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In this article, we will discuss the 12 best undervalued energy stocks to buy. If you want to explore similar stocks, you can also take a look at 5 Best Undervalued Energy Stocks to Buy.
2022 has been the year for energy stocks. While all sectors of the economy fluctuated, the energy sector remained relatively robust, as energy stocks have been enjoying higher oil prices. Oil prices have soared in 2022, primarily due to the Ukraine war. However, oil prices recently started to tumble, and this trend was met by OPEC Plus voting for a production cut of 2 million barrels a day in early October. It was speculated that another production cut might be on the way. However, on December 4, The Washing Post reported that OPEC Plus voted against cutting oil production and agreed on keeping production steady.
On November 29, the portfolio manager of the Hennessy Midstream Fund and the Hennessy Transition Fund, Ben Cook, appeared in an interview on Yahoo Finance Live where he discussed the energy market, energy stocks, and commodities among other factors that are expected to drive outperformance in the energy sector. According to Ben Cook, the energy sector's outperformance can be sustained since energy companies "have redirected a significant amount of cash flow back to paying down debt, returning cash to shareholders in the form of dividends and share repurchases" therefore improving their financial health. Here are some comments from Ben Cook about why he is bullish on energy and sees continued outperformance:
"Historically, there has been a close correlation between the commodity, if you look at the twelve-month future strip, and the equities, they have tracked fairly closely. And again, we have seen that divergence occur because I think the market is acknowledging, again, the financial conditions of these companies that have improved dramatically. And over time, as we see continued strength in commodity fundamentals, we expect that divergence to actually resolve to the upside with commodity prices moving higher, and we think the equities will continue to enjoy the benefits of that strong commodity environment. This is not just for oils, this is for natural gas as well..."
Ben Cook also shared his thoughts about OPEC policy and what his base case is for crude oil prices in 2023. Here are some comments from the analyst:
"OPEC is wrestling with a variety of issues right now obviously, the weakness in China, associated with the zero-Covid lockdown policy. They are dealing with a global monetary system that is tightening post-pandemic. We continue to believe that OPEC will be very supportive of crude prices, they would like to see oil prices higher than where we are right now. Our base case is that we see a range of crude oil prices between $80 and $100 into 2023, and again, that should support very strong operational and financial results for the companies in our investable universe..."
Some of the top-performing energy stocks in 2022 have been Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), and Exxon Mobil Corporation (NYSE:XOM), and they are well-positioned to sustain this outperformance into 2023 and beyond. This article will discuss these stocks, among others, so investors can rack up shares of these companies while they are still trading at attractive valuations.
Our Methodology
To determine the best undervalued energy stocks to buy now, we screened for leading energy companies that have healthy balance sheets and abundant cash resources. We also gave weight to the market sentiment around each stock before including it in our list. Along with each stock, we have mentioned analyst ratings, hedge fund sentiment, and various metrics that qualify them as attractive and worthy investments. These stocks are ranked according to their popularity among elite money managers, from least to most.
Best Undervalued Energy Stocks to Buy
12. Permian Resources Corporation (NYSE:PR)
Number of Hedge Fund Holders: 26
PE Ratio as of December 2: 5.24
Permian Resources Corporation (NYSE:PR) operates as an independent oil and natural gas company in the United States. As of December 2, the stock has gained 54.26% year to date. At the end of Q3 2022, 26 hedge funds were long Permian Resources Corporation (NYSE:PR) and disclosed positions worth $190.8 million in the company.
Permian Resources Corporation (NYSE:PR) has a healthy balance sheet and a strong cash position and its shares are trading cheaply relative to earnings. According to the company's balance sheet, Permian Resources Corporation (NYSE:PR) has a trailing twelve-month operating margin of 53.07% and has free cash flows of $523 million. The company awards its investors with dividends, and as of December 2, the stock is trading at a PE multiple of 5x and is offering a forward dividend yield of 1.90%. Permian Resources Corporation (NYSE:PR) is one of the best undervalued energy stocks to buy now.
Wall Street is bullish on Permian Resources Corporation (NYSE:PR). On October 26, Citi analyst Paul Diamond resumed coverage of Permian Resources Corporation (NYSE:PR) with a Buy rating and a $12 price target. On December 1, Piper Sandler analyst Mark Lear revised his price target on Permian Resources Corporation (NYSE:PR) to $14 from $15 and maintained an Overweight rating on the shares.
