In this article, we discuss 10 energy stocks to watch amid changing situation in oil markets. You can skip our detailed analysis of these stocks and the current market situation, and go directly to 5 Energy Stocks to Watch.
The oil and gas industry has rebounded strongly throughout 2022, with oil prices reaching their highest levels in six years. While the industry’s recovery is better than expected, uncertainty remains over market dynamics in the coming year. According to a report presented by Deloitte, oil prices have recovered to around $80/bbl after turning negative in April 2020. While it has often been assumed that high oil prices could slow the energy transition, about 76% of Oil and Gas (O&G) executives surveyed by the consultancy firm state that oil prices above $60 per barrel will most likely boost or complement their energy transition in the near term.
Goldman Sachs analyst Damien Courvalin said on July 22 that the recent moderation in oil prices “sets the stage for higher prices in coming weeks” as the global supply is still insufficient to meet demand. Courvalin noted that the main factor that could prevent a renewed rise in oil prices would be an abrupt slowdown in the global economy, which he deems as unlikely, stressing that the commodities operate as “in-the-moment markets,” which means that the near-term response of oil prices will come from current demand levels, which according to him, remains high. For the longer term, Courvalin argued that underinvestment in oil production has led to an “energy shortage”, such that even if the global economy dips into a recession, it would only provide temporary relief regarding energy prices.
Here is what he said:
“As soon as you pull that restraint back, demand recovers and you’re at exactly that same constraint on energy.”
Therefore, it’s only understandable that hedge funds are keeping a close eye on energy stocks, including major names like Exxon Mobil Corporation (NYSE:XOM), Shell plc (NYSE:SHEL), Chevron Corporation (NYSE:CVX), and BP p.l.c. (NYSE:BP), along with others mentioned below.
Photo by Zbynek Burival on Unsplash
Our Methodology
Keeping the context of Goldman Sachs analyst Damien Courvalin’s latest oil price prediction in mind, let’s take a look at 10 energy stocks that are expected to gain in the near future on the back of rising oil demand in the world.
10. BP p.l.c. (NYSE:BP)
Number Of Hedge Funds Holders: 27
BP p.l.c. (NYSE:BP) is a London-based energy firm which offers biofuels, natural gas, and de-carbonization solutions and services, along with solar and wind power generation facilities. The company is known as one of the world’s seven oil and gas “supermajors”.
On July 19, Piper Sandler analyst Ryan Todd raised the price target on BP p.l.c (NYSE:BP) to $44 from $42 and maintained an Overweight rating on the shares. With fears of a recession already having taken a toll on both refining and integrated oil stocks, and both Q2 results and Q3 outlooks “likely to prove robust,” the setup for the stocks is “increasingly attractive into the quarter,” Todd tells investors in a research note. According to the analyst, despite the fears of upstream cost inflation raising some concerns, the full return of refining profitability and an assurance “not to repeat past mistakes” with excess cash flow is likely to make integrated oil stocks “look increasingly mispriced.”
As of the end of the first quarter, 27 out of 900+ elite hedge funds tracked by Insider Monkey held positions in BP p.l.c. (NYSE:BP) with a combined value of $1.86 billion. In comparison, 26 hedge funds held combined stakes worth $1.2 billion in the energy firm a quarter ago. Boston-based investment firm Arrowstreet Capital was the largest shareholder of BP p.l.c. (NYSE:BP) in Q1 2022 with 25.56 million shares valued at more than $751.63 million.
Similar to Exxon Mobil Corporation (NYSE:XOM), Shell plc (NYSE:SHEL), Chevron Corporation (NYSE:CVX), and ConocoPhilips (NYSE:COP), BP p.l.c (NYSE:BP) is an energy stock that could potentially benefit from rising oil prices.
9. Shell plc (NYSE:SHEL)
Number Of Hedge Funds Holders: 37
Shell plc (NYSE:SHEL) is a London-based oil and gas company with a global footprint. In a recent announcement, the firm stated that BG International Limited, an affiliate of Shell U.K. Limited, had taken the final investment decision to develop the Jackdaw gas field in the UK North Sea, following regulatory approval earlier this year. Jackdaw will comprise a wellhead platform that is not permanently attended, along with subsea infrastructure which will tie back to Shell’s existing Shearwater gas hub. The project is expected to come online in the mid-2020s, and at peak production rates, could represent over 6% of projected UK North Sea gas production in the middle of this decade, with operational emissions of less than 1% of the whole UK basin.
