We recently published a list of the 8 Most Profitable Oil Stocks To Invest In. In this article, we are going to take a look at why EOG Resources, Inc. (NYSE:EOG) is one of the best oil stocks to invest in.
OPEC Anticipated to Hold Oil Supply
One of the leading oil-producing regions, OPEC countries and its allies are expected to extend their latest round of oil production cuts for the first quarter of 2025, according to analysts. OPEC+ controls nearly half of the world’s oil production and supply. The oil governing body was planning to initiate unwinding output cuts through 2025. However, the decline in global demand and output outside OPEC could impact oil prices.
“Market participants are closely watching to see if OPEC+ will focus on bolstering prices by extending production cuts, or opt to defend its share of the global crude oil market by easing those cuts,” said Satoru Yoshida, commodity analyst with Rakuten Securities. Yoshida added that the OPEC decision to cut oil supply would potentially have a short-term impact. Still, the market is anticipated to rise by the year-end following the takeover of the Trump administration.
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The OPEC+ countries are holding around 5.86 million barrels per day of output, which accounts for almost 5.7% of global demand. To support the oil market, the oil supply has been managed in a series of steps agreed since 2022. The OPEC members had planned an output increase of 180,000 barrels per day for January 2025. The non-OPEC+ countries are expected to boost the oil supply by almost 1.5 million barrels per day in 2025. Nevertheless, the global oil benchmark Brent Crude has mostly traded between $70 to $80 per barrel in 2024, while it hit a 2024 low below $69 in September.
The global oil market is impacted by several factors including, geopolitical risks, production levels, and OPEC’s strategies. The ceasefire between Israel and Hezbollah could affect prices, but the new war in Syria could potentially be a new issue for oil producers. However, oil prices remain lower than expected based on inventory fundamentals. In the long term, oil price hikes above $100 are less likely to occur due to the impact of U.S. shale production over the past decade.
With that, let’s take a look at where EOG Resources, Inc. (NYSE:EOG) ranks among the most profitable oil stocks to invest in.
An oil rig towering over an expansive horizon of land and sky.
Our Methodology
To compile our list of the 8 most profitable oil stocks to invest in, we scanned oil stocks through Finviz Screener using two indicators. We shortlisted the stocks with a minimum net income of $2.5 billion or more in the trailing twelve months (TTM) and a 5-year net income compound annual growth rate (CAGR) of over 10%. From that list, we narrowed our choices to the 8 stocks widely held by hedge funds, as of Q3 2024. As of the third quarter, the list is ranked in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? 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).
EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Funds Holders: 46
5-Year Net Income CAGR: 19.01%
TTM Net Income: $7.14 Billion
EOG Resources, Inc. (NYSE:EOG) is an oil and gas holding company with main operations in the Permian Basin and the Eagle Ford. The company is engaged in the exploration, development, production, and marketing of crude oil, natural gas liquids (NLGs), and natural gas. EOG owns around 535,000 total net acres in the Eagle Ford play and almost 160,000 net acres in the Dorado gas play.
EOG Resources, Inc. (NYSE:EOG) is a top dividend stock. The company has raised its payout for seven consecutive years while it has a dividend CAGR of 29% over the last five years. The company has smartly improved its earnings through different fuel sources to grow its dividend. Moreover, EOG has expanded its operations organically rather than making costly acquisitions. The company’s ability to discover low-cost, high-return oil and gas resources across the U.S. has been its major advantage.
The company is using technology and innovation across its oil and natural gas basins to improve capital efficiency. This helps EOG to have a solid operational performance across its multiple basins. The company is drilling further and at a historic speed, and the technology utilization is helping it to complete wells with less human capital and equipment. In addition to that, the inventory levels at EOG Resources, Inc.’s North American natural gas are closer to its five-year average throughput. The company anticipates higher demand for gas and has the opportunity to accept additional LNG projects.
Since the end of 2020, EOG Resources, Inc. (NYSE:EOG) has gathered over $22 billion in free cash flow and more than $25 billion in adjusted net income. This sustained growth has allowed the company to regularly increase its dividends. The company’s ability to generate high returns has also assisted in reducing its debt by 35% since 2020. EOG plans to return more than 100% of its annual free cash flow to shareholders in the near term, through share repurchases and paying special dividends.
Overall, EOG ranks 8th on our list of the most profitable oil stocks to invest in. While we acknowledge the potential of EOG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than EOG 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.