In this article, we will take a look at 8 most undervalued oil stocks to buy according to analysts.
The energy sector is buzzing with change in 2024, creating a mix of exciting opportunities and new challenges for investors. As the world embraces renewable energy sources and oil prices stabilize, the market finds itself at a fascinating crossroads. Oil is no longer the untouchable giant it once was, but it’s far from fading away. Instead, it’s adapting to new realities, with smart investors eyeing undervalued oil stocks that still hold potential amidst this evolving landscape.
Brent crude oil prices are expected to hover around $82 per barrel, slightly up from $81 in 2023. This points to a return to pre-pandemic price levels, thanks to OPEC+ strategically limiting production to maintain supply-demand equilibrium. At the same time, retail gasoline prices should stay stable at around $3.30 per gallon, offering some predictability in fuel costs. Meanwhile, U.S. crude oil production is on the rise, with output expected to jump from 12.9 million barrels per day in 2023 to 13.3 million barrels per day in 2024. All signs indicate that the U.S. is gearing up to remain a key player in the global oil game.
While the U.S. economy is forecasted to grow by 2.6% in 2024, energy companies are under pressure to strike a balance between boosting production and addressing environmental concerns. The world’s demand for energy continues to rise, and geopolitical tensions add another layer of unpredictability to the market. Political unrest in countries like Libya, for instance, has raised concerns about potential disruptions in global oil supply. But even with these uncertainties, the fundamentals of the oil industry remain solid, and analysts believe that strategic production cuts by OPEC+, coupled with strong demand from developing nations, will keep oil stocks attractive.
Interestingly, oil and gas companies are ramping up their investments to meet future demand. A report by the International Energy Forum and S&P Global Commodity Insights suggests that upstream investments will need to grow by $135 billion annually to ensure a stable supply by 2030. With North America and Latin America expected to take the lead in capital expenditures, the industry is witnessing a resurgence in investment activity. Brazil and Guyana, in particular, are emerging as major contributors, reinforcing the importance of the Americas in the global oil supply chain.
Despite the rise of renewable energy, oil remains indispensable for the foreseeable future. The current environment offers a sweet spot for investors looking to take advantage of undervalued oil stocks. While these stocks often carry higher risks due to their smaller market caps, they also come with significant upside potential. As global oil consumption continues to grow, driven by the energy needs of both developed and emerging economies, savvy investors are positioning themselves to benefit from this ongoing demand.
In this dynamic setting, the search for hidden gems in the oil sector becomes even more exciting. The eight undervalued oil stocks highlighted in this article reflect both the resilience of traditional energy markets and the opportunities arising from a changing global landscape. For those looking to navigate the energy transition while still capitalizing on the growth of oil demand, these stocks present an intriguing opportunity.
A rig pumping oil in the midst of a sun-baked desert.
Our Methodology
For this article, we use stock screeners to identify nearly 20 stocks in the oil industry that have a buy or better rating from analysts with a forward Price to Earnings (P/E) ratio of less than 15 and price target above current market price as of October 14, 2024. Next, we narrowed our list to 8 stocks with the highest upside potential. We also mentioned the number of hedge fund holdings for each stock as well. The hedge fund sentiment was taken from Insider Monkey’s Q2 database of 912 hedge funds. The eight undervalued oil stocks are listed in ascending order of their upside potential.
At Insider Monkey we are obsessed with the 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).
08. Amplify Energy Corp. (NYSE:AMPY)
Upside Potential: 44%
Forward Price to Earnings (P/E) ratio: 5.14
Number of Hedge Fund Holders: 13
Amplify Energy Corp. (NYSE:AMPY) is an intriguing choice for investors looking at undervalued oil stocks. With a forward P/E ratio of 5.14 as of October 14, the stock appears undervalued compared to industry peers, especially given its upside potential of 44%. Analysts have set a target price of $10, offering a significant increase from its current share price of $6.95.
