These 10 energy stocks are getting a boost amid global upheaval.
Oil and natural gas prices were already on the rise before Russia invaded Ukraine, as the global economy was getting back on its feet in the aftermath of the pandemic but supply wasn’t keeping pace. The Ukraine war has boosted prices even further. “The longer the war lasts, the higher likelihood of increased sanctions driving oil prices higher,” says Rob Thummel, senior portfolio manager with Tortoise. “Alternatively, any sign of a ceasefire or offer of peace will alleviate higher oil prices.” Higher prices for fossil-fuel-generated electricity can also make renewable sources of energy, such as solar and wind, more attractive. Here’s a look at 10 of the best traditional energy companies and renewable energy stocks, as the world attempts to transition away from fossil fuels.
Occidental Petroleum Corp. (ticker: OXY)
Investors often take cues from Warren Buffett, one of the most famous billionaire investors. The Oracle of Omaha’s company, Berkshire Hathaway Inc. (BRK.B), has been amassing shares of Occidental Petroleum, which explores for and produces oil and natural gas. With a 14.6% stake, Berkshire is now the biggest owner of OXY stock. “This is a bit unusual for Mr. Buffett to take such a large position in a publicly traded company because once he breached the 10% threshold, he must report purchases within two business days,” says Creighton University finance professor Robert Johnson. “My belief is that if OXY were to fall substantially in price, Buffett would seek to increase his stake even further — perhaps looking to purchase the entire firm.” If that’s the case, it provides protection for investors if the stock’s price were to start slipping, he says. A potential acquisition aside, OXY has a relatively attractive forward price-to-earnings ratio and a robust stock repurchase plan, he says.
Chevron Corp. (CVX)
While Chevron is one of the largest producers of fossil fuels in the world, it is also investing in carbon capture and storage technology. “For those looking for a balance between fossil-based and clean energy alternatives, then it may be the best choice now,” says Kunal Sawhney, CEO of Kalkine Group. After returning about 40% year to date, Chevron’s stock is toward the higher end of valuations but still worth exploring, he says, noting the company’s robust cash flow from operations, which gives it the ability to boost its dividend. Its track record is promising: The company has raised its dividend each year for more than three decades.
NextEra Energy Inc. (NEE)
NextEra Energy is the biggest publicly traded electric utility company by market value and is a leader in the transition from fossil fuels to renewable energy, with much of its generation coming from solar and wind. In February, the company announced a dividend increase of approximately 10% and said it expects to grow its dividend by 10% annually through 2024. Companies that can grow their dividends are often more financially sound than those that can’t, and utilities such as NextEra are often considered defensive holdings because homes and businesses are going to need electricity regardless of what the economy is doing. That can provide a hedge against the volatility inherent with oil and natural gas producers.
SunPower Corp. (SPWR)
As part of the energy transition, oil and natural gas major TotalEnergies SE (TTE) is a majority shareholder of SunPower, which focuses on selling, installing and financing solar panels. After falling about 30% over the past year, SPWR is a bargain, Sawhney says: “The stock is economical now. It could be the best pick for a long hold.” He says the company’s foray into the microgrid market will be significant. Microgrids are local energy grids that can operate separately from main grids. They can serve specific sites, such as hospital complexes or business parks.
Sunrun Inc. (RUN)
California has placed on hold a controversial plan to change the way rooftop solar users are compensated when they provide extra power to the grid. That indefinite pause should help California-based Sunrun’s shares, which have been weighed down by the proposed rule change, says Peter Krull, CEO with Earth Equity Advisors. Sunrun provides solar panels and batteries for purchase or lease. In 2021, the company added more than 110,000 customers and said it entered this year with a record backlog of orders. “The growth opportunity for the solar industry is massive,” the company said in February, when it released fourth-quarter and full-year 2021 financial results. “Today, only 4% of the 77 million addressable homes in the U.S. have solar.”
Hannon Armstrong Sustainable Infrastructure Capital Inc. (HASI)
Hannon Armstrong provides capital to companies involved in energy efficiency, renewable energy and other sustainable infrastructure markets and claims to be the first U.S. public company solely focused on climate solution investments. Last year, the company increased its revenue by 14%, and in February it said its annual distributable earnings per share are expected to grow at a compound annual rate of 10% to 13% from 2021 to 2024 from a 2020 baseline. It expects annual dividends to grow at a compound annual rate of 5% to 8%. Even without that growth, the company’s current dividend yield of more than 3% is attractive.
Cheniere Energy Inc. (LNG)
The U.S. used to import liquefied natural gas, or LNG, but the shale gas boom and investment in facilities that liquefy the gas have made the nation into the world’s biggest exporter of the commodity. Amid the boom, Cheniere Energy, which operates LNG terminals and liquefaction projects, is the biggest U.S. exporter. The company has one of the largest liquefaction platforms in the world, with facilities in Louisiana and Texas, and it says it is also pursuing liquefaction expansion opportunities. Natural gas emits a lower amount of greenhouse gases than coal when burned to make electricity, and it is considered a key component of the energy transition. “U.S. natural gas is decarbonizing when it replaces coal,” Thummel says.
Plains All American Pipeline LP (PAA)
This energy infrastructure company owns pipelines, transportation, terminals, storage and gathering assets for crude oil, natural gas liquids and natural gas. Its operations in the Permian Basin are particularly attractive to Thummel because of the growth potential for the fossil fuel producing area in Texas and New Mexico. “In the long term, the U.S. needs to produce more oil to use domestically or for export, and the source of new supply will be the Permian Basin in West Texas,” he says. “Plains owns critical infrastructure that is essential for the U.S. to maintain energy security.”
Enbridge Inc. (ENB)
Companies that can offer energy security with fossil fuels but that also participate in the energy transition “will be long-term winners for investors,” Thummel says. He sees energy infrastructure stock Enbridge as one of these. The company moves about 30% of the crude oil produced in North America and transports nearly 20% of the natural gas consumed in the U.S. It also operates North America’s third-largest natural gas utility in terms of customers, giving it some cushion against fluctuations in oil and natural gas prices. The company also invests in renewable energy projects. “Enbridge has been a leader in the energy transition, investing in wind and solar projects as well as pilot projects for hydrogen,” Thummel says.
Orsted (DNNGY)
One area in the renewable energy market that has a lot of room for growth is offshore wind in U.S. waters. The nation has been a leader in onshore wind farms but has lagged behind Europe and Asia when it comes to offshore wind production facilities, which have the potential to provide significant electricity to cities on the East Coast and West Coast. A longtime player in the offshore wind market abroad, Orsted is well placed to benefit from the expected boom in U.S. offshore wind. In the fourth quarter, the company’s net profit rose 49% year on year. Earnings before interest, taxes, depreciation and amortization for its offshore business rose 27%.
10 energy stocks that could pick up steam in 2022:
— Occidental Petroleum Corp. (OXY)
— Chevron Corp. (CVX)
— NextEra Energy Inc. (NEE)
— SunPower Corp. (SPWR)
— Sunrun Inc. (RUN)
— Hannon Armstrong Sustainable Infrastructure Capital Inc. (HASI)
— Cheniere Energy Inc. (LNG)
— Plains All American Pipeline LP (PAA)
— Enbridge Inc. (ENB)
— Orsted (DNNGY)
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10 of the Best Energy Stocks to Buy for 2022 originally appeared on usnews.com
Update 03/29/22: This story was published at an earlier date and has been updated with new information.
