In this article, we take a look at the top 5 oil and gas stocks to invest in. If you want to check out our detailed analysis of the energy sector, go to Top 10 Oil and Gas Stocks to Invest In.
5. Cheniere Energy, Inc. (NYSE:LNG)
Number of Hedge Fund Holders: 62
Cheniere Energy, Inc. (NYSE:LNG) is a US energy corporation that specializes in the production of Liquified Natural Gas. As of Q1 2022, 62 hedge funds collectively hold $3 billion worth of equity in the company.
Cheniere Energy, Inc. (NYSE:LNG) took analysts by surprise with quarterly earnings of $7.53 per share in its Q1 results, which were above consensus estimates by a whopping $3.87. Its results on revenue were equally baffling as the company beat analyst estimates by almost $2 billion, with a total revenue of $7.48 billion.
On May 23, RBC Capital analyst Elvira Scotto raised the price target on Cheniere Energy to $178 from $151 and kept an Outperform rating on the shares post the Q1 results. The analyst is of the view that Cheniere Energy should benefit from strong margins due to its open capacity and added that the company remains well-positioned to benefit from growing demand for LNG.
Cheniere Energy is a dividend paying stock and has an annual dividend yield of 0.98% as of June 28. Investors of record on May 10 were paid a dividend of $0.33 per share on May 17. This means a $1.32 dividend on an annualized basis.
Cheniere Energy was highlighted in the Q3 2021 investor letter of ClearBridge Investments. Here is what the firm said:
“Cheniere Energy is an energy infrastructure company that owns and operates U.S. liquefied natural gas (LNG) export facilities. Strong quarterly results and the disclosure of capital allocation policies were positively received by the markets. In addition, continued supply and demand tightness in the LNG market created a favorable commodity price environment.”
4. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 66
Number four on our list of top oil and gas stocks to invest in, is Devon Energy Corporation (NYSE:DVN). It is a hydrocarbon exploration company that primarily operates in the Barnett Shale. As of 2022, the company has $1.6 billion barrels of oil equivalent of proven reserves, 44% of which is petroleum and 29% is natural gas.
In terms of fundamentals and profitability, the company has a lower-than-industry-average P/E ratio of 10.8 and profit margins of 26%.
Devon Energy has been consecutively growing the cash payouts to its investors for five years. As of June 27, the company has an annual dividend yield of 9.45%.
On June 10, Mizuho analyst Vincent Lovaglio raised the price target on Devon Energy to $94 from $92 and kept a Buy rating on the stock following the company’s announced acquisition of Rim Rock for $865 million. The transaction adds 15,000 boed and 38,000 net-acres to Devon Energy’s existing Bakken position at four times free-cash-multiple on next 12 month strip.
3. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 67
The third pick in the top oil and gas stocks to invest in is Occidental Petroleum Corporation (NYSE:OXY). It is an American hydrocarbon explorer operating primarily in the United States, Middle-East and Colombia. The company has 3 billion barrels of oil equivalent of proven reserves at its disposal in 2022. The reserves make up 51% in petroleum and 30% in natural gas.
The company’s next quarterly dividend payout of $0.13 per share is set to be paid to shareholders on July 15. Occidental does not yet have a history of consecutively growing its payouts. However, its payout ratio is highly sustainable at almost 8% which does raise the likelihood of the company establishing a good record of consecutive dividend-growing in the future.
Occidental Petroleum has a lower-than-industry-average P/E ratio of 9 and boasts a 47% Return on Equity as of the first quarter of 2022. The company massively beat consensus by nearly half a billion dollars in its Q1 results, with a revenue of $8.5 billion. Its earnings earnings by $0.09 and had an EPS of $2.12.
On June 27, Occidental Petroleum disclosed in a regulatory filing that Berkshire Hathaway, the fund managed by Warren Buffett, had increased its stake in the company by $44 million. On May 31, Mizuho analyst Vincent Lovaglio raised the price target on Occidental Petroleum to $89 from $85 and kept a Buy rating on the stock.
Smead Capital Management highlighted Occidental Petroleum in a broader note on oil stocks in their Q3 2021 investor letter. Here’s what they said:
“Oil stocks dominated our winners for the quarter. We showed that we have unlimited ability to tempt fate by buying into Occidental Petroleum (OXY) this year after it was our biggest loser of 2020. It gained 16.64% during the third quarter.”
2. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 67
ConocoPhillips (NYSE:COP) is one of the largest hydrocarbon exploration companies in the United States. It operates in 15 countries and has proven reserves of 5 billion barrels of oil equivalent. Petroleum and natural gas make up 50% and 37% of these reserves respectively.
ConocoPhillips (NYSE:COP) has an annual dividend yield of 3.16% as of June 28. The company has been consecutively growing its dividend payouts for five years. The energy giant has a dividend payout ratio of 19% as of Q1 2022 which reinforces the likelihood of sustained dividend growth.
On April 25, Raymond James analyst John Freeman raised his price target on ConocoPhillips (COP) to $160 from $120 and kept a Strong Buy rating on the shares. In his research note, the analyst observed that A-rated debt and diverse-asset base continue to place the company in a league of its own. He went on to add that full exposure to strip pricing should continue to drive free cash flow for ConocoPhillips.
The company has a P/E ratio of 9.5, far lower than the industry average. ConocoPhillips boasts low risk to investors given its leverage that is only 36% of shareholder equity. The total number of hedge funds invested in the company as of the first quarter of 2022 are 67. They collectively hold $2.5 billion worth of shares in ConocoPhillips.
ClearBridge Investments brought up ConocoPhillips’ stellar Q1 performance in their Q1 2022 investor letter. Here is what the letter said:
“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 holdings ConocoPhillips (NYSE:COP) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
1. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 83
Exxon Mobil Corporation (NYSE:XOM) is the number one on the list of top oil and gas stocks to invest in. It is the largest non-government-owned energy company in the world and produces around 3% of the world’s oil.
On June 7, Evercore ISI analyst Stephen Richardson upgraded Exxon Mobil to Outperform rating and raised the price target to $120 from $88. Richardson believes that the company’s current valuation is at a greater than 20% discount to historical levels at a time where returns are also expected to rise significantly.
The analyst sees the company’s long-term earnings increase to be driven by upstream upgrading and cost reductions. He noted that ExxonMobil will likely have an industry-leading Return On Capital Employed (ROCE) target of 15% by 2025 and 17% by the year 2027.
Exxon Mobil Corporation is one of the most reliable dividend payers in the world. It has been consecutively growing its dividend payouts over 38 years and has an annual dividend yield of 3.88% as of June 28. The strong fundamentals, profitability and dividend history make it one of the top oil and gas stocks to invest in.
Saturna Capital mentioned Exxon Mobil in their Q4 2021 investor letter. Here’s what the investment firm believes about the company:
“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon, which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”
You can also take a peek at Analysts Just Turned Bullish on These 10 Stocks and 10 Cheap Dividend Stocks with Over 6% Yield
