In this article, we discuss the 10 energy stocks that analysts are downgrading. If you want to read about some more energy stocks with bearish ratings, go directly to Analysts Are Downgrading These 5 Energy Stocks.
Energy stocks have consistently outperformed the broader market for most of this year as demand surges and supply risks increase. On March 23, the benchmark S&P 500 Index fell by around 1.2% but energy futures climbed by more than 5%. The energy futures were lifted after Russia halted loadings at a major Black Sea oil export terminal, depriving the European market of key oil supplies. Russia is using oil as a weapon in the Ukraine war, hitting back at Western sanctions by cutting oil exports to just 1 million barrels per day.
Supply Disruptions Force Rethink in Global Oil Economy
The increased strain on energy reserves in the United States as a result of supply disruptions from Russia, which Middle Eastern countries and US shale producers are working hard to overcome, has cut US crude stockpiles by 2.5 million barrels in a single week. European countries are taking emergency measures aimed at controlling energy prices and preventing the economy from going into a freefall due to rising inflation. The UK government has lowered taxes on gasoline and increased government subsidies for those impacted by higher energy costs.
In recent days, as prospects of a ceasefire in Ukraine increase and oil prices dip, there are reports that the US is considering a record release of oil from the Strategic Petroleum Reserve to stabilize global oil prices. The news comes after OPEC+ nations stuck to a supply agreement for May that raised concerns around a further increase in oil prices. Washington is planning to pour 180 million barrels of oil into the market in the next six months. Goldman Sachs analysts have said the move would rebalance prices in 2022 but was not a “permanent fix”.
In this volatile energy marketplace, analysts have been busy updating their advisories on energy stocks to incorporate recent developments into their estimates. Some of the top energy stocks recently downgraded by analysts include Devon Energy Corporation (NYSE:DVN), ConocoPhillips (NYSE:COP), and Chevron Corporation (NYSE:CVX), among others discussed in detail below.
Our Methodology
The companies that operate in the energy sector and have received a ratings downgrade from market experts in the past few weeks were selected for the list. Data from around 900 elite hedge funds tracked by Insider Monkey in the fourth quarter of 2021 was used to identify the number of hedge funds that hold stakes in each firm.
Photo by Robin Sommer on Unsplash
Analysts Recommend Selling These Energy Stocks
10. TotalEnergies SE (NYSE:TTE)
Number of Hedge Fund Holders: 17
TotalEnergies SE (NYSE:TTE) is an integrated oil and gas firm. The stock has registered a slight downward spiral in the past few weeks as the prices of oil drop below $100 per barrel in the wake of progress in the peace talks between Russia and Ukraine. The firm has stopped purchasing oil and gas from Russia but so far declined to withdraw from assets in the country. Patrick Pouyanne, the CEO of the firm, said at an investor presentation recently that the firm planned to spend over $16 billion in the period between 2023 and 2025 to meet growth targets.
On March 23, Deutsche Bank analyst James Hubbard downgraded TotalEnergies SE (NYSE:TTE) stock to Hold from Buy and lowered the price target to EUR48.10 from EUR 53.50, highlighting that the global oil and gas markets were “showing clear signs of increasing underlying tightness” amid the Russian war in Ukraine.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in TotalEnergies SE (NYSE:TTE) with 24 million shares worth more than $1.2 billion.
Just like Devon Energy Corporation (NYSE:DVN), ConocoPhillips (NYSE:COP), and Chevron Corporation (NYSE:CVX), TotalEnergies SE (NYSE:TTE) is one of the stocks that elite investors are monitoring amid rising energy prices.
9. DT Midstream, Inc. (NYSE:DTM)
Number of Hedge Fund Holders: 17
DT Midstream, Inc. (NYSE:DTM) provides integrated natural gas services. The firm has been trying to lure investors with a series of confidence-building measures in recent months. These include the approval of a share buyback plan consisting of around 125,000 shares and the raising of the quarterly dividend by 7% to $0.64 per share. The forward yield is also high at around 5.11%.
On March 8, Credit Suisse analyst Spiro Dounis downgraded DT Midstream, Inc. (NYSE:DTM) stock to Neutral from Outperform but raised the price target to $58 from $55, citing valuation as the primary reason behind the downgrade and highlighting that the firm was now trading on par with large-cap industry peers, creating a more balanced risk/reward profile for the stock.
At the end of the fourth quarter of 2021, 17 hedge funds in the database of Insider Monkey held stakes worth $493 million in HDT Midstream, Inc. (NYSE:DTM), compared to 22 in the preceding quarter worth $482 million.
