In this article, we will be taking a look at 12 cheap energy stocks to buy. To skip our detailed analysis of the energy sector, you can go directly to see the 5 Cheap Energy Stocks To Buy.
Energy stocks such as Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and ConocoPhillips (NYSE:COP), among more, managed to remain top picks for investors in 2022 and through the start of 2023. Rising inflation has led to higher oil and gas prices, to the benefit of energy stocks. According to a Wall Street Journal article published in October, from June 2018 through June 2022, earnings per share for the energy sector rose by 93%. American energy indexes also jumped 58% in 2022 through October 24. This showed the steady rise of the energy sector in 2022, leading to renewed investor optimism for the sector in 2023.
Photo by Jason Blackeye on Unsplash
Let’s now take a look at 12 cheap energy stocks to buy.
Our Methodology
For this article we used stock screeners to first list down energy stocks with P/E ratios less than 20 as of January 26. From this long list of stocks, we picked only those that had the most number of hedge funds invested in them. That means the stocks mentioned in this article are the most popular cheap energy stocks to buy according to hedge funds. On valuation, we added analyst price targets and compared the stocks’ current share prices with these targets to show their upside potential in the long run.
Cheap Energy Stocks To Buy
12. Kinder Morgan, Inc. (NYSE:KMI)
Number of Hedge Fund Holders: 38
P/E Ratio as of January 26: 16.62
Kinder Morgan, Inc. (NYSE:KMI) is an oil and gas storage and transportation company. It is based in Houston, Texas.
On December 8, Citigroup’s Spiro Dounis initiated coverage of Kinder Morgan, Inc. (NYSE:KMI) shares with a Neutral rating.
Kinder Morgan, Inc. (NYSE:KMI) is currently extremely cheap, trading at $18.61 as of January 27. The company’s exposure to natural gas drives about 60% of its operations. Natural gas is expected to continue playing a key role in the energy generation space since renewable energy is still a nascent and highly intermittent source. Kinder Morgan, Inc. (NYSE:KMI) is thus well-position to benefit from the increasing demand for natural gas, allowing the stock to get more valuable in the future.
Kinder Morgan, Inc. (NYSE:KMI) was found among the 13F holdings of 38 hedge funds in the third quarter, with a total stake value of $1.1 billion. Of these funds, Bourgeon Capital was the largest stakeholder in the company. It held 231,485 shares.
Kinder Morgan, Inc. (NYSE:KMI), like Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and ConocoPhillips (NYSE:COP), is a top-tier energy stock with a great reputation and popularity among hedge funds.
11. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 66
P/E Ratio as of January 26: 10.68
Chevron Corporation (NYSE:CVX) is an integrated oil and gas company. It is based in San Ramon, California.
Jeanine Wai at Barclays holds an Overweight rating on Chevron Corporation (NYSE:CVX) shares as of January 3.
Chevron Corporation (NYSE:CVX) is currently trading at 10.7x the expected earnings per share for 2023. It is among the cheapest energy stocks that are currently dominating the sector. Barclays holds a price target of $212 on the stock, compared to its current share price of $187.79. This shows the upside potential inherent in Chevron Corporation (NYSE:CVX).
There were 66 hedge funds long Chevron Corporation (NYSE:CVX) in the third quarter. Their total stake value was $27.1 billion.
Madison Funds, managed by Madison Investment Management, mentioned Chevron Corporation (NYSE:CVX) in its fourth-quarter 2022 investor letter. Here’s what the firm said:
“This quarter we are highlighting Chevron Corporation (NYSE:CVX) as a relative yield example in the Energy sector. CVX is a leading integrated oil company with exploration, production, and refining operations. It is the second largest oil company in the United States with more than 70% of production volumes from oil and liquid-linked natural gas. We believe it has a sustainable competitive advantage due to its scale and low-cost position. It has a large acreage position in the Permian Basin, which is a high-quality oil field. CVX was an early mover in the Permian and did not overpay to enter the oilfield; 75% of its position has a no or low royalty rate, which gives it a cost advantage over competitors.
Our thesis is that free cash flow growth per share is expected to accelerate due to disciplined capital spending, rising Permian production volumes, and stock repurchases. The company has also made important investments in low-carbon areas like greenhouse gas reduction, carbon capture, hydrogen, and renewable fuels which we believe will pay off later in the decade as the world transitions more to renewable energy sources…” (Click here to read the full text)
10. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 75
P/E Ratio as of January 26: 9.61
Exxon Mobil Corporation (NYSE:XOM) is another integrated oil and gas company on our list. It operates through its Upstream, Downstream, and Chemical segments.
On January 17, Paul Cheng at Scotiabank upgraded Exxon Mobil Corporation (NYSE:XOM) shares from Sector Perform to Outperform.
Scotiabank raised its price target on Exxon Mobil Corporation (NYSE:XOM) this January from $120 to $135, signifying the company’s increasing upside potential and current discounted price.
Yacktman Asset Management was the largest stakeholder in Exxon Mobil Corporation (NYSE:XOM) in the third quarter, holding 150,100 shares. In total, 75 funds were long the stock, with a total stake value of $5.5 billion.
9. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 64
P/E Ratio as of January 26: 8.96
ConocoPhillips (NYSE:COP) is an oil and gas exploration and production company. It is based in Houston, Texas.
An Overweight rating was reiterated on ConocoPhillips (NYSE:COP) shares on January 23 by Jeanine Wai at Barclays.
Barclays holds a $160 price target on the stock as of this January, while its share price as of January 27 is $124.65.
Our hedge fund data shows 64 funds long ConocoPhillips (NYSE:COP) in the third quarter. Their total stake value was $2.7 billion.
