Government policies around the world have begun to support the transition away from fossil fuels, but the global economy remains reliant on oil, natural gas and coal.
Because the energy transition is a gradual one, investors may want to consider a portfolio of energy stocks that includes both traditional and renewable energy companies.
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Choose a Diversified Portfolio of Energy Stocks
In theory, as oil and natural gas prices rise, so too would the shares of both fossil fuel companies and renewable energy firms. The Exxon Mobils of the world would benefit in the short term from higher selling prices, while solar, wind and other green energy companies would see demand for their products rise as they become relatively less expensive and higher-priced fossil fuels lose their luster.
But theory and practice don’t always jibe. Although oil and gas companies are doing better as China moves to stimulate its economy while OPEC and its allies have cut production, rising interest rates have been a headwind for renewable energy companies that need to borrow money to build infrastructure.
At the same time, government efforts to phase out fossil fuels over the long term will eat into oil and gas company earnings, unless these companies make much more of a push to transition into renewable energy.
“From a valuation perspective, we have observed that future growth in the renewable energy sector is not currently factored into the valuations of certain stocks.” – Hua Cheng, portfolio manager for Mirova
“In considering energy stocks for investment in 2023, it’s important to have a diversified portfolio that encompasses both traditional fossil fuel companies and promising renewable energy firms,” says Jon Morgan, CEO of business consultancy Venture Smarter.
With that in mind, investors may want to consider the seven energy stocks selected below, as some lean more toward the fossil fuel end of the spectrum while others are part of the renewable end.
Energy Stock Valuations Are Attractive Now
In addition, based on trailing 12-month price-to-earnings multiples, oil and gas company “valuations look attractive compared to the overall market,” says Justin Zacks, vice president of strategy with Moomoo Technologies, which offers a financial information and trading app.
Meanwhile, Zacks notes, renewable energy stocks have underperformed the market this year. The S&P Global Clean Energy Index is down 20.9% year to date as of Sept. 5, while the S&P 500 is up 17.1%.
“From a valuation perspective, we have observed that future growth in the renewable energy sector is not currently factored into the valuations of certain stocks,” says Hua Cheng, portfolio manager with sustainable investment manager Mirova.
Here are seven of the best energy stocks to buy now:
| Energy Stock | Market cap | YTD return as of Sept. 5 |
| Vestas Wind Systems A/S (ticker: OTC: VWDRY) | $22.4 billion | -22.4% |
| Iberdrola SA (OTC: IBDRY) | $73.1 billion | 2% |
| NextEra Energy Inc. (NEE) | $133.6 billion | -19.2% |
| SunPower Corp. (SPWR) | $1.2 billion | -61% |
| Exxon Mobil Corp. (XOM) | $455.7 billion | 5.5% |
| TotalEnergies SE (TTE) | $154.5 billion | 5.5% |
| Cheniere Energy Inc. (LNG) | $40.4 billion | 11.7% |
Vestas Wind Systems A/S (OTC: VWDRY)
This Danish wind turbine manufacturer is Cheng’s top pick for a pure-play renewable energy company. The company’s onshore and offshore wind turbine manufacturing business is benefiting from the global trend toward net-zero carbon emissions and energy independence, he says.
“We have started to see some early signs of improvement on several short-term challenges such as supply chain disruption and high raw materials cost,” Cheng says. “Meanwhile, its service business has been growing at double-digit rates, it generates recurrent and steady revenue and is very profitable, and we expect that to continue.”
Iberdrola SA (OTC: IBDRY)
This Spanish multinational electric utility company is a leading utility in wind and solar generation in Europe, the U.S. and Latin America. It’s also the parent company of Avangrid Inc. (AGR), an energy services and delivery company heavily involved in renewables.
Iberdrola is one of Cheng’s top picks for utilities with diversified energy generation sources.
The company has “proven operational excellence with solid track records over the last decade, financial strength and resilience to support future growth, and visible and diversified business opportunities, particularly from renewable energy such as solar, wind and also hydrogen over the long term,” Cheng says.