8. Brookfield Renewable Partners L.P. (NYSE:BEP)
Number of Hedge Fund Holders: 21
Brookfield Renewable Partners L.P. (NYSE:BEP) owns and runs renewable power generation facilities. The firm is one of the most reliable clean energy firms with a dividend history stretching back more than two decades. On February 4, it declared a quarterly dividend of $0.32 per share, an increase of around 5% from the previous dividend of $0.30 per share. The forward yield was 4.01%. The firm has also been exploring acquisitions to fuel growth, buying clean power developer Urban Grid for $650 million in late January as part of this plan.
However, analysts are not impressed by the growth catalysts for Brookfield Renewable Partners L.P. (NYSE:BEP) stock. On March 25, investment advisory Industrial Alliance downgraded the stock to Hold from Buy. Analyst Naji Baydoun issued the ratings update.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Select Equity Group is a leading shareholder in Brookfield Renewable Partners L.P. (NYSE:BEP) with 1.1 million shares worth more than $40 million.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Brookfield Renewable Partners L.P. (NYSE:BEP) was one of them. Here is what the fund said:
“U.S. renewables utility Brookfield Renewable Partners L.P. (NYSE:BEP) was another detractor. Brookfield Renewable Partners L.P. (NYSE:BEP) is a pure-play renewables operator and developer headquartered in Canada and domiciled in the U.S., focused on international hydro, solar, wind and storage technology. As more private and public institutions announce ambitious carbon reduction initiatives, Brookfield Renewable’s globally diversified, multi-technology renewables business makes it an attractive partner. Its development pipeline stands at 18,000 megawatts, providing confidence the company can meet its targeted double-digit cash flow growth through to 2025. Shares moderated amid expectations of rising bond yields, and a cool-off on the green trade.”
7. Sempra (NYSE:SRE)
Number of Hedge Fund Holders: 31
Sempra (NYSE:SRE) is an energy services holding firm. The company posted earnings for the fiscal year 2021 on February 25, reporting earnings per share of $2.16, beating estimates by $0.16. The revenue over the period was $3.8 billion, up 21% year-on-year and beating expectations by $320 million. The firm is also exploring possible expansion in the natural gas sector as prices in the industry soar. In late January, it signed an MoU with the Federal Electricity Commission in Mexico for the development of natural gas projects in the region.
On March 7, KeyBanc analyst Sophie Karp downgraded Sempra (NYSE:SRE) stock to Sector Weight from Overweight without a price target. The analyst cited valuation as one of the main reasons behind the ratings downgrade, noting that the firm would not be able to monetize the newfound strength in the gas market in the near-term.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Zimmer Partners is a leading shareholder in Sempra (NYSE:SRE) with 1.6 million shares worth more than $214 million.
In its Q3 2021 investor letter, ClearBridge Investments highlighted a few stocks and Sempra (NYSE:SRE) was one of them. Here is what the fund said:
“In utilities we completed the exit of WEC Energy Group to fund our newer position in Sempra (NYSE:SRE) Energy. Sempra (NYSE:SRE) embodies a similarly, well positioned utility but trades at a meaningfully lower valuation. We are bottom-up investors focused on assembling a diverse portfolio of high-quality companies that can compound dividends at attractive rates over the long term. The portfolio is designed to navigate any environment. The Strategy has generally participated nicely in up markets and protected capital in down markets such as we experienced in the third quarter. As the world navigates its emergence from COVID-19, we believe we are well-positioned.”
6. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 40
Marathon Oil Corporation (NYSE:MRO) is an independent oil and gas exploration and production firm. As European powers mulled a ban on Russian energy exports in early March, oil climbed to the highest it had been in two weeks, taking energy giants like Marathon to the top of the leaderboard of the benchmark S&P 500. The boom came merely a few days after crude dropped below $100 per barrel as the geopolitical risk premium faded. Oil had earlier climbed to a 14-year high.
On March 2, Benchmark analyst Subash Chandra downgraded Marathon Oil Corporation (NYSE:MRO) stock to Hold from Buy, noting that the valuations of the oil firms were not “extreme in context of current oil prices” but the focus remained on firms that reflected oil prices at around $75 per barrel.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm DE Shaw is a leading shareholder in Marathon Oil Corporation (NYSE:MRO) with 7.2 million shares worth more than $119 million.
Along with Devon Energy Corporation (NYSE:DVN), ConocoPhillips (NYSE:COP), and Chevron Corporation (NYSE:CVX), Marathon Oil Corporation (NYSE:MRO) is one of the stocks that institutional investors have on their radar amid rising geopolitical tensions.
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Disclosure. None. Analysts Are Downgrading These 10 Energy Stocks is originally published on Insider Monkey.
