We recently published a list of 7 Best Oil Stocks under $20. In this article, we are going to take a look at where Patterson-UTI Energy, Inc. (NASDAQ:PTEN) stands against the other best oil stocks under $20.
The oil industry has long been criticized for its contributions to greenhouse gas emissions and global warming. Despite these concerns, oil remains a critical commodity in today’s world as it has historically played a pivotal role in the global industrial, household, and power sectors.
The dynamics of the oil market shifted dramatically two years ago following Russia’s invasion of Ukraine. Western sanctions on Russia, combined with efforts by European nations to reduce reliance on Russian crude, disrupted global supply chains and drove oil prices to record highs. As mentioned in our previous article ‘10 Best Oil Stocks Under $20’, prices soared to $119 per barrel in March 2023. The impact of sanctions remains, as Russia’s monthly revenue from seaborne crude oil registered a significant 15% decline in May 2024 compared to the previous month, as reported by The Centre for Research on Energy and Clean Air.
Demand and Supply in the Oil Market
According to the International Energy Agency, the global oil industry faces a challenging landscape, with slow demand growth coupled with supply chain disruptions. In the first half of 2024, the demand grew by just 800,000 barrels per day (kb/d), which is the slowest increase since 2020. The main contributor to this declining demand is the consistent drop in China’s consumption in the past four months. The trend in 2024 contrasts with the 2.1 million barrels per day (mb/d) surge in demand seen in 2023. The slowdown in China’s economy, combined with the shift towards electric vehicles, has driven the decline in global consumption.
On the other hand, the global supply increased in August by 80 kb/d, jumping to 103.5 mb/d. This surge was bolstered by high outputs from countries including Brazil and Guyana. This high demand balanced the production outages in Libya as well as maintenance-related slowdowns in Norway and Kazakhstan. However, OPEC+ countries are expected to face challenges, with supply projected at 810 kb/d by the end of 2024.
Although weaker-than-expected performance in China and falling margins in Europe are putting pressure on refinery activities, refinery output is expected to increase by 440 kb/d in 2024. Moreover, oil prices have declined, with Brent falling by over $10 per barrel in August and early September. This was mainly driven by concerns about Chinese demand, coupled with oversupply fears, according to IEA.
Despite challenging circumstances, companies are positioning themselves to align with shifting market dynamics. As a result, the crude oil industry is expected to surge at a compound annual growth rate (CAGR) of 1.8% until 2030, with an expected valuation of $1.6 trillion, according to Maximize Market Research.
Performance of Oil Stocks
Following the decline in oil prices, energy sector stocks have also delivered a mixed performance. The Energy sector surged by 13.3% on a year-to-date basis through July 2024. However, it still lagged behind the broader index by 3%. Thus, with a rapidly changing global scenario, energy sector stocks are expected to see swift movements in the near future.
Methodology
For this list, we scanned the Finviz screener and selected companies involved in the oil industry, focusing on areas relevant to oil production and its products. From that list, we selected companies with share prices under $20 as of September 24, 2024.
Among those, we chose seven companies with the highest number of hedge fund holdings and ranked them in ascending order based on these holdings, as of Q2 2024. Hedge fund data was sourced from Insider Monkey’s hedge fund database, which tracks the activity of 912 hedge funds.
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).
A drilling site in the wilds of nature, highlighting the company’s commitment to exploration.
Patterson-UTI Energy, Inc. (NASDAQ:PTEN)
Number of Hedge Funds Holders: 32
Share Price: $8.37
Patterson-UTI Energy, Inc. (NASDAQ:PTEN) provides contract drilling services to oil and gas operators across the U.S. and internationally. The company offers a range of services from onshore drilling and hydraulic fracturing to advanced data analytics for well optimization. It operates through three segments: Drilling, Completion, and Drilling Products.
Patterson-UTI Energy, Inc. (NASDAQ:PTEN) reported revenue of $1.348 billion and net income of $11 million in Q2 2024. Adjusted EBITDA for the quarter reached $324 million, excluding $11 million in merger/acquisition expenses related to the NexTier merger and Ulterra acquisition. Moreover, the company also returned $164 million to shareholders in the quarter through dividends and share repurchases. This was in line with Patterson’s capital allocation strategy, under which it aims to return $400 million to shareholders in 2024.
The company’s drilling segment performed strongly with a quarterly revenue of $440 million and gross profit of $179 million. It operated with an average revenue per day of $36,430, representing a slight increase from the previous quarter. As of Q2 end, the company’s contract backlog stands at $433 million for U.S. drilling rigs, with steady demand expected through the end of 2024. Overall, activity in natural gas basins showed slight improvement, while activity in oil basins remained stable.
The company’s integrated drilling and completion services have been well-received, with new contracts signaling long-term growth. Moreover, Patterson-UTI Energy, Inc.’s (NASDAQ:PTEN) natural gas fueling business delivered over 100 million diesel gallon equivalents, further boosting its leadership in the natural gas-powered equipment sector.
However, the company faced challenges from constrained natural gas takeaways in West Texas and New Mexico, leading Patterson to reduce activity in those regions. Moreover, disruptions from M&A activity also impacted the operations. The company’s share price declined by more than 30% over the past six months.
Despite that, Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is optimistic about capital-efficient growth opportunities in international markets, such as the Middle East and offshore regions. Meanwhile, the Drilling Products segment has been gaining market share in the Ulterra division.
At the end of Q2 2024, 32 hedge funds have collectively invested $395 million in the company, according to Insider Monkey’s database. As a result, PTEN makes it to our list of the best energy stocks under $20 to buy.
Overall PTEN ranks 4th on our list of best oil stocks to buy under $20. While we acknowledge the potential of PTEN 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 timeframe. If you are looking for an AI stock that is more promising than PTEN 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.