In this article, we discuss Aramco’s reality check and 10 fossil fuel stocks to invest in for the future. If you want to see more stocks in this list, check out 5 Fossil Fuel Stocks to Invest In for Future.
A Bloomberg report dated September 20 reported Saudi Aramco’s warnings about the thinning investment in fossil fuels, which the oil giant said was to blame for the global energy crisis. Aramco’s chief executive officer, Amin Nasser, recently gave the world a reality check, when he said that as the economies recover, the production capacity in the oil market would fall short and global demand would remain unmet. He stressed that this was a serious cause for concern, as it might already be “too late to change course” in terms of investments in the energy space, especially fossil fuels.
Aramco, as well as oil giants in the United Arab Emirates and the Persian Gulf, reiterated that the Western governments and investors alike are being impractical when they claim that renewable energy is a viable replacement for oil and gas. They pointed out the rampant energy prices in the last year to strengthen their case. Aramco’s Amin Nasser observed that investments in oil and gas plummeted from $700 billion in 2014 to $300 billion in 2021. The inflow in the energy sector this year was “too little, too late”, according to Nasser. He told Bloomberg:
“The conflict in Ukraine has certainly intensified the effects of the energy crisis, but it is not the root cause. Sadly, even if the conflict stopped today, as we all wish, the crisis would not end.”
“Chain of Sandcastles”
Although Saudi Arabia and the UAE are pouring in billions of dollars to boost their production capacity even more, the projects will take a few years to be functional. Referencing the European energy crisis and the soaring prices of oil and electricity in the United States, Nasir noted that these nations are suffering as they closed down oil and coal-fired power plants before renewable sources could effectively take over. He described the planned energy transition to renewables in the Western nations as “a chain of sandcastles that waves of reality have washed away”. The higher cost of living is likely to be “severe and prolonged”, as per the Aramco chief.
Saudi Arabia, the world’s largest oil exporter, believes fossil fuels will be highly demanded for decades and they can only be phased out slowly. Some of the best stocks to play the boom in the fossil fuels space include Pioneer Natural Resources Company (NYSE:PXD), Kinder Morgan, Inc. (NYSE:KMI), and EOG Resources, Inc. (NYSE:EOG).
Our Methodology
We selected the companies that operate in the fossil fuels sector. Positive analyst coverage, solid hedge fund sentiment, and strong business fundamentals were important classifiers for shortlisting the following stocks.
We have arranged the list according to the hedge fund sentiment around the securities, which was assessed from Insider Monkey’s Q2 2022 database of about 900 elite hedge funds.
Best Fossil Fuel Stocks to Invest In for the Future
10. CONSOL Energy Inc. (NYSE:CEIX)
Number of Hedge Fund Holders: 23
CONSOL Energy Inc. (NYSE:CEIX) is a Pennsylvania-based company that produces and exports bituminous coal in the United States. CONSOL Energy Inc. (NYSE:CEIX) reported a Q2 revenue of $532.69 million, climbing 105.0% year-over-year. Based on strong Q2 results, the company announced a special dividend of $1.00 per share, which was paid on August 24. CONSOL Energy Inc. (NYSE:CEIX)’s quarterly free cash flow was $159.9 million. For Q3 2022, the company expects to initiate an upgraded shareholder return program which will return approximately 35% of free cash flow, while simultaneously paying off debt at a fast pace.
Riley analyst Lucas Pipes on August 8 raised the price target on CONSOL Energy Inc. (NYSE:CEIX) to $79 from $63 and kept a Buy rating on the shares following the “strong” Q2.
Among the hedge funds tracked by Insider Monkey, David Einhorn’s Greenlight Capital is the leading position holder in CONSOL Energy Inc. (NYSE:CEIX), with 1.6 million shares worth about $81 million. Overall, 23 hedge funds were bullish on the stock at the end of the second quarter of 2022, up from 23 funds in the preceding quarter.
In addition to Pioneer Natural Resources Company (NYSE:PXD), Kinder Morgan, Inc. (NYSE:KMI), and EOG Resources, Inc. (NYSE:EOG), CONSOL Energy Inc. (NYSE:CEIX) is a notable fossil fuel stock to invest in for the future.