8. TotalEnergies SE (NYSE:TTE)
Number of Hedge Fund Holders: 22
P/E Ratio as of January 26: 8.75
TotalEnergies SE (NYSE:TTE) is an integrated oil and gas company. It is based in Courbevoie, France.
JPMorgan holds an Overweight rating on TotalEnergies SE (NYSE:TTE) shares as of January 19, placed by analyst Christyan Malek.
For the full year of 2023, analysts believe the company could increase its earnings to $12.3 per share. While the current P/E ratio for TotalEnergies SE (NYSE:TTE) stands at 8.75, this analysis would mean a P/E ratio of less than 5x by the end of 2023, making the current investment opportunity in this stock incredibly attractive. The stock is also currently trading at an EV/sales ratio of 0.7x, reflecting a 62% discount relative to the industry median.
Insider Monkey’s hedge fund data shows 22 funds long TotalEnergies SE (NYSE:TTE) in the third quarter, with a total stake value of $1.5 billion.
Artisan Partners, an investment management company, mentioned TotalEnergies SE (NYSE:TTE) in its third-quarter 2022 investor letter. Here’s what the firm said:
“We added one new position this quarter, TotalEnergies SE (NYSE:TTE). TTE is one of the world’s largest energy companies. It develops and produces oil and gas, produces and sells refined products, is one of the largest producers and traders of LNG, and owns a large portfolio of renewable power generating assets. TTE has one of the lowest cost portfolios of oil and gas assets and therefore one of the lowest breakeven points in the industry. It also has one of the best balance sheets in the industry. We estimate it will reach a net cash position sometime in 2023.
The valuation of TTE—and that of Shell—is fascinating. TTE sells at approximately 4X earnings and has a 5% dividend yield. With its current buyback program and a recently announced special dividend, the owners yield is more than 10%. The valuation and owners yield are not dissimilar to those of Shell, which we also own and which trades at just under 5X earnings. To say that a discount is attached to European oil companies relative to US peers is an understatement. Exxon Mobil sells at 8X earnings, Chevron 9X and Conoco 8X. If TTE and Shell redomiciled to the US, their share prices would probably double.
We have a few theories for the valuation anomaly. First, as mentioned above, Europe generally trades at a big discount to the US. In the case of TTE and Shell, this makes no economic sense. The oil and gas business is a global one, and TTE and Shell have attractive assets. The main explanation, we believe, is that large sections of the European asset management industry will not invest in oil and gas because of ESG restrictions. Yet if the recent war in Ukraine and the current energy crisis have shown us nothing else, the supply of energy is an enormous social good. Indeed, it is an existential good. Moreover, it is companies such as TTE that will invest billions to supply the LNG that Europe desperately needs to restore its economy and reduce the crushing cost burden on families who must now choose between heating their homes and eating. Finally, TTE is also investing billions per year in renewable power generating assets such as wind and solar. Such assets will likely never replace clean burning natural gas and nuclear as base power suppliers, but they are a valuable and clean adjunct to modern grids. We believe TTE’s renewable portfolio is worth between $25 billion and $35 billion and is moving from almost no profit contribution toward meaningful levels of profit over the next few years. We wonder how it makes sense for investors to disinvest from these kinds of assets on ethical grounds.”
7. Pioneer Natural Resources Company (NYSE:PXD)
Number of Hedge Fund Holders: 49
P/E Ratio as of January 26: 8.43
Pioneer Natural Resources Company (NYSE:PXD) is an oil and gas exploration and production company. It is based in Irving, Texas.
On January 9, Mizuho analyst Nitin Kumar assumed coverage of Pioneer Natural Resources Company (NYSE:PXD) shares with a Buy rating.
According to financial journalist Michael Wiggins De Oliveira, Pioneer Natural Resources Company (NYSE:PXD) can expect a free cash flow of $7 billion in 2023. This estimate has come in light of analysts expecting WTI prices to remain around $60 to $90. This would put the stock’s valuation at about 7x the 2023 free cash flow. While Pioneer Natural Resources Company (NYSE:PXD) is currently trading at $237, analysts at Mizuho have placed a $294 price target on the stock, meaning at present, it is trading at a huge discount relative to its potential.
Pioneer Natural Resources Company (NYSE:PXD) had 49 funds long its stock in the third quarter, with a total stake value of $851 million.
Pioneer Natural Resources Company (NYSE:PXD), like Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and ConocoPhillips (NYSE:COP), is an energy company with significant upside potential.
6. Suncor Energy Inc. (NYSE:SU)
Number of Hedge Fund Holders: 45
P/E Ratio as of January 26: 8.3
Suncor Energy Inc. (NYSE:SU) is an energy company focused on developing petroleum resource basins in Canada’s Athabasca oil sands. The company is based in Calgary, Canada.
An Outperform rating was reiterated on Suncor Energy Inc. (NYSE:SU) shares on January 17 by Scotiabank’s Jason Bouvier.
By the end of 2022, Suncor Energy Inc. (NYSE:SU) shares had risen about 28% throughout the whole year. Compared to the performance of peers like Exxon Mobil Corporation, which rose by 55% over the same period, the stock has underperformed. However, analysts see this underperformance as an indicator that Suncor Energy Inc. (NYSE:SU) has more upside potential than other energy stocks, since its shares have not risen as much as those of its peers, making its valuation below average and its upside potential above average.
Panview Capital was the largest stakeholder in Suncor Energy Inc. (NYSE:SU) in the third quarter, holding 454,000 shares. In total, 45 funds were long the stock, with a total stake value of $2.01 billion.
Click to continue reading and see 5 Cheap Energy Stocks To Buy.
Suggested articles:
Disclosure: None. 12 Cheap Energy Stocks To Buy is originally published on Insider Monkey.