In this article, we will discuss the 10 best fuel stocks to buy now. To skip the detailed analysis and recent updates on the energy industry, go directly to the 5 Best Fuel Stocks to Buy Now.
Oil Demand Likely to Grow
Production cuts announced by major oil producers might cause disruptions in the global oil supply and demand balance, leading to a high price of oil. The US Energy Information Administration (EIA) has already forecasted the Brent Crude oil spot price at $85 per barrel in the second quarter of 2023, up $2 from the previous month.
According to Arjun Murti, an energy industry analyst on Wall Street, the surprise cuts might have been caused because of several reasons. He believes one reason could be potential demand weakness due to a possible economic slowdown in the coming months. However, Mr. Murti completely rejected the claims of OPEC gaining control of the oil markets. He wrote:
“At a time of limited spare capacity, cyclically subdued CAPEX, generally low inventory levels, and diminished US shale price elasticity, OPEC is in a better position to support prices in a non-recessionary demand environment is about as far as we would suggest going. The “OPEC is back in control of oil markets” narrative overstates their actual ability to set oil prices. OPEC+ is one factor, not the factor.”
Natural Gas Market: Recent Updates
The EIA believes that natural gas prices are likely to remain conservative in 2023 and predicts the average natural gas prices to be around $3.00 per million British thermal units (MMBtu) as mentioned in our earlier piece. The major cause of the price drop has been the low rate of withdrawals in Q1 2023. According to the EIA, for the week ending April 14, the working natural gas inventory was 1,930 billion cubic feet, 75 Bcf more than the previous week and 329 Bcf higher than the 5-year average of 1,601 Bcf.
Analysts at this moment are holding mixed views about natural gas. At the end of March, BMO Capital analysts lowered their Henry Hub estimates to $3.10 per MMBtu from their previous forecast of $3.60 per MMBtu for 2023. For 2024, the firm’s estimates have been lowered to $3.70 from $4.5 per MMBtu.
However, Goldman Sachs believes it could hold a positive view about the commodity if they see “further confidence in disciplined growth from gas producers; and confidence in the development of the next wave of LNG export terminals.”
At the beginning of April, oil futures’ premium over gas reached its decade high as the oil-to-gas ratio was recorded at 38-to-1 on April 3. On the same day, Front-month Nymex natural gas (NG1:COM) settled at $2.097 per MMBtu, recording over a 5% decline on the day. However, on April 17, US natural gas futures recorded a three-week high surge of 8% and Front-month Nymex natural gas (NG1:COM) settled at $2.275 per MMBtu, gaining over 7.5% for the day. Despite that, the energy stocks focused on natural gas still showed a slight decline.
G7 Setting New Targets for Renewable Energy
On April 16, The Group of Seven set new targets with an increased pace for solar power and offshore wind capacity. In a two-day meeting, the members pledged to increase solar capacity to over 1 terawatt and offshore wind capacity by 150 gigawatts by 2030. Japanese industry minister, Yasutoshi Nishimura, said:
"In the midst of an unprecedented energy crisis, it's important to come up with measures to tackle climate change and promote energy security at the same time."
For this article we scanned Insider Monkey's database of 943 hedge funds and picked 10 oil and gas stocks that are highly popular among these smart money investors. We did not include the stocks that purely focus on services and equipment. In addition, we only chose the stocks with a PE ratio under 10 as of April 22 and these stocks offer capital returns as dividends and share repurchases.
Best Fuel Stocks to Buy Now
10. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 50
TTM PE ratio as of April 22: 8.87
EOG Resources, Inc. (NYSE:EOG) is a Texas-based hydrocarbon exploration company founded in 1999. Most of the company’s reserves are based in the US and it has some small-scale operations in Trinidad and Tobago, Canada, and China. The company’s trailing twelve-month PE ratio on April 22 stood at 8.87x.
On April 22, Raymond James analyst John Freeman maintained a Strong Buy rating on EOG Resources, Inc. (NYSE:EOG) and raised his price target to $150 from $140. According to the analyst, the firm’s capital returns are usually driven by share repurchases. Still, a significant amount is expected to be returned in the current quarter through special dividend.
EOG Resources, Inc. (NYSE:EOG) declared a special dividend of $1.00 on February 23, which was paid out on March 30. The company’s regular dividend of $0.83 was declared on the same date. However, it will be payable by April 28 to the shareholders of record on April 14.
EOG Resources, Inc. (NYSE:EOG) is one of the noteworthy stocks making it to our list of best energy stocks along with the likes of Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and Chesapeake Energy Corporation (NASDAQ:CHK).
“Our top three contributors for the full year were two energy holdings—Schlumberger and EOG Resources, Inc. (NYSE:EOG)—and health care company Merck. EOG is a US shale-focused E&P company. The current supportive commodity price environment and EOG’s continuing to deliver on its production goals and capex plans have led investors to bid up shares. Its commitment to return excess capital to shareholders via regular and special dividends is also highly appealing, particularly in a period of rising interest rates. The company has proven its ability to create economic value for shareholders, even over the past decade that included the toughest energy commodity environment of the last 30+ years. The company’s strong balance sheet enabled it to increase production capabilities during the downturn. EOG has a low-cost production position with a strong reserve base, giving it an advantage versus peers. Further, EOG’s management focuses on return on invested capital and cash flow generation, distinguishing it from most of the company’s competitors who prioritize growth over profitability.”
9. Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Fund Holders: 52
TTM PE ratio as of April 22: 5.76
Diamondback Energy, Inc. (NASDAQ:FANG) is an American energy company headquartered in Texas. All the company’s hydrocarbon reserves are based in the Permian Basin. On April 12, according to a Bloomberg report, Diamondback Energy, Inc. (NASDAQ:FANG) is looking to sell off its non-core assets in the western part of the Permian basin.
