We recently compiled a list of the Top 10 Oil and Gas Stocks To Buy According to Analysts. In this article, we are going to take a look at where Diamondback Energy, Inc. (NASDAQ:FANG) stands against the other oil and gas stocks to buy.
While renewable energy sources garner increasing attention, the demand for oil and gas remains strong, fueled by the growing energy needs of developed and developing nations. However, the industry is highly volatile, with profits and losses often hinging on minor demand shifts or strategic actions by petrostates like Saudi Arabia and Russia, whose agendas may conflict with those of public oil companies. Supply-demand imbalances frequently trigger significant price swings, as evidenced in early 2022 when Russia’s invasion of Ukraine drove crude prices into triple digits for the first time in years.
The State of the Oil and Gas Market
Global oil prices have retreated from their early-October highs, with market focus shifting from supply risks to concerns about global economic health, sluggish demand, and ample supply. After surpassing $80 per barrel in early October, Brent crude futures dropped to approximately $72 per barrel by mid-November as fears of an Israeli attack on Iran’s energy infrastructure subsided. Meanwhile, the global oil supply is steadily increasing. Following the early November U.S. elections, the United States is expected to lead non-OPEC+ supply growth, contributing 1.5 million barrels per day (mb/d) in both 2024 and 2025, alongside higher output from Canada, Guyana, and Argentina. Brazil, which faced operational challenges and outages this year, is projected to add 210,000 barrels per day (kb/d) by 2025, reaching 3.7 mb/d as new capacity exceeding 800 kb/d comes online.
In another vein, the International Energy Agency (IEA)’s World Energy Outlook 2024 predicts that global oil demand will increase by about 2.6 million b/d from 2023 to 2030 before peaking, driven by rising EV adoption and improved fuel efficiency. Petrochemicals are expected to overtake road transport as the primary driver of oil demand growth. By 2050, the IEA projects global oil demand to average 93.1 million b/d, 4.3 million b/d lower than its prior estimate under the Stated Energy Policies Scenario (STEPS). The most significant declines are expected in aviation and shipping, with demand dropping by 2.7 million b/d as sustainable aviation fuels gain traction and hydrogen-based alternative fuels are increasingly adopted in maritime transport.
U.S. – China Oil Politics
China’s oil refiners processed 4.6% less crude in October compared to the same period last year, attributed to plant closures and reduced operating rates among smaller independent refiners, according to data from the National Bureau of Statistics released on November 15. Simultaneously, China’s factory output growth slowed, and persistent weakness in its property sector added to investor concerns about the economic health of the world’s largest crude importer.
Compounding these challenges, U.S. President-elect Donald Trump advocates for reducing regulations on the oil sector to boost U.S. production, a move that could exert downward pressure on oil prices. However, with U.S. crude output already near record highs, questions arise about the industry’s capacity to increase production further. Even if they could, companies may hesitate, as ramping up output could drive prices down, potentially impacting profits and shareholder returns. Most notably, however, Trump has vowed to revoke China’s most-favored-nation trading status and impose tariffs exceeding 60% on Chinese imports—far surpassing the levels enacted during his first term. If crude oil is included, it could squeeze the margins of U.S. refiners reliant on imported oil. Additionally, it may harm U.S. exports of crude and refined products if other nations respond with retaliatory tariffs. In light of this, Goldman Sachs Research economists have modestly lowered their 2025 growth forecast for China, attributing the adjustment to anticipated tariff increases under a Trump administration. Chief economist Jan Hatzius further cautioned that more substantial downgrades could follow if the trade conflict intensifies.
Our Methodology
In this article, we analyzed screeners and ETFs to pinpoint oil and gas industry stocks with an average share price upside potential of 15% or more as of market close on November 18, 2024. We ranked the top 10 stocks in ascending order based on their average share price upside potential. Additionally, we included hedge fund sentiment for each stock, as of Q3 2024, to offer readers deeper insights.
Why are we interested in 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).
A pipeline worker overseeing the flow of crude oil into storage tanks from an integrated water system.
Diamondback Energy, Inc. (NASDAQ:FANG)
Average Analyst Price Target: $209.64
Upside Potential: 15.25%
Number of Hedge Fund Holders as of Q3: 49
Diamondback Energy, Inc. (NASDAQ:FANG) is a leading oil and natural gas company focused on the acquisition, development, and exploration of onshore reserves. The company operates primarily in the Permian Basin, targeting the Spraberry and Wolfcamp formations in the Midland Basin and the Wolfcamp and Bone Spring formations in the Delaware Basin, spanning West Texas and New Mexico.
On November 5, Truist Securities reaffirmed its Buy rating on Diamondback Energy, Inc. (NASDAQ:FANG), maintaining a price target of $230. The firm emphasized the company’s operational efficiency, highlighting its ability to sustain stable production levels while reducing capital expenditures. Truist projected that Diamondback will surpass 475 thousand barrels of oil equivalent per day (mbopd) in production next year, with capital spending under $4 billion, positioning the company’s productivity over 30% higher than its large peers operating with similar budgets.
Moreover, on September 10, Diamondback Energy, Inc. (NASDAQ:FANG) completed its merger with Endeavor Energy Resources, L.P., solidifying its status as one of the leading independent oil and energy companies in the United States. The $26 billion deal, including Endeavor’s net debt, was initially signed in February and marks a significant milestone for the company.
Looking ahead, Diamondback Energy, Inc. (NASDAQ:FANG) is focused on maintaining financial flexibility and maximizing free cash flow. It has guided 2025 capital expenditures between $4.1 billion and $4.4 billion while remaining cautious about macroeconomic challenges. The company prioritizes shareholder returns, supported by accelerated synergy achievements and lower well costs, which now stand at $600 per foot.
ClearBridge Select Strategy stated the following regarding Diamondback Energy, Inc. (NASDAQ:FANG) in its first quarter 2024 investor letter:
“Our final addition was Diamondback Energy, Inc. (NASDAQ:FANG), a leading oil and gas producer that agreed to acquire fellow exploration and production company Endeavor Energy Resources in the quarter. The deal should allow Diamondback to capture operating synergies and streamline costs by reducing rig redundancies and optimizing production techniques. Endeavor has previously prioritized double-digit production growth over capital discipline, leading to the quick depletion of its core inventory in the oil-rich Midland Basin. Diamondback’s focus on free cash flow generation should allow the combined entity, which we consider an evolving opportunity, to rein back its production levels and extend the longevity of this high-quality acreage to fund cash returns. Diamondback replaces the energy exposure the portfolio will lose with the pending acquisition of top 15 holding Pioneer Natural Resources by Exxon Mobil.”
Overall FANG ranks 10th on our list of the oil and gas stocks to buy according to analysts. While we acknowledge the potential of FANG as an investment, our conviction lies in the belief that certain 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 FANG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.