Why Liberty Energy Inc. (LBRT) is a top contender among cheap energy stocks under $20

We recently published a list 7 cheap energy stocks to buy under $20. In this article, we'll take a look at where Liberty Energy Inc. (NYSE:LBRT) stands compared to 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 encounter both opportunities and challenges. As oil prices show signs of stability, renewable energy adoption continues to gain momentum, creating a unique environment for energy stocks.

Brent crude oil prices are expected to stabilize at around $82 a barrel, up slightly from $81 in 2023. This stabilization signals a return to pre-pandemic levels, a trend supported by OPEC+ strategic production cuts. Market analysts expect these cuts will help maintain the delicate balance between supply and demand that is critical to shaping oil markets in 2024. Meanwhile, average retail gasoline prices are forecast to remain stable at $3.30 per gallon over the next two years. This stability, combined with growth in U.S. crude oil production – from 12.9 million barrels per day in 2023 to an expected 13.3 million barrels per day in 2024 – reflects a strong domestic supply environment.

In addition to crude oil, robust growth is also expected for the US liquefied natural gas (LNG) sector. Gross LNG exports are expected to increase from 12 billion cubic feet per day in 2023 to 14 billion in 2025, underscoring the U.S.'s growing role as a major player in global energy markets. The increase in LNG exports is expected to strengthen the country's influence in international energy trade and make it a major energy exporter in the coming years.

Natural gas prices at Henry Hub are also facing changes. While prices are expected to remain relatively stable at US$2.20 per million British Thermal Units (MMBtu) in the near term, they are expected to rise to around US$3.10 per MMBtu in 2025. This increase reflects the interplay between increasing production capacities and growing export demands of the U.S. energy sector. In particular, the shift towards biomass-based diesel products, which now account for 9% of total distillate fuel consumption, highlights the sector's evolution towards more sustainable fuel options amid growing environmental concerns.

The electricity generation landscape in the United States is also experiencing significant changes. While natural gas remains the main source and accounts for 42% of total electricity generation, the share of renewable energy is increasing rapidly – from 21% in 2023 to an expected 25% in 2025. Solar energy in particular is leading the way. In the first half of 2024, solar accounted for 59% of new generation capacity, largely due to advances in battery storage technologies. States like Texas and California are expected to lead the way in solar power generation, reflecting the overall trend toward green energy conversion.

These changes in the energy landscape are supported by a stable economic environment. US GDP is expected to grow by 2.6% in 2024, providing a solid backdrop for energy market developments. However, CO2 emissions are expected to remain constant at 4.8 billion tonnes, underscoring the ongoing challenges of balancing energy production with environmental sustainability. As climate change becomes an increasingly pressing issue, energy companies are under increasing pressure to innovate and adopt more sustainable practices.

Geopolitical tensions such as the political instability in Libya further increase the complexity of the energy markets. These events may result in unexpected production disruptions and impact global oil supplies and prices. Despite these uncertainties, the energy sector's fundamentals appear to be strong and offer promising opportunities for sophisticated investors. The combination of continued production cuts by OPEC+ and strong demand from non-OECD countries is expected to lead to an increase in oil consumption and increase the attractiveness of energy stocks in 2024.

With this in mind, identifying the best energy stocks under $20 becomes crucial for investors looking to capitalize on the expected changes in the industry. The companies featured in this analysis are well positioned to benefit from the evolving energy landscape.

Our methodology

For this article, we used the Finviz stock screener to identify stocks in the energy sector whose forward price-to-earnings (P/E) ratio was below 15 as of September 29th. From this initial list, we focused on seven stocks that are most popular among institutional investors. Starting in the second quarter of 2024, these stocks were then ranked in ascending order based on the number of hedge funds involved in them.

At Insider Monkey, we obsess over the stocks hedge funds invest in. The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, outperforming its benchmark by 150 percentage points (Further details can be found here).

A worker in protective clothing near a large natural gas exploration machine.

Liberty Energy Inc. (NYSE:LBRT)

Number of hedge fund owners: 31

Forward P/E ratio as of September 29: 7.57

Liberty Energy Inc. (NYSE:LBRT) is a major player in the energy services industry, specializing in providing hydraulic fracturing services and related technologies to oil and gas exploration companies throughout North America. The company was founded in 2011 and is headquartered in Denver, Colorado. With a forward P/E ratio of 7.57, the stock has an attractive valuation, making it a solid addition to a list of cheap energy stocks to consider under $20. Liberty Energy Inc. (NYSE:LBRT) operates in several key shale basins, including the Permian Basin, the Williston Basin and the Eagle Ford Shale, among others. The company also has an extensive portfolio of assets that includes approximately 40 active hydraulic fracturing fleets and two sand mines, making it a strong position in the energy services sector.

For the second quarter of 2024, Liberty Energy Inc. (NYSE:LBRT) reported revenue of $1.2 billion, up 8% sequentially, and adjusted EBITDA of $273 million, an increase of 12% compared to the previous quarter. The Company achieved these results despite a slight decline in industry-wide drilling and completion activity, highlighting its operational efficiency and robust business model. Liberty Energy Inc.'s (NYSE:LBRT) average daily pump efficiency and record-breaking safety performance contributed significantly to its strong performance and reflected its competitive advantage and industry leadership. The company also recorded an adjusted pre-tax return on capital employed of 28% for the trailing 12 months ended June 30, 2024, underscoring its commitment to maximizing shareholder value.

Additionally, Liberty Energy Inc. (NYSE:LBRT) generated significant cash flow, distributing $41 million to shareholders in the second quarter alone. Since reinstating its capital return program two years ago, the company has returned $458 million to shareholders, further evidence of its strong financial health and shareholder-friendly approach. The stock is also attracting increasing interest from institutional investors: in the second quarter of 2024, 31 hedge funds held positions in Liberty Energy, compared to 30 in the previous quarter.

Liberty Energy Inc.'s (NYSE:LBRT) ongoing investments in innovative technologies such as the AI-powered Sentinel logistics platform and natural gas-powered pumping and power generation technologies continue to drive efficiencies and cost reductions for the company and its customers. With favorable industry trends and a disciplined capital allocation strategy, Liberty Energy Inc. (NYSE:LBRT) is well positioned to continue delivering solid financial and operating results, making it a compelling choice for investors looking for cheap energy stocks with strong growth potential.

Total LBRT takes 5th place on our list of cheap energy stocks to buy under $20. While we recognize LBRT's potential as an investment, we believe some AI stocks have greater prospects of delivering higher returns, and within a shorter time frame. If you're looking for an AI stock that's more promising than LBRT but trades at less than 5x earnings, check out our report on it cheapest AI stock.

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Disclosure: None. This article was originally published on Insider Monkey.