We recently compiled a list of the 10 Most Promising Energy Stocks According to Hedge Funds. In this article, we are going to take a look at where Exxon Mobil Corporation (NYSE:XOM) stands against the other promising energy stocks.

In the next decade, global power demand is expected to grow by over 30%, largely fueled by economic growth in emerging markets and the electrification of various sectors. Data centers and artificial intelligence are becoming major energy consumers, increasingly relying on renewable sources like solar and wind power. Although efforts to improve energy efficiency may help mitigate some of this demand, the Asia-Pacific region is projected to account for a significant portion of the increase, capturing 66% of the total growth in electricity demand.

In response to the rising demand, there is a strong focus on clean energy sources to meet environmental, social, and governance (ESG) goals, as well as to qualify for tax incentives, reshaping the entire industry. Renewable energy is projected to increase by more than 740 gigawatts each year from now until 2035. By that year, carbon-free resources, including renewables, hydropower, nuclear energy, and battery storage, are expected to make up 70% of the total installed generation capacity.

This shift is also driving significant investments and various initiatives across the industry. This includes renewable energy startups, traditional oil and gas companies, and associated manufacturing and technology firms. Investment in the energy transition is gaining momentum, with the US experiencing a 22% increase in 2023, reaching $303 billion. While this amount is substantial, it remains relatively small compared to the global total of $1.77 trillion.

Read Also: 7 Most Undervalued Renewable Energy Stocks To Buy Now and 13 Best Natural Gas and Oil Dividend Stocks To Buy.

In the United States, fossil fuels and nuclear power together account for 75% of energy production, while renewables contribute just under 25%. On a global scale, renewable sources now represent 30% of electricity generation.

Another emerging trend in the energy sector is the rise of mergers and acquisitions. According to Bloomberg, over $155 billion in deals were finalized in the fourth quarter of 2023 alone, exceeding the total from the previous five quarters combined. As companies face challenging market and economic conditions, consolidation within the oil and gas industry, particularly among upstream, midstream, and oil field services companies, is expected to continue.

Oil prices significantly influence the performance of energy stocks, leading to a volatile year for the sector. Stock prices have fluctuated in response to changing oil prices. Despite this volatility, there are still investment opportunities within the energy sector, including traditional oil and gas companies, midstream businesses, and firms focused on renewable energy. With this context in mind, let’s take a look at the 10 most promising energy stocks according to hedge funds.

Our Methodology

To shortlist the 10 most promising energy stocks, we used stock screeners like Yahoo Finance and Finviz to identify the largest energy companies. From there, we refined our selections to 10 stocks based on hedge fund sentiment using our database of 912 top hedge funds as of Q2 2024. The most promising energy stocks have been ranked in ascending order of the number of hedge funds holding a stake in them.

Note: Although the theme of the article is Oil and Gas stocks, we’ve also added renewable energy stocks since many oil and gas companies are also diversifying in renewable energy.

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).

Exxon Mobil Corporation (NYSE:XOM)

Number of Hedge Fund Holders: 92

Exxon Mobil Corporation (NYSE:XOM), headquartered in Houston, Texas, is a multinational energy giant with a diversified portfolio of assets spanning the oil and gas industry. The company’s upstream business covers exploration and production activities, while its downstream operations include refining and the manufacturing of chemicals and specialty products. The company ranks highly among the list of most promising energy stocks according to hedge funds.

Exxon Mobil Corporation’s (NYSE:XOM) upstream segment remains its primary profit driver, accounting for more than 70% of the earnings in Q2 2024. To strengthen this segment, Exxon Mobil Corporation (NYSE:XOM) acquired Pioneer Natural Resources for nearly $60 billion in November 2023. This acquisition is expected to increase its momentum in the Permian Basin, potentially doubling output to 2 million barrels per day (Moebd) by 2027.

With these strategic moves, the company is well-positioned for future growth and has earned an average rating of “Moderate Buy” from analysts.

Here’s what Madison Dividend Income Fund said about Exxon Mobil Corporation (NYSE:XOM) in its Q1 2024 investor letter:

“This quarter we are highlighting Exxon Mobil Corporation (NYSE:XOM) as a relative yield example in the Energy sector. XOM is a leading integrated oil and natural gas company. It has upstream assets that develop and produce oil and natural gas, along with downstream refining and chemical manufacturing assets. We believe it has attractive low-cost acreage in the Permian basin and has a sizeable growth opportunity in Guyana. Further, we think XOM has a sustainable competitive advantage due to size and scale, and its ability to integrate refining and chemical assets provides a low-cost advantage versus competitors.

Our thesis on XOM is that it will grow production volumes of oil and gas moderately over the next few years, while limiting excessive capital investment that plagued the industry from 2014-2020. Production growth will come from its 2023 acquisition of Pioneer Natural Resources, which is the largest producer in the Permian basin. XOM plans to double its Permian output by 2027, to 2 million barrels per day. Capital spending will be limited to $20-25 billion per year through 2027, which should allow for significant amounts of cash to be returned to shareholders including a $35 billion share repurchase program and continued dividend increases. Higher oil prices would provide a tailwind to our thesis but are not necessary. We think XOM can grow earnings and cash flow if oil prices remain above $60 per barrel…” (Click here to read the full text)

Overall XOM ranks 2nd among the most promising energy stocks according to hedge funds. While we acknowledge the potential of XOM 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 XOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article is originally published at Insider Monkey.