Here is what Greenlight Capital has to say about CONSOL Energy Inc. (NYSE:CEIX) in its Q2 2022 investor letter:
“CONSOL Energy (NYSE:CEIX). The shares ended the quarter at $49.38. Though it trades at a nosebleed 2.6x book value, we expect the company to generate approximately $50 per share in after-tax free cash flow by the end of 2023. Capital returns have not yet begun, but we expect they will shortly.”
9. Alpha Metallurgical Resources, Inc. (NYSE:AMR)
Number of Hedge Fund Holders: 25
Alpha Metallurgical Resources, Inc. (NYSE:AMR) is headquartered in Bristol, Tennessee, operating as a coal company with underground and surface coal mining complexes across Northern and Central Appalachia. The company deals in met and thermal coal. On August 8, Alpha Metallurgical Resources, Inc. (NYSE:AMR) declared a $0.392 per share quarterly dividend, a 4.5% increase from its prior dividend of $0.375. The dividend is payable on October 3, to shareholders of record as of September 15.
Cowen analyst Lance Vitanza raised the price target on Alpha Metallurgical Resources, Inc. (NYSE:AMR) on September 15 to $225 from $191 and maintained an Outperform rating on the shares. The analyst noted that his target increase is due to an improved met coal price deck. The discount between Alpha Metallurgical Resources, Inc. (NYSE:AMR) shares and intrinsic value has also increased significantly, as per the analyst.
Among the hedge funds tracked by Insider Monkey, 25 funds reported owning stakes in Alpha Metallurgical Resources, Inc. (NYSE:AMR) at the end of Q2 2022, compared to 30 funds in the prior quarter. Jim Simons’ Renaissance Technologies is the leading position holder in the company, with 872,215 shares worth $112.6 million.
8. Peabody Energy Corporation (NYSE:BTU)
Number of Hedge Fund Holders: 29
Peabody Energy Corporation (NYSE:BTU) is a Missouri-based coal mining company, with presence in the United States, Japan, Taiwan, Australia, India, Indonesia, China, Vietnam, and South Korea. The company operates through Seaborne Thermal Mining, Seaborne Metallurgical Mining, Powder River Basin Mining, and Other U.S. Thermal Mining segments. On September 19, Peabody Energy Corporation (NYSE:BTU) announced that two of its business units have concluded the repurchase of about $20.4 million of their term loan due 2024 at a weighted average purchase price of 105.91% of par.
On July 7, B. Riley analyst Lucas Pipes maintained a Buy rating on Peabody Energy Corporation (NYSE:BTU) but lowered the price target on the shares to $33 from $34. Coal prices remain well above historical levels, despite the latest decline in Australian premium low-vol coking due to weak steel demand, the analyst told investors.
According to Insider Monkey’s data, 29 hedge funds were bullish on Peabody Energy Corporation (NYSE:BTU) at the end of the second quarter of 2022, compared to 27 funds in the last quarter. Paul Singer’s Elliott Management is the biggest position holder in the company, with approximately 26 million shares worth $551.6 million.
7. Baker Hughes Company (NASDAQ:BKR)
Number of Hedge Fund Holders: 30
Baker Hughes Company (NASDAQ:BKR) is a Texas-based company that provides technologies and services to energy and industrial companies worldwide. It operates through four segments – Oilfield Services, Oilfield Equipment, Turbo Machinery & Process Solutions, and Digital Solutions. On August 16, the company announced that it is building a new chemicals manufacturing facility in Singapore, which will notably expand its capacity to serve the oilfield services industry in the Asia-Pacific region. Baker Hughes Company (NASDAQ:BKR) is one of the most prominent fossil fuel stocks to invest in for the future.
