 919 hedge funds revealed that 52 had invested in Chesapeake Energy Corporation (NASDAQ:CHK). The largest stakeholder among them is Oaktree Capital Management, led by Howard Marks, with holdings valued at $620.39 million.
5. Exxon Mobil Corporation (NYSE:XOM)
Average Analyst Estimates as of May 28: $136.87
Average Analyst Upside as of May 28: 17.32%
P/E Ratio: 14.31
Exxon Mobil Corporation (NYSE:XOM) has been a dominant force in the LNG sector for over four decades, with its roots dating back to John D. Rockefeller’s Standard Oil. Over its 140-year history, Exxon Mobil has transformed from a local kerosene distributor in the United States to a global industry leader, ranking prominently among the top publicly traded companies in the petroleum and petrochemical fields.
On April 26, Exxon Mobil Corporation (NYSE:XOM) announced first-quarter earnings of $8.2 billion, or $2.06 per diluted share. The company’s capital and exploration expenditures were $5.8 billion, in line with its full-year guidance of $23 billion to $25 billion.
That said, not everyone seems bullish on XOM. Truist Securities recently downgraded its rating on Exxon Mobil Corporation (NYSE:XOM) from Buy to Hold and lowered the price target from $146.00 to $124.00, a change reflecting the firm’s view that ExxonMobil’s shares may underperform compared to its competitors in the near term due to current market valuations and the recent acquisition of Pioneer. While acknowledging the positive impact of the company’s Guyana operations and the Pioneer acquisition, it expects the company’s free cash flow (FCF) yield to remain below that of its peers until at least 2025. This expectation is partly due to the ongoing integration of Pioneer’s operations, a process often referred to as “digestion” in the industry.
As of the end of the first quarter of 2024, Insider Monkey’s tracking data showed that 81 out of 919 hedge funds held stakes in Exxon Mobil Corp (NYSE:XOM). The largest stakeholder among them was Ken Fisher’s Fisher Asset Management, with a $3.07 billion investment.
Madison Dividend Income Fund stated the following regarding Exxon Mobil Corporation (NYSE:XOM) in its first quarter 2024 investor letter:
“This quarter we are highlighting Exxon Mobil Corporation (NYSE:XOM) as a relative yield example in the Energy sector. XOM is a leading integrated oil and natural gas company. It has upstream assets that develop and produce oil and natural gas, along with downstream refining and chemical manufacturing assets. We believe it has attractive low-cost acreage in the Permian basin and has a sizeable growth opportunity in Guyana. Further, we think XOM has a sustainable competitive advantage due to size and scale, and its ability to integrate refining and chemical assets provides a low-cost advantage versus competitors.
Our thesis on XOM is that it will grow production volumes of oil and gas moderately over the next few years, while limiting excessive capital investment that plagued the industry from 2014-2020. Production growth will come from its 2023 acquisition of Pioneer Natural Resources, which is the largest producer in the Permian basin. XOM plans to double its Permian output by 2027, to 2 million barrels per day. Capital spending will be limited to $20-25 billion per year through 2027, which should allow for significant amounts of cash to be returned to shareholders including a $35 billion share repurchase program and continued dividend increases. Higher oil prices would provide a tailwind to our thesis but are not necessary. We think XOM can grow earnings and cash flow if oil prices remain above $60 per barrel…”
4. Shell plc (NYSE:SHEL)
Average Analyst Estimates as of May 28: $90.33
Average Analyst Upside as of May 28: 24.75%
P/E Ratio: 13.39
Shell plc (NYSE:SHEL) is a global leader in the energy and petrochemical sectors, operating across various segments such as Integrated Gas, Upstream, Marketing, Chemicals and Products, and Renewables and Energy Solutions. The company’s activities include the exploration and extraction of crude oil, natural gas, and natural gas liquids, as well as the marketing, transportation, and trading of these essential resources.
On May 2, Shell plc (NYSE:SHEL) reported a first-quarter profit of $7.7 billion, significantly exceeding expectations due to disruptions in the Red Sea and Russia that boosted oil refining and trading. The company also announced plans to repurchase an additional $3.5 billion of its shares over the next three months, maintaining the same rate as the previous quarter. On the other hand, the company’s cash flow increased by 6% from the previous quarter to $13.3 billion, reflecting strong operational performance. This, along with robust trading, helped offset the impact of declining natural gas prices that affected the earnings of its rivals.
A few weeks after the earnings report, JPMorgan highlighted that first-quarter cash generation for European oil companies met expectations, with the Wall Street firm’s post-reporting forecasts, based on assumptions of $80 per barrel for oil and €35 per megawatt-hour for EU gas, suggesting that earnings per share expectations were well-supported, with predictions aligning for 2024 and rising by 5% for 2025. In that regard, JPMorgan favors companies with exposure to oil and globally advantaged liquefied natural gas (LNG) over spot gas, recommending overweight positions in Shell plc (NYSE:SHEL).
By the end of the first quarter of this year, 50 out of the 919 hedge funds tracked by Insider Monkey held stakes in Shell plc (NYSE:SHEL). The largest stakeholder among them was Ken Fisher’s Fisher Asset Management, with a $1.56 billion investment.
