We recently compiled a list of the 12 Hot Oil Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Magnolia Oil & Gas Corporation (NYSE:MGY) stands against the other hot oil stocks.
The United States of America is currently producing more oil and gas than any other country in the history of the world, with no signs of a slowdown. The country’s oil production has surged by almost 50% in the last ten years, reaching just over 13.45 million barrels per day in October 2024.
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These numbers could now pump even higher after President Donald Trump has held up the oil industry as a centerpiece of his broader economic mission, with claims that ‘we will drill, baby, drill’. The president has also signed executive orders declaring a national energy emergency and withdrawing from the landmark 2015 Paris climate agreement, the international pact to fight global warming. Trump has also swept aside the freeze on LNG export permits and signed orders to promote oil and gas development in Alaska, though the industry is unlikely to expand there anytime soon.
These aggressive steps have raised concerns of higher US output in a market that is already widely expected to be oversupplied this year. As per the International Energy Agency’s recent market outlook, growth in the global demand for oil is expected to slow down in the coming years as energy transitions advance, putting downward pressure on prices. The US Energy Information Administration stated earlier this month that it expects Brent crude oil prices to fall 8% to average $74 a barrel in 2025, then fall further to $66 a barrel in 2026.
So it still remains to be seen whether the US oil majors will answer the President’s call and shell out the big bucks required to heavily boost their production. Instead, companies appear to have shifted their focus from aggressive growth to keeping their shareholders happy through fat dividends and generous share buybacks. Despite the falling oil prices, more and more fossil fuel companies are returning a bigger chunk of their profits to shareholders, signaling a clear priority shift away from reinvestment in oilfield development. Several oil bigwigs have even resorted to borrowing to make sure they leave their shareholders satisfied, as revealed by Bloomberg that four of the world’s five oil ‘supermajors’ saw fit to borrow $15 billion to fund share buybacks between July and September 2024.
Therefore, according to a recent survey by the Federal Reserve Bank of Dallas, only 14% of oil and gas executives plan to significantly increase capital spending this year, while more of them have plans to cut spending instead of ramping it up. But this doesn’t mean that America’s oil and gas sector doesn’t stand to win with Donald Trump in the Oval Office, especially since it poured more than $75 million in donations to his campaign. The American Petroleum Institute, the most powerful oil lobby in the United States, has outlined a wishlist of 70 policy actions it is seeking from Republicans, including issuing a new 5-year offshore leasing program and repealing environmental standards on vehicle emissions.
Methodology:
To collect data for this article, we used a stock screener to pick oil stocks that have gained over 20% in the last 12 months, as of the close of January 18, 2024. From this group, we picked the 12 companies with the highest number of hedge fund investors, according to Insider Monkey’s database of Q3 2024. The stocks are arranged in ascending order of the number of hedge funds invested in them. Following are the Hottest Oil Stocks to Buy According to Hedge Funds.
At Insider Monkey we are obsessed with 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).
Aerial view of an oil and natural gas drilling operation on a leasehold position.
Magnolia Oil & Gas Corporation (NYSE:MGY)
Gain Over Past 12 Months: 35.36%
Number of Hedge Fund Holders: 28
Magnolia Oil & Gas Corporation (NYSE:MGY) is an independent oil producer with assets located in the Eagle Ford Shale and Austin Chalk formations in South Texas.
Magnolia Oil & Gas Corporation (NYSE:MGY)’s oil production during Q3 2024 was nearly 39,000 barrels per day, up 18% YoY. The company reported revenue of $333.14 million during the quarter, up 5.53% YoY and beating the analysts’ estimates by $7.31 million. Magnolia is also working to become more cost-efficient and spent $103 million drilling and completing wells during the third quarter, which is well below its capital guidance of $120 million. Moreover, the company’s implementation of field management software, which has reduced its cost for water hauling, will be further utilized to lower costs from other field services also into this year.
Magnolia Oil & Gas Corporation’s (NYSE:MGY) cost-saving measure led to improved free cash flow generation of $126 million during Q3 2024, allowing it to return $88 million or 70% of its free cash flow to shareholders through a combination of dividends and share repurchases. The company ended the quarter with $276.1 million of cash on the balance sheet and an undrawn revolving credit facility of $450 million. Magnolia further bolstered its financial stability by securing a $1.5 billion credit facility in November and announced plans for a private placement of $400 million in senior unsecured notes due 2032. The company has also recently appointed finance expert R. Lewis Ropp to its board of directors, a move that is expected to bring extensive financial expertise and industry insight to the table.
Diamond Hill Small Cap Fund stated the following regarding Magnolia Oil & Gas Corporation (NYSE:MGY) in its Q2 2024 investor letter:
“We continue finding attractively valued, resilient companies the market is overlooking amid its increasingly narrow focus on the mega-cap technology stocks dominating the major indices. In Q2, we initiated new positions in Magnolia Oil & Gas Corporation (NYSE:MGY), Thermon Group Holdings and Astrana Health.
Magnolia Oil & Gas is a small-cap exploration and production company based in the Eagle Ford shale region. The company has a strong and experienced management team with a disciplined capital-allocation framework, owner mindset and strong balance sheet. Further, the company’s low wellhead breakeven numbers and low debt levels make it an attractive, relatively lower-risk opportunity to gain exposure to the commodities cycle’s upside.”
Overall MGY ranks 9th on our list of the best hot oil stocks to buy according to hedge funds. While we acknowledge the potential for MGY 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 MGY 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.