In the fourth quarter of 2022, 52 hedge funds held stakes in Diamondback Energy, Inc. (NASDAQ:FANG) at a combined value of over $1.118 billion, compared to 55 hedge funds with a stake worth $910.922 million in the previous quarter. Yacktman Asset Management held the most significant stake in the company in Q4 with over 1.32 million shares worth $180.805 million.
On April 22, Raymond James analyst John Freeman reaffirmed a Strong Buy rating on Diamondback Energy, Inc. (NASDAQ:FANG) and raised the price target to $190 from $165. The firm has forecasted the company’s Q1 production to be in line with the market consensus at 419 million barrels of oil equivalent per day.
8. Marathon Petroleum Corporation (NYSE:MPC)
Number of Hedge Fund Holders: 52
TTM PE ratio as of April 22: 4.41
Marathon Petroleum Corporation (NYSE:MPC) is an Ohio-based mid and downstream petroleum company. It is one of the largest petroleum refinery operators in the US. It is also one of the best energy stocks to invest in according to analysts.
In the last three months, 12 Wall Street analyst has covered Marathon Petroleum Corporation (NYSE:MPC). The company has 9 Buy ratings and 3 Hold ratings with an average price target of $150.92, representing over 20% upside from the stock price of $123.53 at the time of market closing on April 22.
52 hedge funds held Marathon Petroleum Corporation (NYSE:MPC) stock in Q4 2022, valued at $3.05 billion, compared to 50 hedge funds in Q3 with a combined value of $2.77 billion.
On April 22, Marathon Petroleum Corporation (NYSE:MPC) had a trailing twelve-month PE ratio of 4.41. It was also one of the most undervalued large-cap stocks according to analysts as per our previous article posted in late January.
7. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 55
TTM PE ratio as of April 22: 5.89
Devon Energy Corporation (NYSE:DVN) is an American energy company based in Oklahoma. The company’s assets are spread across the Barnett Shale, Eagle Ford Group, and the Rocky Mountains.
On April 18, Devon Energy Corporation (NYSE:DVN) announced its first investment in renewable energy with a $10 million injection in geothermal energy company, Fervo Energy. Fervo uses horizontal drilling and distributed fiber optic sensing for geothermal reservoir development. According to Crunchbase, after Devon Energy Corporation (NYSE:DVN)’s injection, the firm has raised $187 million.
Devon Energy Corporation (NYSE:DVN) is one of the best energy stocks on our list for multiple reasons. The company’s major reserves are in the Delaware basin, the fastest-growing Permian subbasin. Devon Energy Corporation (NYSE:DVN) expects 643 thousand barrels of oil equivalent per day in 2023 and almost 50% of it is expected to be crude oil, which is showing a significant upside in the coming months. Finally, the company has a dividend yield of 6.64% and a forward payout ratio of 51.98%, which is easily covered by the company’s cash flow.
“Our biggest dollar gainer within this period was Devon Energy Corporation (NYSE:DVN), a position which emanated from a takeover in early 2021 of our long time holding WPX Energy. We are sitting on a material (unrealized) gain from our cost and are now receiving material dividends thanks to Devon’s thoughtful fixed/variable dividend policy. Energy is now a hot sector for investors but we have had a material exposure for a long time. We remember a bit too well $40 oil, NEGATIVELY PRICED front-month oil contract, and what it’s like to own a company with leverage and negative free cash flow during such periods. Our desire to have our biggest portfolio exposures be high return, growing, reasonably predictable and moderately levered companies lead us to reduce our Devon exposure in the past. When the recent facts and circumstances for the industry changed and appeared supportive of healthy oil prices, we decided to maintain a sizable holding and more recently added to the position. At Devon’s Q1 dividend rate, which is mostly variable in nature, the shares now yield approximately 10% and our yield on our average cost is materially higher. In addition, we maintain additional energy exposure through our long-term (and successful) holding in Hess Midstream and less directly through TerraVest and Berkshire Hathaway’s energy investments.”
6. Pioneer Natural Resources Company (NYSE:PXD)
Number of Hedge Fund Holders: 55
TTM PE ratio as of April 22: 7.22
Pioneer Natural Resources Company (NYSE:PXD) is a Texan oil and gas company operating in the Cline Shale. As of December 2022, the company’s estimated proved reserves were around 2.377 billion barrels of oil equivalent, out of which 89% were proved developed.
In Q4 2022, 55 hedge funds held a stake in Pioneer Natural Resources Company (NYSE:PXD). Yacktman Asset Management increased its holdings in the company by 6% from the previous quarter to 724,827 shares worth $165.543 million and was the most prominent hedge fund holding shares of Pioneer Natural Resources Company (NYSE:PXD) in the fourth quarter.
On April 22, Susquehanna analyst Biju Perincheril reaffirmed a Positive rating on Pioneer Natural Resources Company (NYSE:PXD) and raised the price target to $278 from $266. The analyst mentioned the firm is updating estimates for its exploration and production coverage universe before the Q1 2023 reports.
Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and Chesapeake Energy Corporation (NASDAQ:CHK) are some of the best energy stocks along with Pioneer Natural Resources Company (NYSE:PXD).
“Better was the 8% surge from Pioneer Natural Resources Company (NYSE:PXD), an exploration and production company with operations in Texas. They reported a slight beat to production estimates with other metrics within their guidance range. The company continued with its aggressive capital return program inclusive of a sizable quarterly dividend and share repurchases. Management announced a shift to its drilling plans by focusing on acreage with higher expected returns.”
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Disclosure. None. 10 Best Fuel Stocks to Buy Now is originally published on Insider Monkey.