Energy use is evolving, but oil and gas remain in the mix.
The way humans create and consume energy is changing. Coal, oil and natural gas have fueled astounding economic growth but at a high price for our health and the environment. The transition to renewable energy is underway, but the world’s factories, homes and automobiles will still mostly rely on fossil fuels for some time. That’s why energy investors may want to consider holding both fossil fuel and renewable companies in their portfolios. Many energy companies are beginning to span both of those worlds. When oil prices rise, so does interest in renewable energy, providing a hedge. New wind and solar generation are now cheaper than new coal and natural gas plants in some places, but those renewable energy options will take time to scale up, meaning there will continue to be a market for fossil fuels, especially natural gas as a transition fuel. Here’s a look at 10 companies occupying different niches in the energy spectrum.
Western Midstream Partners LP (ticker: WES)
“I have no doubts that we will see a transition from fossil fuels to cleaner energy alternatives in the future,” says Robert Johnson, finance professor with Creighton University. “But the transition will be slow and incomplete.” As long as oil and gas are produced for market, there will be room for companies that transport those commodities, such as Western, which also gathers and disposes of water produced in the process of getting oil and gas out of the ground. Western Midstream’s biggest customer is Occidental Petroleum Corp. (OXY), which has substantial backing from Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B). “Buffett likes OXY, so this should be good for WES as well,” says Rob Thummel, senior portfolio manager with TortoiseEcofin.
Cheniere Energy Inc. (LNG)
This exporter of U.S. liquefied natural gas, or LNG, is a “premier energy company that every investor should own given the significance of U.S. LNG and Cheniere’s visible multidecade stream of cash flows,” Thummel says. Cheniere has been benefiting from Europe’s need for non-Russian sources of LNG. On Sept. 12, the company announced an increase in its 2022 guidance for consolidated adjusted earnings before interest, taxes, depreciation and amortization of $1.2 billion, an increase in this quarter’s dividend and a boost to its share repurchase authority. In July, the company announced a deal with Thailand’s largest state-owned energy company.
Civitas Resources Inc. (CIVI)
What sets this oil and gas producer apart is its low cost of operations, says Benjamin Halliburton, chief investment officer with Building Benjamins. That enables high free cash flow and “a fortress balance sheet” with low debt, he says. Halliburton says investor excitement about the sustainability of the company’s free cash flow and dividend could help the stock double over the next year. In the second quarter, Civitas sold 284% more crude oil by volume than it did in the same period a year before. It also sold 351% more natural gas. Its average sale price for a barrel of oil equivalent rose 79%.
Suncor Energy Inc. (SU)
This Canadian energy company’s operations include oil sands development and production, offshore oil and gas, petroleum refining in Canada and the U.S., as well as retail and wholesale distribution networks. On the renewable side, it operates an electric vehicle charging network that spans Canada. The company is selling its wind and solar assets to focus on renewable fuels and hydrogen. One of its planned projects is a hydrogen facility that would capture and store most of the carbon dioxide used in the production process. In the second quarter, oil sands production increased to 641,500 barrels per day from 615,700 in the prior-year quarter.
Bloom Energy Corp. (BE)
That Suncor hydrogen project would reduce Alberta’s carbon dioxide emissions by more than 2 million metric tons per year, but it’s still not the cleanest way to produce hydrogen because it uses natural gas. A cleaner way is to produce hydrogen from water using renewably produced electricity, and Bloom makes electrolyzers that separate water into hydrogen and oxygen. It also makes fuel cell power generation systems that can use hydrogen, biogas and natural gas to produce electricity and can be adopted for utilities and the transportation industry. Last month, Bloom praised the Inflation Reduction Act: “While some companies may benefit from one or two parts of the IRA, we believe that Bloom can capitalize on nine key provisions,” said CEO KR Sridhar. “They range from the hydrogen production tax credit to tax credits for microgrid and biogas equipment, and support for American factories like ours.”
Tidewater Inc. (TDW)
Investing in the energy industry doesn’t always mean buying shares of producers. Investors can also consider companies that enable the producers to do what they do, such as Tidewater, which owns and operates a fleet of vessel that supports offshore energy exploration and production around the world. “Rising energy profit margins tend to fuel growth in the exploration sector and provide companies like Tidewater with a significant growth opportunity,” says John Rothe, chief investment officer with Riverbend Investment Management. Over the longer term, the company appears ready to capitalize on the energy transition, as its expertise and equipment would dovetail with the expansion of the U.S. offshore wind industry.
Orsted AS (DNNGY)
The U.S. 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 coastal cities. Orsted is the world’s largest offshore wind farm developer and was involved in developing two small pilot offshore wind projects in the U.S. It also has a robust pipeline of commercial-scale projects in various stages of development. The company recently increased its EBITDA guidance and reported that EBITDA in the first half of the year excluding new partnerships increased by 48%.
ChargePoint Holdings Inc. (CHPT)
Emily Cozad, portfolio manager with Buckingham Advisors, expects energy prices to remain relatively elevated in the near term. “If oil prices continue to remain high for an extended period, more focus will be placed on companies with renewables and EV exposure,” she says. ChargePoint is an electric vehicle charging company that appears well positioned to take advantage of increasing demand for cars and trucks that run on electricity instead of gasoline. The company says it has delivered more than 133 million charges with its network, which includes charging infrastructure as well as cloud services that allow customers to locate, reserve, authenticate and transact charging sessions.
SunPower Corp. (SPWR)
European integrated oil and gas supermajor TotalEnergies SE (TTE) changed its name last year from Total to reflect a broadening portfolio of energy generation, including developing large solar and wind farms. One of its renewable investments is as a major shareholder of SunPower, which focuses on selling, installing and financing solar panels. The company in June completed the sale of its commercial and industrial solutions business to TotalEnergies and bought provider Blue Raven Solar to focus on the residential sector. In the second quarter, SunPower increased its residential customers to 463,600 from 363,000 in the same period of 2021. SunPower is working with First Solar Inc. (FSLR) to develop “the world’s most-advanced residential solar panels.”
NextEra Energy Inc. (NEE)
NextEra Energy is the world’s largest renewable energy company. In addition to solar and wind generation, NextEra is involved in green hydrogen and battery storage. “The clean energy transition occurring across the U.S. is being accelerated by multiple renewable demand drivers that support our decarbonization strategy,” the company said in a recent presentation. Those drivers include high oil and natural gas prices, corporate sustainability goals, and federal and state incentives. “The recently passed Inflation Reduction Act significantly expanded tax incentives for clean energy, which we believe will further stimulate renewables development in the U.S.,” the company said.
10 best energy stocks to buy in 2022:
— Western Midstream Partners LP (WES)
— Cheniere Energy Inc. (LNG)
— Civitas Resources Inc. (CIVI)
— Suncor Energy Inc. (SU)
— Bloom Energy Corp. (BE)
— Tidewater Inc. (TDW)
— Orsted (DNNGY)
— ChargePoint Holdings Inc. (CHPT)
— SunPower Corp. (SPWR)
— NextEra Energy Inc. (NEE)
More from U.S. News
Update 09/13/22: This story was previously published at an earlier date and has been updated with new information.