ING Bank analyst Quirijn Mulder upgraded Shell plc (NYSE:SJEL) to Buy from Hold with a price target of EUR 27.50, up from EUR 20.50 on July 12. The analyst believes a prolonged period of high commodity prices will allow Shell to generate “immense” cash flow and states that the company is well positioned to benefit from its high exposure to gas and strong balance sheet.
At the end of the first quarter of 2022, 37 hedge funds in the database of Insider Monkey held stakes worth $5.6 billion in Shell plc (NYSE:SHEL), compared to 41 in the previous quarter worth $2.6 billion. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Shell plc (NYSE:SHEL), with 19.5 million shares worth more than $1 billion.
Here is what Harding Loevner International Equity Fund has to say about Shell plc (NYSE:SHEL) in its Q1 2022 investor letter:
“While risks of unforeseen consequences arising from the Ukraine conflict are high, on this front we are cautiously optimistic that China will work hard to maintain its neutrality in a credible way, as it is a huge beneficiary of trade with the rest of the world, especially the rich developed nations. We think it likely that China, along with India, will continue to buy oil and gas from Russia (just as Europe, at least for now, plans to keep its gas pipelines open), and do not expect that fact to alter China’s trade relations with the West much. Nevertheless, we must contemplate that our optimism is misplaced on the importance of membership in the global network of exchange. If our central and optimistic case—admittedly an educated guess—is wrong, then we’d need to greatly modify our views of which companies in our opportunity set will face new barriers to profitable growth, and which might stand to benefit, relatively, from a further receding of globalization. (Global trade, after all, has never matched the peak share of GDP it reached in 2008, before the Global Financial Crisis.) We’d expect such a world to be less efficient, as the cold logic of comparative advantage is demoted as a determinant of which goods or services are produced and where. That would lead to a less prosperous world, since exploiting comparative advantage is a cornerstone of wealth creation. If regional blocs began to raise limits on the movement of capital as well as goods, we’d need to parse which of our multi-national companies were at risk of declining sales from increasingly hostile, siloed countries. Royal Dutch Shell (NYSE:SHEL) has found its Siberian oil and gas joint venture assets stranded by the combination of sanctions and the public opprobrium of Russia’s actions.”
8. Chevron Corporation (NYSE:CVX)
Number Of Hedge Funds Holders: 53
Chevron Corporation (NYSE:CVX) is an American multinational energy corporation. One of the successor companies of Standard Oil, it is headquartered in San Ramon, California, and active in more than 180 countries. Earlier this May, Chevron USA, a wholly-owned subsidiary of Chevron Corporation (NYSE:CVX), entered into long-term liquefied natural gas sale and purchase agreements with Cheniere Energy, Inc. (NYSE:LNG). According to the agreement, Chevron will purchase a combined 2 million tons per annum of LNG from Cheniere’s subsidiaries.
HSBC analyst Gordon Gray upgraded Chevron Corporation (NYSE:CVX) to Buy from Hold on July 20, with a price target of $167, down from $183. According to the analyst, the stock was one of the worst performers in the group in the past month, which has bought valuation back to levels which he thinks justify an upgrade given that the revised price target now implies an upside of 21%. He adds that Chevron Corporation (NYSE:CVX) has “a clear line of sight on buybacks” and believes there’s “plenty of room” for buyback guidance to be raised again.
Among the hedge funds tracked by Insider Monkey, Warren Buffett’s Berkshire Hathaway is the leading position holder in the company, with more than 159 million shares worth about $26 billion. Overall, 53 hedge funds were bullish on Chevron Corporation (NYSE:CVX) at the end of the first quarter of 2022.
