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We like the oil and natural gas industry and believe that these stocks provide protection against inflation and a decline in the value of US dollar. We also think that the high growth rates in emerging markets support energy prices. Investors should consider getting exposed to these sectors both as a growth play and an inflation play. We use hedge fund holdings as a starting point in determining which are the most attractive stocks in this sector. Based on the transactions of nearly 350 hedge funds we compiled, we present the list of top 10 oil & gas stocks that hedge funds are buying like crazy:

Company

Ticker

No. hedge funds

BP PLC

BP

53

Anadarko Petroleum Corp

APC

48

Williams Co.

WMB

48

Halliburton

HAL

47

Exxon Mobil Corp

XOM

46

Occidental Petroleum Corp

OXY

43

Schlumberger

SLB

42

Chevron Corp

CVX

38

Marathon Oil

MRO

36

Baker Hughes Inc.

BHI

36


BP PLC (NYSE:BP): More hedge funds (of the more than 350 that we track) owned BP than any other oil & gas stock. The stock returned 2% year to date. Fifty-three hedge funds had the stock in their portfolios in Q3. Seth Klarman’s Baupost Group had more shares than any other hedge funds. The firm boosted its position by 150% and reported 13.74 million shares at the end of September.

Anadarko Petroleum Corp (NYSE:APC): APC was in 48 hedge funds in the third quarter. The stock has returned 3% year to date. John Paulson’s Paulson & Co had significantly more shares in APC than any other hedge funds. The firm still had 14.17 million shares of APC after it decreased its position by 15% (check John Paulson’s favorite stocks).

Williams Co. (NYSE:WMB): Forty-eight hedge funds had Williams in their portfolios as of the end of September. The stock returned 37% so far this year. James Crichton and Adam Weiss’ Scout Capital Management increased their position by 145% last quarter. The firm had 14.59 million shares of WMB at the end of Q3.

Halliburton (NYSE:HAL): Halliburton lost 16% year to date. Forty-seven hedge funds had HAL in their portfolios at the end of September. Ken Fisher’s Fisher Asset Management slightly increased its position by 2% last quarter. It had 5.68 million shares of HAL at the end of the third quarter.

Exxon Mobil Corp (NYSE:XOM): The stock beat the S&P's 3% loss year to date, returning 19%. Forty-six hedge funds had XOM in their portfolios in Q3. Ken Fisher’s Fisher Asset Management had 7.15 million shares in the stock. The firm did not make changes to its XOM position during the third quarter.

Occidental Petroleum Corp (NYSE:OXY): The stock is breaking even so far in 2011. OXY was in 43 hedge funds' portfolios in the third quarter. Ralph V. Whitworth’s Relational Investors had 6.62 million shares last quarter, unchanged from Q2.

Schlumberger (NYSE:SLB): SLB is one of the three losers in this list. It lost nearly 17% so far this year, and the 42 hedge funds that had it in their portfolios in the third quarter probably aren't happy about it. Ken Fisher's Fisher Asset Management has the most shares among the more than 350 hedge funds we track. The firm had more than 8 million shares at the end of September (see billionaire Ken Fisher’s top stock picks).

Chevron Corp (NYSE:CVX): CVX has gained 22% so far this year. The stock was in 38 hedge funds’ portfolios last quarter. Phill Gross and Robert Atchinson’s Adage Capital Management decreased its position by 5% and had 2.88 million shares at the end of the third quarter.

Marathon Oil (NYSE:MRO): Thirty-six hedge funds had MRO in their portfolios in the third quarter. The stock returned 34% year to date. Cliff Asness’ AQR Capital Management had the biggest interest in MRO in Q3, with 2.62 million shares. That figure is after the 107% increase in the position last quarter (see Cliff Asness’ stock picks).

Baker Hughes Inc. (NYSE:BHI): BHI was owned by 36 hedge funds as of September 30. The stock lost 12% so far in 2011. Jason Capello’s Merchants' Gate Capital had the most shares in BHI among the hedge funds we track. The firm boosted its position by 26% and had 4.08 million shares last quarter.

Overall, several stocks in this list skyrocketed this year. As a group, these stocks beat the market. These 10 stocks averaged a return of 7% year to date, compared with the SPY's return of 3%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Top 10 Oil And Gas Stocks Loved By Hedge Funds