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Stock Analysis & Ideas

What is the Future of Energy Stocks?

Story Highlights

As recession fears hit the headlines, Brent crude prices have declined over 6% in one month. However, underinvestment in new supply and ongoing supply bottlenecks support a higher price environment. TipRanks’ valuable datasets shed light on how energy stocks could fare in the coming quarters. 

So far, energy stocks have outperformed the broader market index in 2022 due to higher price realizations (Brent crude prices are up over 41% in one year) and volumes. However, crude prices have cooled off a bit (down more than 6% in one month) on the possibility of a slowdown in economic activity amid the recession. Nevertheless, underinvestment in new supply, ongoing geopolitical challenges, and supply bottlenecks indicate that energy stocks could continue to benefit from higher price realizations in 2H22.

Though a recession would hurt demand and weigh on commodity prices in the short term, it is unlikely to affect the supply issues. Further, the new investments in supply will likely take time to show results, which supports a higher price environment.  

With too many variables impacting energy stocks, it’s prudent to leverage TipRanks’ valuable datasets, such as analysts’ recommendations and insider and hedge fund signals, to ascertain what’s in store for these companies in the coming quarters.

ExxonMobil (NYSE:XOM)

ExxonMobil continues to benefit from higher price realizations, increased production, and aggressive cost control measures. XOM stock sports a Moderate Buy rating consensus on TipRanks based on 11 Buy and four Hold recommendations. Further, the analysts’ average price target of $107.61 indicates 11.02% upside potential over the next 12 months. 

While analysts are cautiously optimistic, XOM stock has negative indicators from hedge funds and insiders, who sold its stock in the last three months. Hedge Funds decreased their holdings in XOM by 6.7M shares, while insiders sold XOM shares worth 462.4K. 

Nevertheless, TipRanks’ investors are optimistic about XOM stock, and 1.2% of these investors have increased their holdings in one month. XOM stock has an Outperform Smart Score of 9 out of 10. 

Chevron (NYSE:CVX)

Chevron delivered record profits in Q2 due to higher sales prices of crude oil and natural gas liquids. Thanks to the solid price and demand environment, Chevron further strengthened its balance sheet by reducing its debt ratio to under 15%. Moreover, it increased the top end of its annual share buyback guidance range to $15 billion.

While Chevron continues to deliver strong financials, macro headwinds keep analysts cautiously optimistic. CVX stock has received nine Buy, six Hold, and one Sell recommendations for a Moderate Buy rating consensus. Further, the analysts’ average price target of $178.44 indicates 8.95% upside potential over the next 12 months. 

TipRanks’ Insider Trading Activity tool shows that insiders sold CVX stock worth 114.3M in the last three months. Nevertheless, CVX stock has positive signals from hedge fund managers, who bought 116.4M shares last quarter. Meanwhile, TipRanks’ investors are also optimistic about CVX. All in all, CVX stock sports a maximum Smart Score of 10.

ConocoPhillips (NYSE:COP)

ConocoPhillips is benefitting from the improvement across all aspects of the business, led by higher prices and volumes. COP stock sports a Strong Buy rating consensus on TipRanks based on 11 Buys and one Hold recommendation. 

Moreover, the analysts’ average price target of $128.67 indicates 32.06% upside potential over the next 12 months. 

While analysts are bullish, insiders sold COP stock worth $77.2M in the last three months. However, hedge funds added 7.4M COP stock during the same period. 

With positive signals from analysts, hedge funds, and TipRanks’ investors, COP stock has a maximum Smart Score of 10. 

Marathon Oil (NYSE:MRO)

Marathon Oil continues to deliver strong free cash flows and focuses on significant capital return to equity investors through share repurchases and dividends. MRO stock has a Moderate Buy rating consensus on TipRanks based on 10 Buy, four Hold, and two Sell recommendations. 

Moreover, these analysts’ average price target of $32.81 implies 32.30% upside potential. 

While analysts’ price target shows decent upside, hedge funds and insiders have sold MRO stock in the last three months. Hedge funds decreased holdings by 13.6M shares. Meanwhile, insiders sold MRO stock worth $3.1M.  

MRO stock has an Outperform Smart Score of 9 out of 10 on TipRanks. 

Shell (NYSE:SHEL)

Shell continues to deliver record profits and announced a $6 billion share buyback plan, driven by higher average realized prices. It sports a Strong Buy rating consensus on TipRanks based on four Buy and one Hold recommendations. 

Meanwhile, analysts’ average price target of $68.40 reflects 28.14% upside potential. 

Besides analysts, SHEL stock has positive signals from hedge funds and TipRanks’ investors. Hedge funds added 769.7K SHEL stock in the last quarter. Meanwhile, 1.5% of TipRanks’ investors increased their exposure to SHEL stock. Overall, SHEL stock has a maximum Smart Score of 10. 

Bottom Line   

The recent decline in oil prices has taken some steam out of the energy stocks. However, the tailwinds from resilient demand and supply shortages indicate that energy stocks are poised well to deliver solid shareholders’ returns. 

Evercore ISI analyst Stephen Richardson stated, “The multi-year underpinning for crude is on very solid footing and even if we don’t see the same rapid move higher in flat price, the sustainability of price at a high level is incredibly supportive for upstream equities.”

Richardson is less concerned “than the market on some of the hot button issues such as cost inflation, run-away US crude supply growth, or value destructive M&A.”

The TipRanks’ stock comparison tool summarizes how the top energy stocks stack up on TipRanks’ valuable datasets. 

Disclosure 

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