Renewable sources of energy, such as wind and solar, are gaining traction as the world seeks to reduce carbon emissions. But, at the moment, the globe doesn’t have nearly enough renewable electricity generation — or the battery storage to make grids more reliable — to make full electrification possible.
That means oil and especially natural gas will remain in the mix for some time. So, energy investors may want to have a portfolio that contains both traditional oil and gas companies, as well as pure-play renewable energy companies.
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“Energy is a commodity that everyone needs and continues to need, and while we’re on our way toward renewables, oil and gas are going to be the bridge that’s required to keep society functioning,” says James Hill, CEO of MCF Energy Ltd., a gas and oil exploration and production company.
Consider these 10 energy stocks representing both fossil fuels and renewables:
— Williams Cos. Inc. (ticker: WMB)
— NOV Inc. (NOV)
— Marathon Petroleum Corp. (MPC)
— Cheniere Energy Inc. (LNG)
— MPLX LP (MPLX)
— Diamondback Energy Inc. (FANG)
— TotalEnergies SE (TTE)
— Orsted A/S (DNNGY)
— Vestas Wind Systems A/S (VWDRY)
— NextEra Energy Inc. (NEE)
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Williams Cos. Inc. (WMB)
The U.S. can’t just switch to renewable energy, such as that produced by solar and wind farms, overnight because there isn’t enough storage capacity online, says Sam Horn, senior investment analyst with the Polaris Global Value Fund.
Building storage capacity involves expensive commodities like lithium and nickel, which increase the cost of building that storage, making renewables more expensive, he says.
That means natural gas will stick around as a transition fuel. Within the U.S., natural gas is often transported by pipeline, and Williams operates one of the largest pipeline networks in the nation.
“While we’re on our way toward renewables, oil and gas are going to be the bridge that’s required to keep society functioning.” – James Hill, CEO of MCF Energy Ltd.
But it’s not just demand for the company’s pipeline network that makes it attractive.
Horn points to the company’s goal of a 56% reduction in greenhouse gas emissions by 2030.
“Gas is here to stay for the foreseeable future,” Horn says. “Instead of shunning those companies, we need to look at ways that oil companies are trying to make their production greener.”
NOV Inc. (NOV)
In an era of rising popularity of environmental, social and governance, or ESG, risk assessment for companies, even hydrocarbon producers have begun to inventory things they say help reduce emissions.
Horn points to NOV, which provides equipment and technology to the upstream oil and gas industry, and says it historically has recycled approximately 60% of the total waste it generates.
The company has also introduced products that reduce the emissions profile of its customers’ oil and gas operations.
Also, NOV seems to be well positioned to supply the renewable energy economy as it designs, builds, installs and supports renewable energy equipment and technology, with a focus on wind and solar.
Marathon Petroleum Corp. (MPC)
Marathon Petroleum is an independent oil and gas refiner focused primarily on the U.S. Midwest, West Coast and Gulf Coast regions.
It refines crude oil and other feedstocks, purchases ethanol and refined products for resale, and distributes the products using barges, terminals and trucks owned or operated by the company.
Its Speedway retail business segment sells transportation fuels through more than 2,700 stores. The company also owns and operates crude oil and refined product pipelines.
Horn points out that the company converted a petroleum refinery into a renewable diesel facility that became fully operational in 2021 as the second-biggest endeavor of its kind in the U.S.
Marathon is also converting its Martinez Refinery in California — a joint venture with Neste Corp. (NESTE) — to produce renewable diesel. It’s expected to ramp up to full capacity by the end of this year.
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Cheniere Energy Inc. (LNG)
The war in Ukraine exposed Europe’s dependence on Russian natural gas. As Europe weans itself from that source, it has been importing more natural gas from the U.S.
Amid the boom, Cheniere Energy — which operates liquefied natural gas terminals and liquefaction projects — is the biggest U.S. exporter.
“Gas is here to stay for the foreseeable future. Instead of shunning those companies, we need to look at ways that oil companies are trying to make their production greener.” – Sam Horn, senior investment analyst, Polaris Global Value Fund
The company has one of the biggest liquefaction platforms in the world, with facilities in Louisiana and Texas, and it says it is also pursuing liquefaction expansion opportunities.
In addition to its exposure to higher exports of LNG as well as crude oil, Brian Kessens, portfolio manager at Tortoise, likes Cheniere’s exposure to low-cost natural gas from the Permian Basin, its investment-grade credit rating and decreasing debt.
MPLX LP (MPLX)
Those reasons also underpin another of Kessens’ top picks, MPLX, which engages in the operation of midstream energy infrastructure and logistics assets and distribution fuels services.
But, as with Cheniere, he also likes how the company’s growing free cash flow is increasingly allocated to dividends and share buybacks, as well as its well-regarded management team with a strong track record on execution and good cost control.
Diamondback Energy Inc. (FANG)
Like Cheniere and MPLX, Diamondback also has exposure to the Permian Basin, a prolific oil- and gas-producing area in West Texas and New Mexico.
That’s a plus in Kessens’ book, along with the above attributes that Diamondback shares with Cheniere and MPLX.
All of those companies, including Diamondback, should see their shares rise amid greater appreciation for companies with strong free cash flow in 2023, healthy balance sheets that could weather a potential recession, and disciplined management teams, he says.
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TotalEnergies SE (TTE)
TotalEnergies is a low-cost oil producer, giving it extra margin. Its large size also means that it’s much better prepared to weather the ups and downs of the cyclical energy market.
And, as the world shifts toward renewable energy, so does this European integrated oil and gas producer. The French company is broadening its portfolio of energy generation, including developing large solar and wind farms.
But it isn’t giving up on fossil fuels anytime soon. In December, the company announced that it and its partners had won a new exploration license in a Brazilian petroleum-bearing basin.
Orsted A/S (DNNGY)
This Danish company is at the forefront of the offshore wind boom in the U.S., which has lagged behind Europe and Asia in developing massive ocean-based wind farms that supply power to coastal cities.
The U.S. is a big growth market for Orsted, the world’s largest offshore wind farm developer. The company also operates onshore wind farms.
Vestas Wind Systems A/S (VWDRY)
This wind turbine manufacturer also stands to benefit from the offshore wind boom in the U.S., as the Biden administration pushes for 30 gigawatts of offshore wind generation capacity by 2030.
The company also makes wind turbines for onshore wind farms, where the U.S. has been a significant market for years. For example, in addition to securing several international wind turbine orders this month in Germany, Finland, South Africa and South Korea, Vestas announced it will supply 13 turbines for the Prescott wind project in Iowa.
NextEra Energy Inc. (NEE)
With a market capitalization of $151 billion, NextEra Energy is the world’s largest renewable energy company. Its regulated utility segment engages primarily in the generation, transmission, distribution and sale of electric energy in Florida. Another segment produces electricity from clean and renewable sources, including wind and solar.
In addition to solar and wind generation, NextEra is involved in battery storage and green hydrogen. NextEra has more than 180 megawatts of battery energy storage systems in operation, and that business is expected to blossom in the coming years as the company hones its long-term alternative energy strategy.
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10 Best Energy Stocks to Buy in 2023 originally appeared on usnews.com
Update 03/29/23: This story was previously published at an earlier date and has been updated with new information.
