We recently published a list of the 8 Most Profitable Oil Stocks To Invest In. In this article, we are going to take a look at why Diamondback Energy, Inc. (NASDAQ:FANG) is one of the best oil stocks to invest in.
OPEC Anticipated to Hold Oil Supply
One of the leading oil-producing regions, OPEC countries and its allies are expected to extend their latest round of oil production cuts for the first quarter of 2025, according to analysts. OPEC+ controls nearly half of the world’s oil production and supply. The oil governing body was planning to initiate unwinding output cuts through 2025. However, the decline in global demand and output outside OPEC could impact oil prices.
“Market participants are closely watching to see if OPEC+ will focus on bolstering prices by extending production cuts, or opt to defend its share of the global crude oil market by easing those cuts,” said Satoru Yoshida, commodity analyst with Rakuten Securities. Yoshida added that the OPEC decision to cut oil supply would potentially have a short-term impact. Still, the market is anticipated to rise by the year-end following the takeover of the Trump administration.
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The OPEC+ countries are holding around 5.86 million barrels per day of output, which accounts for almost 5.7% of global demand. To support the oil market, the oil supply has been managed in a series of steps agreed since 2022. The OPEC members had planned an output increase of 180,000 barrels per day for January 2025. The non-OPEC+ countries are expected to boost the oil supply by almost 1.5 million barrels per day in 2025. Nevertheless, the global oil benchmark Brent Crude has mostly traded between $70 to $80 per barrel in 2024, while it hit a 2024 low below $69 in September.
The global oil market is impacted by several factors including, geopolitical risks, production levels, and OPEC’s strategies. The ceasefire between Israel and Hezbollah could affect prices, but the new war in Syria could potentially be a new issue for oil producers. However, oil prices remain lower than expected based on inventory fundamentals. In the long term, oil price hikes above $100 are less likely to occur due to the impact of U.S. shale production over the past decade.
With that, let’s take a look at where Diamondback Energy, Inc. (NASDAQ:FANG) ranks among the most profitable oil stocks to invest in.
An aerial view of an oil rig in the mid-western United States, capturing the importance of the natural gas industry in the region.
Our Methodology
To compile our list of the 8 most profitable oil stocks to invest in, we scanned oil stocks through Finviz Screener using two indicators. We shortlisted the stocks with a minimum net income of $2.5 billion or more in the trailing twelve months (TTM) and a 5-year net income compound annual growth rate (CAGR) of over 10%. From that list, we narrowed our choices to the 8 stocks widely held by hedge funds, as of Q3 2024. As of the third quarter, the list is ranked in ascending order of hedge fund sentiment.
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).
Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Funds Holders: 49
5-Year Net Income CAGR: 25.54%
TTM Net Income: $3.22 Billion
Diamondback Energy, Inc. (NASDAQ:FANG) is an independent oil and gas company based in Texas. The company specializes in the exploration and production of crude oil from the Permian Basin. Diamondback primarily serves domestic refineries and energy distributors. The company’s subsidiary, Viper Energy, Inc., owns and acquires mineral interests and royalty interests in oil and natural gas properties mainly in the Permian Basin.
Diamondback Energy, Inc. (NASDAQ:FANG) recently completed the merger with Endeavor Energy Resources, which increases its dominance in the Permian Basin. The deal valued at $26 billion will make Diamondback the majority shareholder of Endeavor with a total stake of almost 60.5%. Endeavor merger will potentially add another 816,000 barrels of oil and gas daily.
In the third quarter of 2024, the company posted a 13% year-over-year increase in revenue, driven by higher production volumes. In the first nine months of 2024, the company drilled 211 gross wells in the Midland Basin and 24 gross wells in the Delaware Basin. The company turned 283 operated wells to production in the Midland Basin and Delaware Basin. Furthermore, Diamondback Energy, Inc. (NASDAQ:FANG) has experienced six straight years of dividend growth and has a 5-year dividend CAGR of almost 49%.
Overall, FANG ranks 4th on our list of the most profitable oil stocks to invest in. While we acknowledge the potential of FANG 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 FANG 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.
