We recently published a list of 7 Cheap Energy Stocks To Buy Under $20. In this article, we are going to take a look at where Permian Resources Corporation (NYSE:PR) stands against the other cheap energy stocks to buy under $20.
The energy sector is undergoing a major transformation in 2024, driven by a combination of evolving market dynamics, fluctuating commodity prices, and the increasing role of renewable energy sources. As investors navigate this changing environment, they are met with both opportunities and challenges. While oil prices show signs of stability, renewable energy adoption continues to gain momentum, creating a unique landscape for energy stocks.
Brent crude oil prices are expected to stabilize around $82 per barrel, reflecting a slight uptick from $81 in 2023. This stabilization signals a return to pre-pandemic levels, a trend supported by strategic production cuts from OPEC+. Market analysts predict that these cuts will help maintain the delicate balance between supply and demand, which is pivotal in shaping the oil markets in 2024. Meanwhile, the average retail gasoline prices are forecasted to remain steady at $3.30 per gallon over the next two years. This stability, combined with the growth in U.S. crude oil production—from 12.9 million barrels per day in 2023 to an anticipated 13.3 million barrels per day in 2024—reflects a strong domestic supply environment.
In addition to crude oil, the U.S. liquefied natural gas (LNG) sector is expected to witness robust growth. Gross LNG exports are projected to increase from 12 billion cubic feet per day in 2023 to 14 billion in 2025, highlighting the U.S.’s evolving role as a significant player in the global energy markets. The rise in LNG exports is likely to boost the country’s influence in international energy trade, positioning it as a key energy exporter in the coming years.
Natural gas prices at Henry Hub are also poised for changes. While prices are expected to stay relatively stable at $2.20 per million British thermal units (MMBtu) in the near term, they are projected to surge to around $3.10/MMBtu in 2025. This increase reflects the interplay between the rising production capabilities and the growing export demands of the U.S. energy sector. Notably, the shift toward biomass-based diesel products, which now account for 9% of total distillate fuel consumption, underscores the sector’s movement toward more sustainable fuel options amid growing environmental concerns.
The electricity generation landscape in the U.S. is also seeing significant shifts. While natural gas remains the primary source, contributing 42% of total electricity generation, the share of renewables is increasing rapidly—from 21% in 2023 to an expected 25% by 2025. Solar energy, in particular, is leading this charge. The first half of 2024 saw solar energy account for 59% of new generating capacity additions, driven largely by advancements in battery storage technologies. States like Texas and California are expected to be at the forefront of solar generation, reflecting the broader trend of transitioning to green energy.
These shifts in the energy landscape are supported by a steady economic environment. The U.S. GDP is projected to grow by 2.6% in 2024, providing a solid backdrop for energy market developments. However, CO2 emissions are forecasted to remain steady at 4.8 billion metric tons, emphasizing the ongoing challenges of balancing energy production with environmental sustainability. As climate change becomes a more pressing issue, energy companies are under increasing pressure to innovate and adopt more sustainable practices.
Geopolitical tensions, such as the political instability in Libya, add another layer of complexity to the energy markets. These events can lead to unexpected production outages, influencing global oil supply and prices. Despite these uncertainties, the energy sector’s fundamentals appear strong, offering promising opportunities for discerning investors. The combination of ongoing production cuts by OPEC+ and strong demand from non-OECD countries is expected to drive an increase in oil consumption, enhancing the appeal of energy stocks in 2024.
Given this backdrop, identifying the best energy stocks under $20 becomes crucial for investors looking to capitalize on the anticipated shifts in the sector. The companies featured in this analysis are well-positioned to benefit from the evolving energy landscape.
Our Methodology
For this article, we utilized the Finviz stock screener to identify stocks within the energy sector that have forward price-to-earnings (P/E) ratios below 15 as of September 29. From this initial list, we focused on seven stocks that are most favored by institutional investors. These stocks were then ranked in ascending order of the number of hedge funds holding stakes in them, as of Q2 2024.
At Insider Monkey we are obsessed with 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).
A close-up of a wellhead, showing off the company’s production of oil and natural gas.
Permian Resources Corporation (NYSE:PR)
Number of Hedge Fund Holders: 51
Forward P/E Ratio as of September 29: 10.84
Permian Resources Corporation (NYSE:PR) is an independent oil and natural gas company headquartered in Midland, Texas. It primarily focuses on the development of crude oil and liquids-rich natural gas reserves in the Delaware Basin, a sub-basin of the Permian Basin, which spans West Texas and New Mexico. With a forward P/E ratio of 10.84, the stock is a compelling choice for investors seeking cheap energy stocks with robust fundamentals. Its strategic acquisition efforts and operational efficiency make Permian Resources Corporation (NYSE:PR) a strong candidate for inclusion in a portfolio focused on undervalued energy stocks.
In its second-quarter earnings report for 2024, Permian Resources Corporation (NYSE:PR) demonstrated outstanding performance, highlighted by an increase in oil production to 153,000 barrels per day and total production of 339,000 barrels of oil equivalent per day. This outperformance led the company to raise its full-year production guidance for the second consecutive quarter, reflecting its operational strength and cost-efficiency measures. The company’s drilling and completion (D&C) efficiencies resulted in a 13% reduction in costs compared to 2023, enabling it to increase its 2024 Turn-in-Line (TIL) guidance by approximately 15 wells without adjusting its capital expenditure ranges.
Additionally, Permian Resources Corporation (NYSE:PR) recent acquisition of the Barilla Draw assets from OXY for $817 million is expected to add significant value, given its 3.4x EBITDA multiple and 17% free cash flow yield. This acquisition fits well within the company’s existing footprint and is expected to drive future growth with over 200 high-return drilling locations that compete for capital.
The company’s strong cash flow generation is evident in its Q2 adjusted operating cash flow of $849 million, or $1.10 per share, and adjusted free cash flow of $332 million, or $0.43 per share. Furthermore, Permian Resources Corporation (NYSE:PR) returned $0.25 per share to shareholders in Q2 through dividends and share buybacks, underscoring its commitment to delivering shareholder value. The company’s growing institutional interest is reflected in the increase in hedge fund holders from 41 in the previous quarter to 51 in Q2 2024, highlighting confidence in its growth potential.
With its solid financial performance, low-cost leadership, and strategic acquisitions, Permian Resources Corporation (NYSE:PR) stands out as one of the best cheap energy stocks under $20 to buy now.
Overall PR ranks 1st on our list of cheap energy stocks to buy under $20. While we acknowledge the potential of PR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.