Some of the most popular energy stocks among smart money investors include Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), and Exxon Mobil Corporation (NYSE:XOM).
11. Energy Transfer L.P. (NYSE:ET)
Number of Hedge Fund Holders: 33
PE Ratio as of December 2: 9.28
Energy Transfer L.P. (NYSE:ET) is a leading American energy company that is involved in the natural gas and propane transportation business. As of December 2, the stock has a trailing twelve-month PE ratio of 9.28 and is one of the best undervalued energy stocks to buy now. Energy Transfer L.P. (NYSE:ET) is a financially strong company and has free cash flows of $6.18 billion. The company is profitable and efficient at making profits for its shareholders. The company has a trailing twelve-month operating margin of 9.11% and an ROE of 14.67%.
Wall Street sees upside to Energy Transfer L.P. (NYSE:ET). On October 19, Morgan Stanley analyst Robert Kad raised his price target on Energy Transfer L.P. (NYSE:ET) to $17 from $15 and maintained an Overweight rating on the shares.
At the end of the third quarter of 2022, Energy Transfer L.P. (NYSE:ET) was spotted on 33 hedge funds' portfolios that held collective stakes of $614.6 million in the company. This is compared to 36 positions in the preceding quarter with stakes worth $598.5 million. As of September 30, Abrams Capital Management is the largest investor in the company and has a position worth $242.8 million.
10. Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders: 39
PE Ratio as of December 2: 5.05
On October 27, Shell plc (NYSE:SHEL) posted market-beating earnings for the third quarter of fiscal 2022. The company reported an EPS of $2.60 and outperformed estimates by $0.20. The company generated a revenue of $95.75 billion, up 59.46% year over year and ahead of Wall Street estimates by $48.76 billion. As of December 2, Shell plc (NYSE:SHEL) has gained 29.30% year to date and is trading at a PE multiple of 5x. The stock is placed on our list of the best undervalued energy stocks to buy now.
Shell plc (NYSE:SHEL) is a cash-rich company that is committed to delivering shareholder value. The company has free cash flows of $31.76 billion and is offering a forward dividend yield of 3.54% to investors, as of December 2. This December, JPMorgan analyst Christyan Malek raised her price target on Shell plc (NYSE:SHEL) to 2,950 GBP from 2,900 GBP and maintained an Overweight rating on the shares.
At the close of Q3 2022, Shell plc (NYSE:SHEL) was a part of 39 investors' portfolios that disclosed positions worth $3.1 billion in the company. Of those, Fisher Asset Management was the dominant investor in the company and held stakes worth $1.03 billion.
9. Pioneer Natural Resources Company (NYSE:PXD)
Number of Hedge Fund Holders: 49
PE Ratio as of December 2: 8.51
Shares of Pioneer Natural Resources Company (NYSE:PXD) have surged more than 28% in 2022, as of December 2, and the stock is still trading cheaply relative to earnings at a PE multiple of 8x. Pioneer Natural Resources Company (NYSE:PXD) is one of the best undervalued energy stocks to buy now. At the end of Q3 2022, 49 hedge funds were bullish on Pioneer Natural Resources Company (NYSE:PXD) and disclosed stakes of $851.4 million. This is compared to 56 positions in the previous quarter with stakes worth $696 million.
According to the company's balance sheet, Pioneer Natural Resources Company (NYSE:PXD) has free cash flows of $7.19 billion. The company has a trailing twelve-month operating margin of 40.75% and an ROE of 30.89%. In addition to being financially strong, Pioneer Natural Resources Company (NYSE:PXD) is committed to driving shareholder value and is offering a forward dividend yield of 10.37% to investors, as of December 2.
On October 31, Truist analyst Neal Dingmann raised his price target on Pioneer Natural Resources Company (NYSE:PXD) to $261 from $219 and reiterated a Hold rating on the shares. This November, Piper Sandler analyst Mark Lear raised his price target on Pioneer Natural Resources Company (NYSE:PXD) to $347 from $346 and maintained an Overweight rating on the shares.
As of September 30, Weiss Asset Management is the largest investor in Pioneer Natural Resources Company (NYSE:PXD) and holds a position worth $273.5 million.
8. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 50
PE Ratio as of December 2: 5.71
At the end of the third quarter of 2022, 50 hedge funds were bullish on Marathon Oil Corporation (NYSE:MRO) and held collective stakes of $1.03 billion. This is compared to 41 hedge funds in the previous quarter with stakes worth $1.26 billion. As of September 30, Fisher Asset Management is the top investor in the company and has a position worth $187.9 million.
On November 2, Marathon Oil Corporation (NYSE:MRO) posted earnings for the fiscal third quarter of 2022. The company reported an EPS of $1.24 and beat Wall Street estimates by $0.07. The company's revenue for the quarter amounted to $2.25 billion, up 54.65% year over year, and was ahead of estimates by $219.5 million. As of December 2, Marathon Oil Corporation (NYSE:MRO) has gained 76.29% year to date and is trading at a PE multiple of 5x. The stock is ranked high among the best undervalued energy stocks to buy now.
On November 17, Piper Sandler analyst Mark Lear raised his price target on Marathon Oil Corporation (NYSE:MRO) to $42 from $38 and reiterated an Overweight rating on the shares. This November, Raymond James analyst John Freeman raised his price target on Marathon Oil Corporation (NYSE:MRO) to $48 from $37 and maintained a Strong Buy rating on the shares.
7. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 51
PE Ratio as of December 2: 7.19
Wall Street is bullish on Devon Energy Corporation (NYSE:DVN). This November, Argus analyst Bill Selesky raised his price target on Devon Energy Corporation (NYSE:DVN) to $90 from $77 and maintained a Buy rating on the shares. On December 1, Piper Sandler analyst Mark Lear raised his price target on Devon Energy Corporation (NYSE:DVN) to $98 from $96 and maintained an Overweight rating on the shares.
Devon Energy Corporation (NYSE:DVN) has a healthy balance sheet with a strong cash position and is trading at a discount on its earnings. According to the company's balance sheet, Devon Energy Corporation (NYSE:DVN) has free cash flows of $3.4 billion and a trailing twelve-month operating margin of 43.49%. As of December 2, Devon Energy Corporation (NYSE:DVN) has a trailing twelve-month PE ratio of 7.19 and is offering a forward dividend yield of 7.89%. The stock is ranked among the best undervalued energy stocks to buy now.
At the end of Q3 2022, Devon Energy Corporation (NYSE:DVN) was spotted on 51 investors' portfolios that held positions worth $1.51 billion in the company. This is compared to 57 hedge funds in the preceding quarter with stakes worth $1.48 billion. As of September 30, GQG Partners is the top investor in the company and has a position worth $641.9 million in the company.
Here is what GoodHaven Capital Management had to say about Devon Energy Corporation (NYSE:DVN) in its second-quarter 2022 investor letter:
“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. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 52
PE Ratio as of December 2: 10.91
EOG Resources, Inc. (NYSE:EOG) is a leading American hydrocarbon exploration company. The stock is one of the best undervalued energy stocks to buy now. So far, EOG Resources, Inc. (NYSE:EOG) has returned 52.45% to investors in 2022, as of December 2, and is offering a forward dividend yield of 2.37%. The company has free cash flows of $6.16 billion. Moreover, EOG Resources, Inc. (NYSE:EOG) is profitable and efficient at generating profits for shareholders. According to the company's balance sheet, EOG Resources, Inc. (NYSE:EOG) has a trailing twelve-month operating margin of 33.15% and an ROE of 32.74%.
On November 22, Citi analyst Scott Gruber raised his price target on EOG Resources, Inc. (NYSE:EOG) to $160 from $150 and reiterated a Buy rating on the shares. This November, Raymond James analyst John Freeman raised his price target on EOG Resources, Inc. (NYSE:EOG) to $171 from $155 and maintained a Strong Buy rating on the shares.
At the end of Q3 2022, EOG Resources, Inc. (NYSE:EOG) was a part of 52 investors' portfolios that held stakes worth $1.37 billion in the company. This is compared to 43 positions in the previous quarter with stakes worth $993.4 million. The hedge fund sentiment for the stock is positive. As of September 30, Harris Associates is the most prominent shareholder in the company and has a position worth $787.4 million.
In addition to EOG Resources, Inc. (NYSE:EOG), other stocks that have demonstrated stellar financial performance in 2022 include Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), and Exxon Mobil Corporation (NYSE:XOM).
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Disclosure: None. 12 Best Undervalued Energy Stocks to Buy is originally published on Insider Monkey.
