We recently published a list of 10 Most Profitable Energy Stocks To Invest In. In this article, we are going to take a look at where ConocoPhillips (NYSE:COP) stands against the other most profitable energy stocks to invest in.
Global Energy Demand Set to Soar
The International Energy Agency (IEA) projects a significant increase in global energy demand, with an annual growth rate of 3.4% projected until 2026. The majority of this demand, approximately 85%, is expected to come from China and India, with India’s energy demand alone forecasted to grow at an impressive 6% annually until 2026, driven by robust economic growth and rising household consumption. Southeast Asia is also expected to experience a substantial increase in electricity demand, with a 5% annual growth rate predicted until 2026.
In contrast, the United States is expected to see a more moderate increase in electricity demand, primarily driven by the growing need for data centers. The electricity usage by data centers, artificial intelligence, and cryptocurrency is expected to double to 1,000 TWh by 2026.
However, the IEA notes that the rise in electricity generation from low-emission sources will meet global demand growth over the next three years. Renewable energy is anticipated to surpass coal as the leading energy source by early 2025, marking a significant milestone in the global transition towards cleaner energy. This shift towards renewable energy is expected to play a crucial role in meeting the world’s growing energy needs while reducing greenhouse gas emissions and mitigating the impacts of climate change.
Energy Industry to Require Balanced Approach
In an interview on CNBC on September 18, ConocoPhillips CEO Ryan Lance said that he is optimistic about the future of the energy industry. Lance highlighted that the US is well-positioned to supply the growing demand for natural gas, particularly in Europe. He noted that the shale revolution in the US has been a “remarkable” game-changer for the industry and that the country is now a major player in the global energy market. Lance also pointed out that the US has a huge natural gas supply, which provides an opportunity to keep energy prices low and support growing power demand and electrification.
In addition, Lance discussed the need for a diverse energy mix to meet growing power demand in the US and globally. He noted that while renewable energy sources are growing, they are not yet sufficient to meet demand and that other forms of energy, including coal and nuclear, will still be needed. He cited the example of California, which plans to import more electricity from coal-powered plants in South Dakota and Wyoming, despite its efforts to reduce greenhouse gas emissions. This, Lance argued, highlights the complexity of the energy landscape and the need for a balanced approach.
Lance also touched on the potential impact of interest rate decisions by the Federal Reserve on the oil and gas industry. While acknowledging that a rate cut could have some impact, Lance emphasized that what matters most is a healthy economy in the US and globally.
The growth in global energy demand poses a significant challenge, it is essential to prioritize sustainable and low-emission energy sources to meet the growing demands.
Our Methodology
For this article, we used Finviz and Yahoo Finance stock screeners plus online rankings to compile an initial list of the 80 largest companies in the energy sector by market cap. From that list, we narrowed our choices to 10 companies with positive TTM net income and 5-year net income growth from reputable sources including SeekingAlpha (which provided insights into 5-year growth rates) and Macrotrends (which supplied information on trailing twelve-month (TTM) net income). Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024.
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).
An underground network of pipelines transporting oil through an expansive terrain.
ConocoPhillips (NYSE:COP)
TTM Net Income: $10.69 Billion
5-Year Net Income CAGR: 8.39%
Number of Hedge Fund Holders: 72
ConocoPhillips (NYSE:COP) is one of the largest independent exploration and production companies globally, with operations across North America, Europe, and Asia. The company has a balanced portfolio of conventional and unconventional assets.
In May, ConocoPhillips (NYSE:COP) announced an agreement to acquire Marathon Oil for $22.5 billion, which aims to increase its upstream operations and enhance its earnings and free cash flow potential, particularly in key basins such as the Bakken, Permian, and Eagle Ford. This strategic move has positioned ConocoPhillips (NYSE:COP) for accelerating capital returns, with the company generating $2.1 billion in free cash flow in Q2, of which $1.9 billion was returned to shareholders through stock buybacks and dividends. Furthermore, the company’s upstream operations offer significant earnings potential due to a rise in the petroleum market.
ConocoPhillips’ (NYSE:COP) financial performance is underpinned by its solid production growth, which reached 1,945 MBOED in Q2, representing an 8% year-over-year increase. The company’s average petroleum price of $81.30 per barrel in Q2 was 10% higher than the year-earlier period, which contributed to its solid earnings and free cash flow performance.
The OPEC+ is providing support for petroleum prices, which are trading at around $75 per barrel as of October 5. ConocoPhillips (NYSE:COP) is well-positioned to continue generating strong earnings and free cash flow in the coming quarters. The company has increased its net income over the past 5 years with a CAGR of 8.39%. For the year ended on June 30, ConocoPhillips (NYSE:COP) reported a net income of $10.68 billion. ConocoPhillips (NYSE:COP) offers an attractive opportunity due to its production growth, free cash flow generation, and dividend paying capabilities.
Overall COP ranks 3rd on our list of most profitable energy stocks to invest in. While we acknowledge the potential of COP as an investment, our conviction lies in the belief that 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 COP 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.