3. ConocoPhillips (NYSE:COP)
Average Analyst Estimates as of May 28: $146.71
Average Analyst Upside as of May 28: 26.35%
P/E Ratio: 13.04
Founded in 1917, ConocoPhillips (NYSE:COP) is a Texas-based global energy company involved in the exploration, production, transportation, and marketing of various energy resources, including crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids.
ConocoPhillips (NYSE:COP) has agreed to acquire Marathon Oil in an all-stock deal valued at $17.1 billion, aiming to catch up with rivals as drillers race to secure new oil and gas wells. Under the terms of the agreement, Marathon Oil shareholders will receive 0.255 shares of ConocoPhillips (NYSE:COP) for each share of Marathon Oil, representing a nearly 15% premium based on Marathon Oil’s closing share price. This deal enables ConocoPhillips (NYSE:COP) to expand its presence in key U.S. shale basins, including those in Texas and North Dakota.
Truist Securities raised its price target for ConocoPhillips (NYSE) shares to $165 from $160, while maintaining a Buy rating for the stock, an adjustment that comes in light of the aforementioned acquisition of Marathon Oil. Post-acquisition, ConocoPhillips (NYSE:COP) is projected to perform strongly, potentially generating over $18 billion in free cash flow next year. This would result in a free cash flow yield exceeding 12%, anticipated to be the highest among major oil companies. Overall, COP ranks 3rd among the 9 Best Energy Dividend Stocks to Buy According to Hedge Funds.
As of the end of the first quarter, 62 out of 919 hedge funds tracked by Insider Monkey held stakes in ConocoPhillips (NYSE:COP). The largest stakeholder during this period was Boykin Curry’s Eagle Capital Management, with a $1.8 billion investment. The stock ranks among the top 3 on our list of the best undervalued energy stocks to buy according to analysts.
2. Cheniere Energy, Inc. (NYSE:LNG)
Average Analyst Estimates as of May 28: $202.82
Average Analyst Upside as of May 28: 28.60%
P/E Ratio: 7.68
Cheniere Energy, Inc. (NYSE:LNG) is an American provider of liquefied natural gas storage and transportation services, headquartered in Houston, Texas, that operates through its subsidiaries, including Cheniere Marketing, LLC, and Cheniere Energy Partners, L.P. In February 2016, it became the first American company to export liquefied natural gas.
Cheniere Energy (NYSE:LNG) surpassed adjusted core profit estimates earlier this May, driven by higher-than-expected export volumes that offset lower natural gas prices. Cheniere’s total loaded LNG volumes remained steady year-over-year at 601 trillion British thermal units (BTU), exceeding Wall Street expectations. Earnings were also stronger than anticipated, with the 56 trillion BTU higher volumes contributing an additional $190 million in margin compared to forecasts.
On May 19, JPMorgan Chase & Co. raised Cheniere Energy, Inc.’s (NYSE:LNG) target price from $213.00 to $214.00, maintaining an “overweight” rating on the stock. Overall, LNG maintains a “strong buy” rating among analysts, with the average 12-month forecast coming in at a notable $202.30 with a 25.73% upside. As of Q1 2024, 69 hedge funds held a stake in Cheniere Energy, Inc.’s (NYSE:LNG).
1. Schlumberger Limited. (NYSE:SLB)
Average Analyst Estimates as of May 28: $66.94
Average Analyst Upside as of May 28: 46.43%
P/E Ratio: 15.23
Schlumberger Limited (NYSE:SLB) is a leading global energy technology provider with operations worldwide. The company is organized into four main divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems.
Earlier this April, Schlumberger Limited (NYSE:SLB) has agreed to acquire rival oilfield service provider ChampionX Corp. in an all-stock deal valued at $7.8 billion. This acquisition will enhance SLB’s technology portfolio as U.S. drillers invest more to maintain output from aging shale wells. The deal values each ChampionX share at $40.59, representing a nearly 15% premium over the April 1 closing price.
Analysts recently evaluated Schlumberger Limited (NYSE:SLB) and provided their 12-month price targets, with an average target of $66.94. Estimates ranged from a low of $53.00 to a high of $81.00. This new average represents a 54.95% increase from the previous average target, indicating an overall bullish outlook on the stock.
As of the end of the March quarter, 66 hedge funds reported owning stakes in Schlumberger Limited (NYSE:SLB). The largest stakeholder during this period was Boykin Curry’s Eagle Capital Management, which holds a $1.8 billion stake in the company. The stock takes top place on our list of the best undervalued energy stocks to buy according to analysts.
Artisan Value Fund stated the following regarding Schlumberger Limited (NYSE:SLB) in its fourth quarter 2023 investor letter:
“On the downside in Q4, our two energy holdings, Schlumberger Limited (NYSE:SLB), the world’s largest oil services company, and EOG Resources, a US shale-focused E&P company, were weak along with the broader sector. We have stringent criteria for business quality, which is particularly important in commodities sectors as these businesses do not control the underlying commodity prices, which can be volatile. We expect Schlumberger to continue to successfully navigate market volatility and deliver on its free cash flow and profit margin growth objectives from combination of activity growth and pricing gains. The stock has been among our top contributors since we initiated our position in December 2020.”
While we acknowledge the potential of energy stocks, 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 SLB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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