NextEra Energy Inc. (NEE)
Cheng says the same thing about this Florida-headquartered utility, which is often cited by experts as a top 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 renewable sources, including wind and solar. The company is also involved with green hydrogen.
“NextEra Energy stands out due to its pioneering role in renewable energy, with a robust portfolio of wind and solar assets,” Morgan says. “Their strategic investments in sustainable technologies position them to take advantage of the growing demand for clean energy solutions.”
SunPower Corp. (SPWR)
Having a big investor buy into a company can offer investors in the smaller entity a measure of peace of mind. First, the larger company did its due diligence and came out the other side thinking the company was worth investing in. And, if the smaller company gets into trouble, it may have a backstop in the form of the bigger company. Or it may enjoy other support.
As an example, in 2011, when the company that is now TotalEnergies announced it would buy a controlling stake in solar company SunPower, the acquiring company said it would provide SunPower up to $1 billion in credit support over the following five years.
In February of last year, TotalEnergies said it would buy SunPower’s commercial and industrial solutions business, allowing the smaller company to focus on its high-growth residential business.
The residential solar market isn’t currently treating SunPower well, as higher interest rates have made solar panels relatively less attractive in areas of the country experiencing lower utility rates, such as in the Southeast and Southwest.
But that might make the stock a bargain. Over the long term, the company may have upside potential because of the expected expansion in home solar systems.
“Rooftop solar is expected to be the fastest-growing segment in the global power industry,” according to stock analysis service Trefis. “This is a big positive for SunPower, given that the company specializes in higher-efficiency solar panels that are well suited for rooftop applications.”
[READ 5 of the Best Stocks to Buy Now]
Exxon Mobil Corp. (XOM)
This Texas company is spending billions to reduce its own carbon emissions and those of third parties, as well as on hydrogen and carbon capture and sequestration technologies.
But Exxon is still very much a fossil fuels company, with its oil and gas unit earning more than $11 billion in the first half of this year and its energy products division bringing in $6.5 billion, an increase of 28% over the first half of 2022.
“As one of the world’s largest publicly traded oil and gas companies, Exxon Mobil has a history of strong operational performance and global reach,” Morgan says. “Exxon Mobil benefits from its extensive experience and vast reserves in the fossil fuel sector, allowing it to adapt and potentially pivot its operations toward cleaner energy sources over time.”
TotalEnergies SE (TTE)
This French oil company has been expanding into renewable resources for some time, aiming to be a leader among companies straddling both the fossil fuel and clean energy worlds as the globe gradually weans itself from oil and gas.
In addition to its investment in SunPower, TotalEnergies has been broadening its portfolio of energy generation, including developing large solar and wind farms. As for fossil fuels, the company is a low-cost oil producer, giving it extra margin.
In July, production began in a natural gas field off the coast of Azerbaijan in which TotalEnergies has a stake. The company is planning a second phase to increase production there to 5.5 billion cubic meters per year from 1.5 billion.
But as with other company activities, TotalEnergies is mixing in renewable energy, with plans to develop a potential 500 megawatts of wind and solar energy in Azerbaijan.
Cheniere Energy Inc. (LNG)
While the initial natural gas from that Azerbaijani offshore field will be sold domestically, TotalEnergies plans to sell gas from the expansion phase to Europe, which has been desperate to wean itself from Russian energy sources after the invasion of Ukraine.
The war there has already caused Europe to import more natural gas from the U.S., the world’s biggest producer and exporter of the commodity.
Much of those exports have been in the form of liquefied natural gas, which is Cheniere’s specialty. 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.
Cheniere has also proven that its stock can be stable in uncertain economic conditions, as its shares are up 11.7% year to date as of Sept. 5, outperforming the other energy picks on this list.
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7 Best Energy Stocks to Buy in 2023 originally appeared on usnews.com
Update 09/06/23: This story was previously published at an earlier date and has been updated with new information.
