In this article, we will cover the 10 most promising energy stocks according to hedge funds.
In the next decade, global power demand is expected to grow by over 30%, largely fueled by economic growth in emerging markets and the electrification of various sectors. Data centers and artificial intelligence are becoming major energy consumers, increasingly relying on renewable sources like solar and wind power. Although efforts to improve energy efficiency may help mitigate some of this demand, the Asia-Pacific region is projected to account for a significant portion of the increase, capturing 66% of the total growth in electricity demand.
In response to the rising demand, there is a strong focus on clean energy sources to meet environmental, social, and governance (ESG) goals, as well as to qualify for tax incentives, reshaping the entire industry. Renewable energy is projected to increase by more than 740 gigawatts each year from now until 2035. By that year, carbon-free resources, including renewables, hydropower, nuclear energy, and battery storage, are expected to make up 70% of the total installed generation capacity.
This shift is also driving significant investments and various initiatives across the industry. This includes renewable energy startups, traditional oil and gas companies, and associated manufacturing and technology firms. Investment in the energy transition is gaining momentum, with the US experiencing a 22% increase in 2023, reaching $303 billion. While this amount is substantial, it remains relatively small compared to the global total of $1.77 trillion.
Read Also: 7 Most Undervalued Renewable Energy Stocks To Buy Now and 13 Best Natural Gas and Oil Dividend Stocks To Buy.
In the United States, fossil fuels and nuclear power together account for 75% of energy production, while renewables contribute just under 25%. On a global scale, renewable sources now represent 30% of electricity generation.
Another emerging trend in the energy sector is the rise of mergers and acquisitions. According to Bloomberg, over $155 billion in deals were finalized in the fourth quarter of 2023 alone, exceeding the total from the previous five quarters combined. As companies face challenging market and economic conditions, consolidation within the oil and gas industry, particularly among upstream, midstream, and oil field services companies, is expected to continue.
Oil prices significantly influence the performance of energy stocks, leading to a volatile year for the sector. Stock prices have fluctuated in response to changing oil prices. Despite this volatility, there are still investment opportunities within the energy sector, including traditional oil and gas companies, midstream businesses, and firms focused on renewable energy. With this context in mind, let’s take a look at the 10 most promising energy stocks according to hedge funds.
A row of massive oil rigs in a desert landscape, against a setting sun.
Our Methodology
To shortlist the 10 most promising energy stocks, we used stock screeners like Yahoo Finance and Finviz to identify the largest energy companies. From there, we refined our selections to 10 stocks based on hedge fund sentiment using our database of 912 top hedge funds as of Q2 2024. The most promising energy stocks have been ranked in ascending order of the number of hedge funds holding a stake in them.
Note: Although the theme of the article is Oil and Gas stocks, we’ve also added renewable energy stocks since many oil and gas companies are also diversifying in renewable energy.
Why are we interested in the stocks that hedge funds pile into? 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).
10 Most Promising Energy Stocks According to Hedge Funds
10. First Solar, Inc. (NASDAQ:FSLR)
Number of Hedge Fund Holders: 66
First Solar, Inc. (NASDAQ:FSLR) is a prominent player in the US solar power industry, renowned for its innovative photovoltaic panels. Founded in 1999, the company has established itself as a leading producer of these essential components for solar installations. With approximately 25 gigawatts of installed generation capacity and a growing backlog, First Solar, Inc. (NASDAQ:FSLR) is well-positioned to expand its market share.
By the end of 2023, the company’s contracted backlog stood at 78.3 gigawatts, valued at $23.3 billion. By March 31, 2024, an additional 2.7 gigawatts of new contracts had been signed, with 2.7 gigawatts in sales volume recorded. The updated backlog value reached $23.4 billion, reflecting an approximate average selling price of $0.299 per watt, excluding adjusters.
The company’s commitment to technological advancement is evident in its significant investments in research and development. Its cadmium telluride technology is considered an improvement over traditional silicon panels, setting a new benchmark for panel quality.
First Solar, Inc. (NASDAQ:FSLR) also delivered strong financial performance, with its second-quarter 2024 results exceeding expectations. The company reported a revenue of $1 billion and earnings per share of $3.25, surpassing analyst estimates. This positive financial outlook, coupled with a substantial sales backlog, indicates a promising future for First Solar, Inc. (NASDAQ:FSLR). The stock has received an average “Strong Buy” rating.
9. Schlumberger Limited (NYSE:SLB)
Number of Hedge Fund Holders: 67
Schlumberger Limited (NYSE:SLB) is a Texas-based energy technology company that provides a comprehensive range of services to improve hydrocarbon production and field development. Its offerings include carbon management solutions and the integration of energy systems. The company’s expertise covers various aspects of the energy industry, including reservoir interpretation, well construction services, and subsurface geology evaluations.
Schlumberger Limited (NYSE:SLB) recently announced its Q2 2024 results, with revenue reaching $9.14 billion, a 13% increase year-over-year. Net income was $1.11 billion, up 8% from Q2 2023, and earnings per share came in at $0.85, beating expectations. The company credited growth to strong performance in its international markets and increased demand for oilfield services.
Jim Cramer recently shared his thoughts on the stock, stating:
“SLB has not gone up nearly as much as I would’ve expected. Given the fact that oil’s up, I would buy the stock right here. It is the best of breed.”
Due to its decent financial performance and expansion in international markets, the stock has gained an average rating of “Strong Buy.”
8. Constellation Energy Corporation (NASDAQ:CEG)
Number of Hedge Fund Holders: 71
Constellation Energy Corporation (NASDAQ:CEG) is a prominent energy provider based in Baltimore, specializing in clean, carbon-free energy solutions. As the largest producer of this type of energy in the United States, Constellation Energy Corporation (NASDAQ:CEG) serves a vast customer base, including major corporations, households, businesses, and government agencies.
The company’s portfolio, which is nearly 90% carbon-free, consists of hydro, wind, solar, and nuclear power, capable of powering approximately 16 million homes. Recently, Constellation Energy Corporation (NASDAQ:CEG) entered into a new agreement with Microsoft to supply clean energy for the tech giant’s cloud computing and AI data centers.
This partnership could potentially lead to the reopening of the Three Mile Island nuclear plant. The nuclear plant will supply electricity to Microsoft’s data centers, generating significant revenue for Constellation Energy Corporation (NASDAQ:CEG). The stock has received a consensus rating of “Moderate Buy.”
Here’s what ClearBridge Investments said about Constellation Energy Corporation (NASDAQ:CEG) in its Q1 2024 investor letter:
“On a regional basis, the U.S. and Canada was the top contributor for quarter, with U.S. electric utility Constellation Energy Corporation (NASDAQ:CEG) and U.S. rail operator CSX the lead performers. Constellation Energy is primarily a nuclear generation company and is the largest producer of carbon-free electricity in the U.S., serving states including New York, Illinois, Maryland, Pennsylvania and New Jersey. The company’s combined generation capacity is more than 32 GW and 90% of annual output is carbon free. Constellation has been a beneficiary of AI and subsequent power demand as its 24/7 base load nuclear generation can get premium contracts.”