Investors have had a healthy dose of skepticism about energy stocks over the past year. A sluggish recovery in China has muddled the demand picture. However, Brent crude has stabilized between $75 and $90, a profitable price for energy stocks. At the same time, demand for natural gas, particularly liquefied natural gas, is rising due to its important role in the energy transition.

Over the next decade, the bullish case for energy stocks is straightforward. First, oil and gas cannot be reused, and oil fields deplete over time, meaning there must be continuous reserve replacement to meet existing demand. Secondly, demand is growing, driven by the surging energy needs of emerging market economies. According to the International Energy Agency, global oil demand will rise by 1.1 million barrels per day in 2024.

As long as the global economy keeps expanding, these energy stocks will experience growing demand for their products. Today, valuations are reasonable since they trade at a forward price-to-earnings under 10. Plus, you benefit from their generous cash return programs.

Coterra Energy (CTRA)

Formed by the combination of Cabot Oil & Gas and Cimarex Energy, Coterra Energy (NYSE:CTRA) is an oil and gas play with three high-quality assets in the Anadarko, Marcellus and Permian basins. These top-tier acreage positions have an estimated life of over 15 years.

The growing power demand from artificial intelligence, data centers, electrification and reshoring buttresses the bullish case for Coterra. For instance, Goldman Sachs (NYSE:GS) estimates AI will lead to a 160% increase in data center power demand. These surging energy needs create increased demand from natural gas-fired power plants.

In Q1 2024, natural gas accounted for 72% of its production mix and 38% of revenues. Besides gas production, Coterra also generated 50% of its revenues from oil, presenting a diversified revenue base. This mix has allowed the company to shift production to more oil when gas prices are depressed like they are currently.

As of this writing, Coterra is one of the most undervalued energy stocks at 9 times forward earnings. As more LNG export capacity ramps up in late 2024 and into 2025, gas prices will rebound, boosting the stock. Still, the company expects 2024 free cash flow of $1.3 billion and had a $1.4 billion remaining repurchase authorization as of March 31.

EQT (EQT)

This Appalachian basin producer will benefit from the same tailwinds mentioned above. Although natural gas prices are currently depressed at $2.18/MMBtu, the natural gas futures curve predicts a recovery in 2025. Even energy lenders predict a recovery, which bodes well for EQT (NYSE:EQT), which has significant upside considering its trading at a dirt cheap 9 times forward earnings.

Since 2019, the independent producer has been on an acquisition spree, scooping up midstream assets. A key deal was the recent acquisition of midstream operator Equitrans Midstream on March 11. This combination created a vertically integrated natural gas company with 90% of production flowing through EQT assets.

Although the deal initially raised questions, management revealed in Q1 2024 that it would lower gathering costs. As a result, they estimate they will lower breakeven costs by about 20%. Now, management projects that the natural gas producer can generate free cash flow at a gas price of $2/MMBtu.

Considering its low-cost production profile and vertical integration, EQT is one of the top energy stocks to buy today. Moreover, with 1,100,000 core net acres providing inventory depth and 3,000 miles of pipeline, it can generate free cash flow through the economic cycle.

Permian Resources (PR)

One of the top energy stocks to buy is Delaware Basin’s largest pure-play exploration and production company, Permian Resources (NYSE:PR). It owns over 400,000 net acres and about 68,000 royalty acres, with potential production of 320,000 barrels of oil equivalent per day in fiscal year 2024.

In recent years, management has created a lot of shareholder value through bolt-on acquisitions. For instance, in November 2023, it completed the $4.5 billion acquisition of Earthstone Energy. Consequently, Q1 2024 results revealed that the acquisition led to production outperformance. Furthermore, management raised its annual synergy target from $50 to $225 million.

These impressive results speak to the strength of its continuous portfolio optimization strategy. To that end, Permian Resources continues to pursue more deals. In Q1 results, it disclosed it has added another 11,200 net acres and 110 locations in the Delaware Basin.

Lastly, management has skin in the game and owns over 7% of shares outstanding. They have focused on dividends and buybacks, committing to returning at least 50% free cash flow to shareholders. In Q1 2024, it generated an adjusted free cash flow of $324 million and returned $185 million to shareholders. As total production grows by 2% in 2024, expect management to enhance the generous shareholder returns.

On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.