Here is what ClearBridge Investments Large Cap Value Strategy has to say about Chevron Corporation (NYSE:CVX) in its Q1 2022 investor letter:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holding Chevron (NYSE:CVX) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
7. Enphase Energy, Inc. (NASDAQ:ENPH)
Number Of Hedge Funds Holders: 57
Enphase Energy, Inc. (NASDAQ:ENPH) is an American company that develops, manufactures and sells solar micro-inverters, energy generation monitoring software and battery energy storage products, primarily for residential customers. Shares of the company jumped more than 9% after it beat revenue estimates for the second quarter. Additionally, the firm’s revenue from Europe jumped 69% quarter-over-quarter, led by Germany and the Netherlands.
On June 20, JPMorgan analyst Mark Strouse raised the price target on Enphase Energy, Inc. (NASDAQ:ENPH) to $247 from $240 and maintained an Overweight rating on the shares. The analyst is “generally positive” on the alternative energy sector heading into the second half of 2022, stating that secular trends should continue regardless of the economic cycle. In a research note to investors, the analyst says that rising fossil fuel prices and focus on energy security are creating record levels of demand for renewables, despite lingering supply chain headwinds and rising input costs.
According to Insider Monkey’s data, Enphase Energy, Inc. (NASDAQ:ENPH) was part of 57 hedge fund portfolios at the end of Q1 2022, up from 50 funds in the prior quarter. Bruce Emery’s Greenvale Capital is a prominent shareholder of the company, with 500,000 shares worth about $101 million.
Here is what ClearBridge Investments Sustainability Leaders Strategy has to say about Enphase Energy, Inc. (NASDAQ:ENPH) in its Q1 2022 investor letter:
“Enphase Energy (NASDAQ:ENPH) is a key solar holding that should be able to take advantage of greater incentives for solar installations in many geographies. The company was also a strong contributor for the quarter, overcoming pressures of a higher discount rate on their strong projected future earnings, raw material inflation and supply chain challenges as their long-term value was reaffirmed.”
6. Schlumberger Limited (NYSE:SLB)
Number Of Hedge Funds Holders: 58
Schlumberger Limited (NYSE:SLB), one of the largest oilfield services companies in the world, provides technology for reservoir characterization, production, drilling and processing to the oil and gas industry. The company also supplies products and services to the industry, from exploration through production and integrated pipeline solutions for hydrocarbon recovery.
On July 25, Barclays analyst J. David Anderson raised his price target on Schlumberger Limited (NYSE:SLB) to $61 from $59 and kept an Overweight rating on the shares. The analyst says Schlumberger’s “impressive quarter and confident outlook” represent an inflection in the cycle with growth and margin expansion in every region and across every segment.
At the close of the first quarter, 58 hedge funds reported bullish bets on the Schlumberger Limited (NYSE:SLB) shares, up from 47 hedge funds a quarter ago. Popular funds owned major positions in the company during the first quarter, and its largest shareholder was GQG Partners, with a stake consisting of 27.91 million shares valued at $1.15 billion.
Much like Exxon Mobil Corporation (NYSE:XOM), Shell plc (NYSE:SHEL), Chevron Corporation (NYSE:CVX), and BP p.l.c. (NYSE:BP), Schlumberger Limited (NYSE:SLB) is on Wall Street’s radar.
Schlumberger Limited (NYSE:SLB) was discussed in the Q2 2021 investor letter of ClearBridge Investments. Here is what the firm said:
“Schlumberger is a leading oilfield services company that should enjoy both cyclical and secular opportunities over the next market cycle and beyond. On the cyclical front, after years of declining energy service activity and negative pricing, service activity is increasing modestly and pricing is inflecting higher, which is always the key cyclical driver for energy services stocks. In addition, we expect the Middle East to gain share of oil production as ESG considerations limit upstream investment in other regions. As the dominant service provider in the Middle East, Schlumberger is very well-positioned for this shift. On the secular front, Schlumberger has a rapidly growing digital services capability that helps producers operate much more efficiently and with much less waste, which will be a core ESG focus. Finally, Schlumberger is investing directly, and with partners, in energy transition capabilities such as carbon capture, hydrogen and geothermal that should allow Schlumberger to grow and remain viable well beyond the current energy cycle.”
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