RBC Capital analyst Keith Mackey on September 20 reiterated an Outperform rating on Baker Hughes Company (NASDAQ:BKR) but lowered the price target on the stock to $35 from $36. The company’s corporate restructuring is a notable step in its efforts to capitalize on short-, medium-, and long-term growth opportunities, the analyst told investors. While the analyst is slashing his 2022 second-half EBITDA estimate by 2% due to short-term headwinds, he is elevating his 2023 view on anticipated cost synergies from a streamlined corporate realignment.
Among the hedge funds tracked by Insider Monkey, Richard S. Pzena’s Pzena Investment Management is the biggest position holder in Baker Hughes Company (NASDAQ:BKR), with 1.8 million shares worth more than $53 million. Overall, Baker Hughes Company (NASDAQ:BKR) was part of 30 hedge fund portfolios at the end of June 2022, compared to 39 funds in the earlier quarter.
Here is what Sound Shore Fund has to say about Baker Hughes Company (NASDAQ:BKR) in its Q1 2022 investor letter:
“Energy was the best performing sector which was reflected in our top contributors. Energy technology provider Baker Hughes finished higher, driven by stronger than expected order growth in its liquid natural gas (LNG) turbo-machinery segment and increasing global rig count. Both companies have strong balance sheets with little debt and are returning capital via dividends and stock repurchases. Soaring energy prices and Europe’s unfortunate reliance on Russian supply reinforced our belief that low cost natural gas is both a strategic and economic advantage for the United States. Over the last several years, the pandemic, supply disruptions and lack of investment, along with extreme weather conditions had already driven prices higher. Still, natural gas is expected to play a critical role in the transition to renewable energy sources and these two investments benefit from the increased demand.
Baker is the dominant player in LNG projects and its growing backlog is a positive indicator of how this business may drive future earnings. They are also a leader in carbon capture technology and the development of hydrogen as a clean, alternative fuel source. Carbon capture technology is considered critical to delivering CO2 reductions needed to meet global climate and net-zero emissions targets. Applicable to both the energy and industrial sectors, carbon capture is among the most promising de-carbonization solutions for both existing facilities and new greenfield projects. We were able to purchase the stock at a below normal valuation and an attractive 8% free cash flow yield and we remain positive on its future prospects.”
6. Targa Resources Corp. (NYSE:TRGP)
Number of Hedge Fund Holders: 32
Targa Resources Corp. (NYSE:TRGP) is a Texas-based company that owns, operates, and develops midstream energy assets in North America. The company distributes natural gas and natural gas liquids in the United States. Targa Resources Corp. (NYSE:TRGP) reported a Q2 net income of $596.4 million, up significantly compared to $56.2 million in the second quarter of 2021. For full-year 2022, Targa Resources Corp. (NYSE:TRGP) raised its estimated adjusted EBITDA range to between $2.85 billion and $2.95 billion, to factor in a partial year contribution from its recently concluded Delaware Basin acquisition.
On September 8, Goldman Sachs analyst John Mackay reinstated coverage of Targa Resources Corp. (NYSE:TRGP) with a Buy recommendation and a $93 price target, following the acquisition of Lucid Energy in the beginning of September. Targa Resources Corp. (NYSE:TRGP) is one of the biggest Permian midstream infrastructure providers that delivers “compelling growth on its expanded Permian footprint”, the analyst told investors. The analyst sees a “very cheap valuation” at present share levels, as well as total return upside of 35%.
According to Insider Monkey’s Q2 data, 32 hedge funds were long Targa Resources Corp. (NYSE:TRGP), with collective stakes worth $555 million. Stuart J. Zimmer’s Zimmer Partners is the leading position holder in the company, with 3.11 million shares valued at $185.6 million.
Like Pioneer Natural Resources Company (NYSE:PXD), Kinder Morgan, Inc. (NYSE:KMI), and EOG Resources, Inc. (NYSE:EOG), Targa Resources Corp. (NYSE:TRGP) is a significant fossil fuel stock to consider.
Click to continue reading and see 5 Fossil Fuel Stocks to Invest In for Future.
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Disclosure: None. “Chain of Sandcastles”: Aramco’s Reality Check and 10 Fossil Fuel Stocks to Invest In for Future is originally published on Insider Monkey.