Based in Houston, Texas, Amplify Energy Corp. (NYSE:AMPY) operates across multiple oil-rich regions in the U.S., including Oklahoma, East Texas, and offshore Southern California. It holds a diverse portfolio of working interests in both producing wells and undeveloped assets, allowing the company to capitalize on market opportunities efficiently. In its Q2 2024 earnings report, Amplify Energy Corp. (NYSE:AMPY) posted solid financial performance, generating $30.7 million in adjusted EBITDA and $9.2 million in free cash flow—both surpassing expectations.
A key factor driving Amplify Energy Corp. (NYSE:AMPY) appeal is its participation in high-return, non-operated development projects, particularly in East Texas and the Eagle Ford. Management has revised its annual guidance upward based on strong operational results and strategic investments. Notably, the company’s Beta development program is a standout. In June, Amplify successfully drilled and brought online the A50 well, which outperformed forecasts by producing over 650 barrels of oil per day, even two months into operation. This well cost $4.2 million to drill, and with current oil prices, management anticipates a quick payback within just four months.
Amplify Energy Corp. (NYSE:AMPY) is also making strides toward operational efficiency. The company is in the final phase of electrification at its Beta platform, which will reduce diesel costs, emissions, and operational risks. These upgrades, slated for completion by the end of 2024, position Amplify for long-term cost savings. Additionally, Amplify Energy Corp. (NYSE:AMPY) partnership in new wells within the Haynesville Shale signals further growth potential in 2025 and beyond.
With prudent capital investments, robust free cash flow, and strategic participation in high-return projects, Amplify Energy Corp. (NYSE:AMPY) presents a compelling value opportunity. The combination of strong financial performance, asset development, and operational efficiencies makes this stock an attractive choice for those seeking to tap into the upside of the energy sector.
07. Civitas Resources, Inc. (NYSE:CIVI)
Upside Potential: 54%
Forward Price to Earnings (P/E) ratio: 5.51
Number of Hedge Fund Holders: 52
Civitas Resources, Inc. (NYSE:CIVI), an exploration and production company, specializes in oil and natural gas operations across the Denver-Julesburg Basin and the broader Rocky Mountain region. As of October 14, the stock stands out with a forward P/E ratio of just 5.51, signaling significant undervaluation. Analysts suggest an upside potential of 54%, with a target price of $82.07 compared to the current price of $53.46—making it a solid candidate for our list of undervalued oil stocks.
In its second-quarter 2024 earnings call, Civitas Resources, Inc. (NYSE:CIVI) reported impressive progress, largely driven by its entry into the Permian Basin, a strategic move that bolstered production to 185,000 barrels of oil equivalent (BOE) per day. This achievement not only diversified its portfolio but also added capital flexibility. The integration of these assets exceeded expectations, with production running ahead of schedule, well costs reduced, and operating costs falling below $9 per BOE.
Operational efficiency is one of Civitas Resources, Inc. (NYSE:CIVI) key strengths. The company reported a 2.5% reduction in cash operating expenses compared to the first quarter, contributing to healthier margins despite weaker natural gas prices. Additionally, the company has reduced well costs by 10% year-to-date in the Midland Basin, boosting returns by 12% and lowering breakeven levels by 7%. These efficiencies extend across basins, with improved service optimization and standardized facilities supporting long-term sustainability.
Civitas Resources, Inc. (NYSE:CIVI) remains committed to shareholder value, having returned $275 million in Q2 through dividends and buybacks. A new $500 million share repurchase plan underscores management’s confidence in the company’s growth prospects. Furthermore, with $900 million in projected free cash flow for the second half of 2024, the company aims to maintain its focus on both shareholder returns and balance sheet strength.
Looking ahead, Civitas Resources, Inc. (NYSE:CIVI) has raised its production forecast and continues to target high-quality development areas. With a proven track record of operational excellence and a compelling valuation compared to peers, Civitas Resources, Inc. (NYSE:CIVI) is well-positioned to deliver robust returns, making it a strong pick among undervalued oil stocks.