We recently published a list of 10 Most Profitable Energy Stocks To Invest In. In this article, we are going to take a look at where Occidental Petroleum (NYSE:OXY) stands against the other most profitable energy stocks to invest in.
Global Energy Demand Set to Soar
The International Energy Agency (IEA) projects a significant increase in global energy demand, with an annual growth rate of 3.4% projected until 2026. The majority of this demand, approximately 85%, is expected to come from China and India, with India’s energy demand alone forecasted to grow at an impressive 6% annually until 2026, driven by robust economic growth and rising household consumption. Southeast Asia is also expected to experience a substantial increase in electricity demand, with a 5% annual growth rate predicted until 2026.
In contrast, the United States is expected to see a more moderate increase in electricity demand, primarily driven by the growing need for data centers. The electricity usage by data centers, artificial intelligence, and cryptocurrency is expected to double to 1,000 TWh by 2026.
However, the IEA notes that the rise in electricity generation from low-emission sources will meet global demand growth over the next three years. Renewable energy is anticipated to surpass coal as the leading energy source by early 2025, marking a significant milestone in the global transition towards cleaner energy. This shift towards renewable energy is expected to play a crucial role in meeting the world’s growing energy needs while reducing greenhouse gas emissions and mitigating the impacts of climate change.
Energy Industry to Require Balanced Approach
In an interview on CNBC on September 18, ConocoPhillips CEO Ryan Lance said that he is optimistic about the future of the energy industry. Lance highlighted that the US is well-positioned to supply the growing demand for natural gas, particularly in Europe. He noted that the shale revolution in the US has been a “remarkable” game-changer for the industry and that the country is now a major player in the global energy market. Lance also pointed out that the US has a huge natural gas supply, which provides an opportunity to keep energy prices low and support growing power demand and electrification.
In addition, Lance discussed the need for a diverse energy mix to meet growing power demand in the US and globally. He noted that while renewable energy sources are growing, they are not yet sufficient to meet demand and that other forms of energy, including coal and nuclear, will still be needed. He cited the example of California, which plans to import more electricity from coal-powered plants in South Dakota and Wyoming, despite its efforts to reduce greenhouse gas emissions. This, Lance argued, highlights the complexity of the energy landscape and the need for a balanced approach.
Lance also touched on the potential impact of interest rate decisions by the Federal Reserve on the oil and gas industry. While acknowledging that a rate cut could have some impact, Lance emphasized that what matters most is a healthy economy in the US and globally.
The growth in global energy demand poses a significant challenge, it is essential to prioritize sustainable and low-emission energy sources to meet the growing demands.
Our Methodology
For this article, we used Finviz and Yahoo Finance stock screeners plus online rankings to compile an initial list of the 80 largest companies in the energy sector by market cap. From that list, we narrowed our choices to 10 companies with positive TTM net income and 5-year net income growth from reputable sources including SeekingAlpha (which provided insights into 5-year growth rates) and Macrotrends (which supplied information on trailing twelve-month (TTM) net income). Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024.
Why do we care about what hedge funds do? 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).
Oil derricks in the background with a few workers in the foreground, emphasizing the company’s oil and gas production activities.
Occidental Petroleum (NYSE:OXY)
TTM Net Income: $3.89 Billion
5-Year Net Income CAGR: 3.78%
Number of Hedge Fund Holders: 62
Occidental Petroleum (NYSE:OXY) is a US based oil and gas exploration company with operations in the U.S., Middle East, and Latin America. The company is known for its strong presence in shale oil production, particularly in the Permian basin in the southwestern part of the United States.
Occidental Petroleum’s (NYSE:OXY) acquisition of CrownRock at the end of FY 2023 for approximately $12 billion has added approximately 170,000 barrels of oil equivalent per day to its production. The acquisition was conducted mainly because of CrownRock’s assets in the Midland basin, which are complementary to Occidental Petroleum’s (NYSE:OXY) focus in the Permian basin. The transaction was completed at the beginning of August, and the outlook for production growth for Occidental Petroleum (NYSE:OXY) is favorable.
In Q2, Occidental Petroleum (NYSE:OXY) generated $1.30 billion in free cash flow, up 83% quarter over quarter, a large portion of the free cash flow went into debt repayments, and the company has guided for $1.9 billion for incremental debt reductions in the month of August, following the close of the CrownRock acquisition.
As of June 30, Occidental Petroleum (NYSE:OXY) reported a TTM net income of $3.89 billion, an increase of 3.78% over the last 5 years. Occidental Petroleum’s (NYSE:OXY) diversified portfolio of energy assets, including oil & gas, chemical, midstream, and low-carbon energy investments makes it well-positioned to benefit from the growing demand for oil and gas.
Overall OXY ranks 8th on our list of most profitable energy stocks to invest in. While we acknowledge the potential of OXY as an investment, our conviction lies in the belief that 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 OXY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.